CWT International Limited — Proxy Solicitation & Information Statement 2015

Jan 26, 2015

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 a 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 and the accompanying 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.

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

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SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 15.01% EQUITY INTEREST IN QINGHAI SALT LAKE

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

Guotai Junan Capital Limited

A letter from the Board is set out on pages 4 to 12 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders is set out on pages 13 to 14 of this circular. A letter from Guotai Junan, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 15 to 30 of this circular.

A notice convening the SGM of Sinofert Holdings Limited to be held at Drawing Room, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on 12 February 2015 at 10:00 a.m. is set out on pages 128 to 129 of this circular. Whether or not you are able to attend and vote at the meeting, 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, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the form of proxy as instructed will not preclude you from subsequently attending and voting at the meeting or any adjourned meeting if you so wish.

• For identification purposes only

27 January 2015

CONTENTS

			Page
DEFINITIONS.	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . .			13
LETTER FROM GUOTAI JUNAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			15
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP. . . . . . . .	31
APPENDIX II	–	FINANCIAL INFORMATION OF
		QINGHAI SALT LAKE. . . . . . . . . . . . . . . . . . . . . . . . . .	33
APPENDIX III	–	MANAGEMENT DISCUSSION AND ANALYSIS OF
		QINGHAI SALT LAKE. . . . . . . . . . . . . . . . . . . . . . . . . .	109
APPENDIX IV	–	PRO FORMA FINANCIAL INFORMATION OF
		THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	117
APPENDIX V	–	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	123
NOTICE OF SPECIAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . .			128

– i –

DEFINITIONS

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

• “Acquisition”

the proposed acquisition of 238,791,954 shares of Qinghai Salt Lake, representing 15.01% of its total issued share capital

• “associate(s)” has the same meaning ascribed to it under the Listing Rules

• “Board” the board of Directors of the Company

• “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 same meaning ascribed to it under the Listing Rules

• “controlling shareholder” has the same meaning ascribed to it under the Listing Rules

• “Director(s)” the director(s) of the Company

• “Group” the Company and its subsidiaries

• “HK$” Hong Kong dollars, the lawful currency of Hong Kong

• “Hong Kong” The Hong Kong Special Administrative Region of the PRC

• “Independent Board Committee” the independent board committee of the Company formed to advise the Independent Shareholders in respect of the terms of the Acquisition, comprising all independent non-executive Directors, namely Mr. Ko Ming Tung, Edward and Mr. Tse Hau Yin, Aloysius

• “Independent Financial Adviser” or “Guotai Junan”

Guotai Junan Capital Limited, a licensed corporation under the SFO to engage in type 6 (advising on corporate finance) regulated activity, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition

– 1 –

DEFINITIONS

• “Independent Shareholders”

• shareholders other than Sinochem Group and its associates

• “Latest Practicable Date” 19 January 2015, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• “Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

• “Option” an option granted by Sinochem Group to Sinochem Fertilizer on 25 December 2008, pursuant to which Sinochem Fertilizer may require Sinochem Group to sell its entire shareholding in Qinghai Salt Lake at fair market value

• “PRC” or “China” the People’s Republic of China, which for the purposes of this circular only, excludes Hong Kong, Macao Special Administrative Region and Taiwan

• “Qinghai Salt Lake” 青海鹽湖工業股份有限公司 (Qinghai Salt Lake Industry Co., Ltd., formerly known as 青海鹽湖鉀肥股份有限公司 (Qinghai Salt Lake Potash Co. Ltd.)), a joint stock limited liability company established in the PRC whose shares are listed on the Shenzhen Stock Exchange

• “RMB”

• Renminbi, the lawful currency of the PRC

• “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 held at Drawing Room, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on 12 February 2015 at 10:00 a.m., or any adjournment thereof, the notice of which is set out on pages 128 to 129 of this circular

• “Share(s)”

• ordinary share(s) of HK$0.10 each in the capital of the Company

– 2 –

DEFINITIONS

• “Share Transfer Agreement” the share transfer agreement proposed to be entered into between Sinochem Fertilizer (as purchaser) and Sinochem Corporation (as seller) in relation to the Acquisition

• “Shareholder(s)” registered holder(s) of Share(s)

• “Sinochem Corporation” 中國中化股份有限公司 (Sinochem Corporation), a joint stock company with limited liability established under the laws of the PRC, an immediate holding company of Sinochem HK, and a subsidiary of Sinochem Group

• “Sinochem Fertilizer” 中化化肥有限公司 (Sinochem Fertilizer Company Limited), a limited liability company incorporated in the PRC and an indirect wholly-owned subsidiary of the Company

• “Sinochem Group” 中國中化集團公司 (Sinochem Group), a state-owned enterprise incorporated in the PRC and the ultimate controlling shareholder 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 and is the immediate controlling shareholder of the Company

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

• “subsidiary(ies)” has the same meaning ascribed to it under the Listing Rules

• “%” percent

For the purposes of illustration only, the exchange rate of RMB1.00 = HK$1.264 has been used for currency translation. No representation is made that any amount in RMB has been or could be converted at the above rate or at any other rates or at all.

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LETTER FROM THE BOARD

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SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

Executive Directors: WANG Hong Jun (Chief Executive Officer) Harry YANG

Non-executive Directors: LIU De Shu (Chairman) YANG Lin Stephen Francis DOWDLE XIANG Dandan

Independent Non-executive Directors: KO Ming Tung, Edward TSE Hau Yin, Aloysius

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

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

27 January 2015

To: the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 15.01% EQUITY INTEREST IN QINGHAI SALT LAKE

INTRODUCTION

Reference is made to the announcement of the Company dated 9 December 2014 in relation to Sinochem Fertilizer’s proposed acquisition of 15.01% equity interest in Qinghai Salt Lake, which constitutes a major and connected transaction of the Company and is subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules.

* For identification purposes only

– 4 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with (i) further information on the details of the Share Transfer Agreement and the Acquisition; (ii) the letter of advice from the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; (iv) the notice of the SGM; and (v) other information as required under the Listing Rules.

MAJOR AND CONNECTED TRANSACTION

As disclosed in the announcement of the Company dated 28 December 2008, in order to fulfil Sinochem Group’s obligations under a non-competition undertaking entered into by Sinochem Group in favour of the Company on 6 June 2005, Sinochem Group has granted the Option to Sinochem Fertilizer on 25 December 2008, conferring the rights to Sinochem Fertilizer, at the discretion of the Company, to require Sinochem Group to sell its then entire shareholding in Qinghai Salt Lake at fair market value to it, provided that such sale and purchase shall comply with all the requirements under the PRC laws, rules and regulations and other documents issued by the competent authorities effective at the time.

In 2009, Sinochem Corporation was established and Sinochem Group transferred its interest in Qinghai Salt Lake to Sinochem Corporation. On 20 July 2009, Sinochem Corporation issued a lock-up undertaking, pursuant to which, Sinochem Corporation shall not trade on the Shenzhen Stock Exchange or otherwise transfer any of Qinghai Salt Lake’s shares held by it for a period of 36 months commencing from the date on which Qinghai Salt Lake’s shares were registered under the name of Sinochem Corporation (i.e. 15 March 2011).

Given that the above lock-up period expired on 15 March 2014 and the share price of Qinghai Salt Lake reached its low level at mid-year 2014, after careful deliberation, the Board considered that it is an appropriate time to exercise the Option and announced on 9 December 2014 that it resolved to exercise the Option. In this connection, Sinochem Fertilizer proposed to enter into the Share Transfer Agreement with Sinochem Corporation, pursuant to which Sinochem Fertilizer shall acquire, and Sinochem Corporation shall sell, 238,791,954 issued shares of Qinghai Salt Lake, representing 15.01% of its total issued share capital, at a total consideration of RMB3,890,101,118.75 (equivalent to HK$4,917,087,814.10).

As at the Latest Practicable Date, Sinochem Fertilizer owns 142,260,369 shares of Qinghai Salt Lake, representing 8.94% of its total issued share capital. Upon completion of the Acquisition, Sinochem Fertilizer will hold 381,052,323 shares of Qinghai Salt Lake, representing 23.95% of the total issued share capital and will become the second largest shareholder of Qinghai Salt Lake. Furthermore, on 6 November 2014, Qinghai Salt Lake announced its plans to raise RMB5.4 billion through non-public issue of no more than 331,491,713 shares, upon completion of which, Sinochem Fertilizer’s interest in Qinghai Salt Lake will be diluted to approximately 19.82%. The Company currently does not have any intention to acquire additional interests in Qinghai Salt Lake.

– 5 –

LETTER FROM THE BOARD

Sinochem Fertilizer and Sinochem Corporation have finalized the terms of the Share Transfer Agreement. After the approval from the Independent Shareholders is obtained at the SGM, Sinochem Fertilizer and Sinochem Corporation will enter into the Share Transfer Agreement, which will contain substantially the same terms as those disclosed in this circular and to be approved by the Independent Shareholders at the SGM. If the signed Share Transfer Agreement contains material terms that are not disclosed in this circular, or major amendments are made to the terms disclosed in this circular, the Company will make further announcement and seek approval from the Independent Shareholders with respect to such amendments or changes in the terms.

Principal Terms of the Share Transfer Agreement

Parties

Purchaser: Sinochem Fertilizer Seller: Sinochem Corporation

Interest to be acquired

238,791,954 shares of Qinghai Salt Lake, representing 15.01% of its total issued share capital.

Consideration

The total consideration for the Acquisition is RMB3,890,101,118.75 (equivalent to HK$4,917,087,814.10).

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 RMB16.29 per share represents 90% of the 30-trading day average of the daily volume weighted average price of approximately RMB18.10 per share from 20 August 2014 to 8 October 2014 (being the last trading day of the shares of Qinghai Salt Lake preceding the date of the indicative announcement of Qinghai Salt Lake in relation to the Acquisition). The consideration per share of RMB16.29 also represents an approximately 27.63% discount to Qinghai Salt Lake’s closing price of RMB22.51 per share on 8 December 2014.

The Company is considering a number of options for financing the Acquisition, including internal cash resources and debt financing. As at 30 November 2014, the Group had unutilized banking facilities of RMB6.78 billion and USD1.75 billion, which, together with internal cash resources of the Group, provide sufficient working capital to settle the consideration and for the Group’s operation in the coming twelve months.

– 6 –

LETTER FROM THE BOARD

Payment

The consideration for the Acquisition shall be paid by Sinochem Fertilizer to Sinochem Corporation in cash in two instalments as follows:

• (a) unless otherwise waived by Sinochem Corporation in accordance with (c) below, within five business days of signing of the Share Transfer Agreement, Sinochem Fertilizer shall pay 30% of the consideration as deposit to Sinochem Corporation in cash;

• (b) within ten business days upon satisfaction of the condition of the Acquisition, Sinochem Fertilizer shall pay the remaining 70% of the consideration to Sinochem Corporation in cash; and

• (c) where Sinochem Corporation, upon approval by SASAC, waives the deposit payment as described in (a) above, Sinochem Fertilizer shall pay the consideration in full within ten business days upon satisfaction of the condition of the Acquisition.

Condition of the Acquisition

Sinochem Fertilizer and Sinochem Corporation will enter into the Share Transfer Agreement after the approval from the Independent Shareholders is obtained at the SGM. The Acquisition is conditional upon the obtaining of the approval from SASAC and relevant authorities with respect to the Share Transfer Agreement and the Acquisition.

If the condition of the Acquisition is not satisfied by 31 March 2015, either party shall have the right to terminate the Share Transfer Agreement and all moneys paid by Sinochem Fertilizer (if any) to Sinochem Corporation shall be refunded in full to Sinochem Fertilizer.

Completion

Within ten business days after the condition of the Acquisition is satisfied, Sinochem Corporation shall cooperate with Sinochem Fertilizer to complete the registration of the share transfer with China Securities Depository and Clearing Corporation Limited. Completion of the Acquisition shall take place on the date when the registration of the share transfer is completed.

Upon completion of the Acquisition, Sinochem Fertilizer will hold 381,052,323 shares of Qinghai Salt Lake, representing 23.95% of the total issued share capital and will become the second largest shareholder of Qinghai Salt Lake. Furthermore, on 6 November 2014, Qinghai Salt Lake announced its plans to raise RMB5.4 billion through non-public issue of no more than 331,491,713 shares, upon completion of which, Sinochem Fertilizer’s interest in Qinghai Salt Lake will be diluted to approximately 19.82%. The Company currently does not have any intention to acquire additional interests in Qinghai Salt Lake.

Upon completion of the Acquisition, Sinochem Fertilizer shall have the right to nominate two out of eleven directors of Qinghai Salt Lake.

– 7 –

LETTER FROM THE BOARD

INFORMATION ON QINGHAI SALT LAKE

Qinghai Salt Lake is a joint stock limited liability company established in the PRC, the shares of which are traded on the Shenzhen Stock Exchange. Its principal activities are the manufacturing and sale of chlorine potassium, potassium sulfate and potassium carbonate, sale of potassium hydroxide, and outdoor exploitation of potash. Other activities include the production and sale of carnallite, low adopt carnallite and other mining products.

In 2006, Sinochem Group subscribed for 526,000,000 shares of 青海鹽湖工業集團股份有 限公司 (Qinghai Salt Lake Industry Group Co., Ltd., “Salt Lake Group”) at a consideration of RMB800 million, representing 23.45% of the then issued share capital of Salt Lake Group. At the same time, Sinochem Group agreed not to receive the final dividend of 2006, as a result of which, an amount of approximately RMB326 million in respect of the final dividend receivable by Sinochem Group has been capitalized as capital reserve in the accounts of Salt Lake Group. Following Salt Lake Group’s listing on the Shenzhen Stock Exchange in 2008, the share capital of Salt Lake Group was enlarged and accordingly, Sinochem Group’s interest in Salt Lake Group was diluted to 22.74%. In 2009, Sinochem Corporation was established and Sinochem Group transferred its interest in Salt Lake Group to Sinochem Corporation. In 2011, Salt Lake Group merged with 青海鹽湖鉀肥股份有限公司 (Qinghai Salt Lake Potash Co. Ltd., “Salt Lake Potash”) by way of issuance of new shares by Salt Lake Potash in exchange for and cancellation of the then existing shares of Salt Lake Group, whereby Salt Lake Potash became the surviving entity and was renamed as 青海鹽湖工業股份有限公司 (Qinghai Salt Lake Industry Co., Ltd., i.e. Qinghai Salt Lake). Sinochem Corporation’s interest in Qinghai Salt Lake was changed to 238,791,954 shares, representing 15.01%, as a result of the above merger.

Qinghai Salt Lake has the mining right of Chaerhan Salt Lake in Qinghai province, which is the largest potassium mine in the PRC. All potash and chemical products of Qinghai Salt Lake are produced from the natural resources extracted from Chaerhan Salt Lake, and Qinghai Salt Lake does not acquire the natural resources of potash from other independent suppliers. Qinghai Salt Lake has an annual production capacity of potash of 2.0 million tons in 2011, which was expanded to 3.5 million tons in 2013, making it the largest potash production enterprise in the PRC.

– 8 –

LETTER FROM THE BOARD

Based on the audited financial statements of Qinghai Salt Lake prepared in accordance with the Hong Kong Financial Reporting Standards, the net asset value of Qinghai Salt Lake as at 30 September 2014 was RMB18,705 million, and the profits of Qinghai Salt Lake for the two years ended 31 December 2013 and for the nine months ended 30 September 2014 were as follows:

			Nine months
	Year ended	Year ended	ended
	31 December	31 December	30 September
	2012	2013	2014
	(RMB million)	(RMB million)	(RMB million)
Profit before taxation	3,220	1,431	875
Profit after taxation	2,752	1,066	685
Profit for the
year/period
attributable to
shareholders of
Qinghai Salt Lake	2,524	1,052	653

Qinghai Salt Lake and its subsidiaries are principally engaged in the manufacturing and sales of potash and chemical products, and its turnover is primarily derived from these two segments, namely manufacturing and sale of potassium chloride and related products and manufacturing and sale of chemical products and others, such as cement, potassium hydroxide and potassium carbonate. As at 31 December 2013, the carrying amount of mining rights recorded on intangible assets of Qinghai Salt Lake is RMB499 million, which accounted for less than 1% of its consolidated total assets. Qinghai Salt Lake explores and/or extracts natural resources only for producing potash and chemical products and not for selling natural resources directly.

REASONS FOR AND BENEFITS OF THE ACQUISITION

Through the Acquisition, Sinochem Fertilizer will become the second largest shareholder of Qinghai Salt Lake and can exercise more influence on significant matters of Qinghai Salt Lake, which will enhance the efficiency of Sinochem Fertilizer’s management over Qinghai Salt Lake. Furthermore, the Acquisition can maximize the value and use of the distribution network of Sinochem Fertilizer, further improve its bargaining power and consolidate its leading position in potassium fertilizer industry of the PRC.

The Directors (including the independent non-executive Directors) are of the view that the Acquisition is conducted by the Company in its ordinary and usual course of business, on normal commercial terms, is fair and reasonable and in the interests of the Company and its Shareholders as a whole.

Mr. Liu De Shu and Mr. Yang Lin, being employees of Sinochem Group, are regarded as having a material interest in the Share Transfer Agreement and have abstained from voting on the relevant Board resolution passed to approve the Acquisition.

– 9 –

LETTER FROM THE BOARD

INFORMATION ON THE COMPANY AND SINOCHEM CORPORATION

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 food security in the PRC.

Sinochem Fertilizer is 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.

Sinochem Corporation, through its subsidiaries, is principally engaged in exploration and management of petroleum and natural gas, manufacturing and management of fertilizer, seeds, pesticides and agricultural products, development and management of chemical products and pharmaceutical products, development and management of mineral resources and new energy, development and operation of hotels and real estates, etc.

LISTING RULES IMPLICATIONS

Sinochem Corporation is the indirect controlling shareholder of the Company holding an effective interest of approximately 52.65% in the Company, and is therefore a connected person of the Company. As such, the Acquisition constitutes a connected transaction of the Company under the Listing Rules. Given that one or more of the applicable percentage ratios in respect of the Acquisition are more than 5%, the Acquisition is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Furthermore, as one or more of the applicable percentage ratios in respect of the Acquisition are more than 25% but less than 100%, the Acquisition also constitutes a major transaction of the Company under Chapter 14 of the Listing Rules, and is subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

FINANCIAL EFFECT OF THE ACQUISITION

Following the completion of the Acquisition, Qinghai Salt Lake will continue to be equity accounted for as an associate in the consolidated financial statements of the Company.

Effects on Assets

Based on the unaudited pro forma consolidated statement of financial position of the Group on pages 121 to 122 of this circular, total current assets of the Group will be decreased by RMB3,892 million, being the total consideration for the Acquisition net of existing bank balances as at 30 June 2014.

– 10 –

LETTER FROM THE BOARD

Effects on Earnings

For the year ended 31 December 2013, profit attributable to shareholders of Qinghai Salt Lake amounted to RMB1,052 million, while for the nine months period ended 30 September 2014, profit attributable to shareholders of Qinghai Salt Lake amounted to RMB653 million. In view of the continuous profitability of Qinghai Salt Lake, the Company believes that the Acquisition can enhance the profitability and earnings prospect of the Group.

SGM

A resolution approving the Share Transfer Agreement and the Acquisition shall be proposed at the SGM.

In view of Sinochem Corporation’s interests in the Share Transfer Agreement and the Acquisition, Sinochem Group and its associates are required to abstain and shall abstain from voting on the resolution to be proposed at the SGM to approve the Share Transfer Agreement and the Acquisition.

A notice convening the SGM to be held at Drawing Room, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on 12 February 2015 at 10:00 a.m. is set out on pages 128 to 129 of this circular.

A form of proxy for the SGM is enclosed herewith. Whether or not Shareholders are able to attend and vote at the SGM, they are requested to complete the enclosed form of proxy and return the same to the branch share registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy as instructed will not prevent Shareholders from subsequently attending and voting at the SGM or any adjourned meeting if they so wish.

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the Share Transfer Agreement and the Acquisition are entered into by the Group in its ordinary and usual course of business, on normal commercial terms, are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors therefore recommend the Independent Shareholders to vote in favour of the relevant resolution set out in the notice of the SGM.

FURTHER INFORMATION

The Independent Board Committee comprising two independent non-executive Directors has been formed to advise the Independent Shareholders in respect of the Share Transfer Agreement and the Acquisition. Guotai Junan has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in such

– 11 –

LETTER FROM THE BOARD

regard. Accordingly, your attention is drawn to the letter from the Independent Board Committee set out on pages 13 to 14 of this circular, which contains its advice to the Independent Shareholders and the letter from the Independent Financial Adviser set out on pages 15 to 30 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders.

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

Yours faithfully, For and on behalf of the Board of

Sinofert Holdings Limited Wang Hong Jun

Executive Director and Chief Executive Officer

– 12 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

27 January 2015

To: the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 15.01% EQUITY INTEREST IN QINGHAI SALT LAKE

We refer to the circular of the Company dated 27 January 2015 (the “Circular”) to the Shareholders, of which this letter forms part. Terms defined in the Circular have the same meanings in this letter unless the context otherwise requires.

In compliance with the Listing Rules, we have been appointed to advise the Independent Shareholders as to whether, in our opinion, the Share Transfer Agreement and the Acquisition are entered into by the Group in its ordinary and usual course of business, on normal commercial terms, in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. In this connection, Guotai Junan has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Share Transfer Agreement and the Acquisition.

We wish to draw your attention to the letter from the Board set out on pages 4 to 12 of the Circular, and the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out on pages 15 to 30 of the Circular which contains its opinion in respect of the Share Transfer Agreement and the Acquisition.

* For identification purposes only

– 13 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the advice of the Independent Financial Adviser and its recommendation in relation thereto, we consider that the Share Transfer Agreement and the Acquisition are entered into by the Group in its ordinary and usual course of business, on normal commercial terms, in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend that you vote in favour of the relevant resolution set out in the notice of the SGM.

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

– 14 –

LETTER FROM GUOTAI JUNAN

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

Guotai Junan Capital Limited 27th Floor, Low Block Grand Millennium Plaza 181 Queen’s Road Central Hong Kong

27 January 2015

• To the Independent Board Committee and

• the Independent Shareholders of Sinofert Holdings Limited

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 15.01% EQUITY INTEREST IN QINGHAI SALT LAKE

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisition proposed to be contemplated under the Share Transfer Agreement, particulars of which are set out in the “Letter from the Board” of the circular of the Company to the Shareholders dated 27 January 2015 (the “ Circular ”) of which this letter forms part. Unless the context requires otherwise, terms used in this letter shall have the same meaning as those defined in the Circular.

Reference is made to the announcements of the Company dated 13 October 2014 and 9 December 2014 (the “ Announcement ”). On 9 December 2014, the Board resolved to exercise the Option. In this connection, Sinochem Fertilizer proposed to enter into the Share Transfer Agreement with Sinochem Corporation, pursuant to which, Sinochem Fertilizer shall acquire, and Sinochem Corporation shall sell, 238,791,954 issued shares of Qinghai Salt Lake, representing 15.01% of its total issued share capital, at a total consideration of RMB3,890,101,118.75 (equivalent to HK$4,917,087,814.10).

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LETTER FROM GUOTAI JUNAN

As at the Latest Practicable Date, Sinochem Corporation is the indirect controlling shareholder of the Company holding an effective interest of approximately 52.65% in the Company, and hence a connected person of the Company. Accordingly, the Acquisition constitutes a connected transaction of the Company under the Listing Rules. Since one or more of the applicable percentage ratios in respect of the Acquisition exceed 5%, the Acquisition constitutes a non-exempt connected transaction of the Company and is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. In addition, as the applicable percentage ratios in respect of the Acquisition are more than 25% but less than 100%, the Acquisition also constitutes a major transaction of the Company under Chapter 14 of the Listing Rules. A SGM will be convened to seek approval from the Independent Shareholders in respect of the Share Transfer Agreement and the Acquisition. In view of Sinochem Corporation’s interests in the Share Transfer Agreement and the Acquisition, Sinochem Group and its associates are required to abstain and shall abstain from voting on the relevant ordinary resolution to be proposed at the SGM.

Sinochem Fertilizer and Sinochem Corporation have finalized the terms of the Share Transfer Agreement. After the approval from the Independent Shareholders is obtained at the SGM, Sinochem Fertilizer and Sinochem Corporation will enter into the Share Transfer Agreement, which will contain substantially the same terms as those disclosed in the “Letter from the Board” of the Circular and to be approved by the Independent Shareholders at the SGM. If the signed Share Transfer Agreement contains material terms that are not disclosed in the Circular, or major amendments are made to the terms disclosed in the Circular, the Company will make further announcement and seek approval from the Independent Shareholders with respect to such amendments or changes in the terms. The Acquisition is conditional upon the obtaining of the approval from SASAC and relevant authorities with respect to the Share Transfer Agreement and the Acquisition.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising two independent non-executive Directors, namely Mr. Ko Ming Tung, Edward and Mr. Tse Hau Yin, Aloysius, has been formed to make recommendations to the Independent Shareholders on whether the Share Transfer Agreement and the Acquisition are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole, and how the Independent Shareholders should vote on the ordinary resolution to be proposed at the SGM. We, Guotai Junan Capital Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

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LETTER FROM GUOTAI JUNAN

Apart from normal professional fees for our services to the Company in connection with the engagement described above, no arrangement exists whereby we will receive any fees and benefits from the Group or where applicable, any of their respective associates. We are independent from and not connected with the Group or where applicable, any of their respective substantial shareholders, directors or chief executive, or any of their respective associates pursuant to Rule 13.84 of the Listing Rules, and are accordingly qualified to give independent advice to the Independent Board Committee and the Independent Shareholders regarding the Acquisition.

BASIS OF OUR OPINION

In formulating our opinions and recommendations, we have relied on the statements, information, opinions and representations for matters relating to the Company contained in the Circular and the information and representations provided to us by the Company and/or the Directors and/or its management staff. We have assumed that all such statements, information, opinions and representations for matters relating to the Company contained or referred to in the Circular or otherwise provided or made or given by the Company and/or the Directors and/or its management staff and for which it is/they are responsible are true, accurate and complete in all material aspects at the time they were made and continue to be true, accurate and complete up to the date of the SGM. We have assumed that all the opinions and representations for the matters relating to the Company made or provided by the Company and/or its Directors and/or its management staff contained in the Circular have been reasonably made after due and careful enquiry. We have also sought and received confirmation from the Company and/or the Directors and/or its management staff that no material facts have been withheld or omitted from the information supplied and referred to in the Circular or the reasonableness of the opinions and representations provided to us.

We have relied on such information and consider that the information we have reviewed is sufficient for us to reach an informed view and to justify our reliance on such information so as to provide a reasonable basis for our opinion. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Company, the Directors and the management of the Group and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We have not, however, carried out any independent verification of the information, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or future prospect of the Company, Sinochem Corporation or Qinghai Salt Lake, or any of their respective subsidiaries and associates.

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LETTER FROM GUOTAI JUNAN

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our advice and recommendation, we have considered the following principal factors and reasons:

1. Background to the Acquisition

(i) Background

The Company is principally engaged in the production, procurement and sale of fertilizers and related products in the PRC with its main business comprising research and development, production, procurement and distribution of fertilizers, which forms a vertically integrated business model combining upstream and downstream businesses.

The principal business of Sinochem Fertilizer includes 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 businesses and products. The Group aims to serve the agriculture industry in the PRC by introducing quality resources from overseas and to ensure food security in the PRC.

Sinochem Corporation, through its subsidiaries, is principally engaged in exploration and management of petroleum and natural gas, manufacturing and management of fertilizer, seeds, pesticides and agricultural products, development and management of chemical products and pharmaceutical products, development and management of mineral resources and new energy, development and operation of hotels and real estates, etc. Qinghai Salt Lake is a joint stock limited liability company established in the PRC, the shares of which are traded on the Shenzhen Stock Exchange. As at the Latest Practicable Date, its market capitalization is approximately RMB34,339 million. Its principal activities are the manufacturing and sale of chlorine potassium, potassium sulfate, potassium carbonate, sale of potassium hydroxide, and outdoor exploitation of potash. Other activities of Qinghai Salt Lake include the production and sale of carnallite, low adopt carnallite and other mining products.

As set out in the Letter from the Board, Sinochem Group subscribed for 526,000,000 shares of 青海鹽湖工業集團股份有限公司 (Qinghai Salt Lake Industry Group Co., Ltd., “ Salt Lake Group ”) at a consideration of RMB800 million, representing 23.45% of the then issued share capital of Salt Lake Group in 2006. At the same time, Sinochem Group agreed not to receive the final dividend of 2006, as a result of which, an amount of approximately RMB326 million in respect of the final dividend receivable by Sinochem Group has been capitalized as capital reserve in the accounts of Salt Lake Group. Following Salt Lake Group’s listing on the Shenzhen Stock Exchange in 2008, the share capital of Salt Lake Group was enlarged and accordingly, Sinochem Group’s interest in Salt Lake Group was diluted to 22.74%. In 2009, Sinochem Corporation was established

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LETTER FROM GUOTAI JUNAN

and Sinochem Group transferred its interest in Salt Lake Group to Sinochem Corporation. In 2011, Salt Lake Group merged with 青海鹽湖鉀肥股份有限公司 (Qinghai Salt Lake Potash Co. Ltd., “ Salt Lake Potash ”) by way of issuance of new shares by Salt Lake Potash in exchange for and cancellation of the then existing shares of Salt Lake Group, whereby Salt Lake Potash became the surviving entity and was renamed as 青海鹽湖工 業股份有限公司 (Qinghai Salt Lake Industry Co., Ltd., i.e. Qinghai Salt Lake ) (the “ Salt Lake Merger ”). Sinochem Corporation’s interest in Qinghai Salt Lake was changed to 15.01% as a result of the Salt Lake Merger. As at the date of the Announcement, 238,791,954 shares of Qinghai Salt Lake was held by Sinochem Corporation, representing approximately 15.01% of the entire issued share capital of Qinghai Salt Lake.

On 6 June 2005, Sinochem Group (formerly known as Sinochem Corporation before its internal reorganization) entered into a non-competition undertaking (the “ NonCompetition Undertaking ”) in favour of the Company. In order to fulfil Sinochem Group’s obligations under the Non-Competition Undertaking, Sinochem Group has granted the Option to Sinochem Fertilizer on 25 December 2008, conferring the rights to Sinochem Fertilizer, at the discretion of the Company, to require Sinochem Group to sell its then entire shareholding in Qinghai Salt Lake at fair market value to it, provided that such sale and purchase shall comply with all the requirements under the PRC law, rules and regulations and other documents issued by the competent authorities effective at the time. For details, please refer to the announcement of the Company dated 28 December 2008. In addition, Sinochem Corporation issued a lock-up undertaking on 20 July 2009, pursuant to which, Sinochem Corporation shall not trade on the Shenzhen Stock Exchange or otherwise transfer any of Qinghai Salt Lake’s shares held by it for a period of 36 months commencing from the date on which Qinghai Salt Lake’s shares were registered under the name of Sinochem Corporation. The shares of Qinghai Salt Lake were registered under the name of Sinochem Corporation on 15 March 2011 and the Salt Lake Merger was completed on 25 March 2011. Furthermore, pursuant to the custody agreement entered into between Sinochem Corporation and Sinochem Fertilizer in 2011, Sinochem Fertilizer manages the Qinghai Salt Lake’s shares held by Sinochem Corporation and nominates directors and supervisors on behalf of Sinochem Corporation until Sinochem Corporation transfers the shares to Sinochem Fertilizer or other company or Qinghai Salt Lake is dissolved or Qinghai Salt Lake is no longer engaged in the production and sale of fertilizer or related products.

After the expiration of the lock-up period on 15 March 2014 and taking into account the reasons for and benefits of the Acquisition as set out in the “Letter from the Board” of this Circular, the Board resolved to exercise the Option on 9 December 2014 and proposed to enter into the Share Transfer Agreement with Sinochem Corporation, pursuant to which, Sinochem Fertilizer shall acquire and Sinochem Corporation shall sell 238,791,954 issued shares of Qinghai Salt Lake, representing 15.01% of its total issued share capital, at a total consideration of RMB3,890,101,118.75 (equivalent to HK$4,917,087,814.10).

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LETTER FROM GUOTAI JUNAN

As at the Latest Practicable Date, Sinochem Fertilizer held 142,260,369 shares of Qinghai Salt Lake, representing 8.94% of its total issued share capital. Upon completion of the Acquisition, Sinochem Fertilizer will hold 381,052,323 shares of Qinghai Salt Lake, representing 23.95% of the total issued share capital and will become the second largest shareholder of Qinghai Salt Lake. On 6 November 2014, Qinghai Salt Lake announced its plans to raise RMB5.4 billion through non-public issue of no more than 331,491,713 shares, upon completion of which, Sinochem Fertilizer’s interest in Qinghai Salt Lake will be diluted to approximately 19.82%. We understand the Company currently does not have any intention to acquire additional interests in Qinghai Salt Lake.

(ii) Key financial information of the Group

The following table sets out the key financial information of the Group (i) for the year ended 31 December 2012 and 2013 as extracted from the Company’s 2013 annual report; and (ii) for the six months ended 30 June 2013 and 2014 as extracted from the Company’s 2014 interim report, respectively:

	**Year **	ended	Six months ended	Six months ended
	31 December		**30 **	June
	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Unaudited)	(Unaudited)
Turnover	41,190,137	34,721,849	20,580,073	15,880,706
Profit/(Loss) before taxation	1,022,365	(281,382)	426,165	116,607
Profit/(Loss) for the year/period	923,654	(624,806)	344,678	72,739
Profit/(Loss) for the year/period
attributable to shareholders of the
Company	878,369	(476,340)	352,260	137,555

The Group recorded a turnover of approximately RMB34,722 million for the year ended 31 December 2013, representing a decrease of approximately 15.70% as compared to approximately RMB41,190 million for the year ended 31 December 2012, with the fertilizer sales volume of the Group for the year ended 31 December 2013 amounting to 16.28 million tons, representing a decrease of approximately 5.02% as compared to that of the year ended 31 December 2012. According to the Company’s 2013 annual report, such decrease was mainly attributable to increased competition in the fertilizer industry in the PRC, which continued to be sluggish. In addition, concurrent release of newly-added production capacity further intensified the oversupply (except for potash), slowed down the growth of demand, making the price of the fertilizers continued to decline. The decreasing price of fertilizers, coupled with continuous increases in transportation costs as well as strengthened requirements for safety and environmental protection which increased the operational pressure, the Group recorded a loss attributable to shareholders of the Company amounting to approximately RMB476 million for the year ended 31 December 2013, as compared to a profit attributable to shareholders of the Company in the amount of approximately RMB878 million for the year ended 31 December 2012. The reversal of deferred tax asset for the year ended 31 December 2013 also contributed RMB351 million of the net loss attributable to shareholders of the Company as disclosed in the Company’s 2013 annual report.

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LETTER FROM GUOTAI JUNAN

According to the Company’s 2014 interim report, the Group’s total fertilizer sales volume for the six months ended 30 June 2014 was 8.25 million tons, down by approximately 9.74% as compared to the corresponding period in 2013, with the corresponding turnover of approximately RMB15,881 million and approximately RMB20,580 million for the six months ended 30 June 2014 and 2013, respectively. Such decrease was mainly due to no obvious improvement in the supply and demand relation in the fertilizer industry in the first half of 2014 and the selling price of fertilizers was still running low. Accordingly, the profit attributable to the shareholders of the Company was approximately RMB138 million, representing a decrease of approximately 60.80% when compared to approximately RMB352 million for the corresponding period in 2013.

We also note that the operation of the Group comprises two segments, namely marketing segment (procurement and distribution of fertilizers and related products) and production segment (production and sales of fertilizers). The following table sets out the revenues for the Group’s operating segments for the two years ended 31 December 2013 and six months ended 30 June 2014.

	Marketing	Production	Total
	RMB’000	RMB’000	RMB’000
Year ended 31 December 2012
Segment revenue	34,855,772	6,334,365	41,190,137
	84.62%	15.38%	100.00%
Year ended 31 December 2013
Segment revenue	31,080,307	3,641,542	34,721,849
	89.51%	10.49%	100.00%
Six months ended 30 June 2014
Segment revenue	14,510,838	1,369,868	15,880,706
	91.37%	8.63%	100.00%

The Group’s marketing segment, being procurement and distribution of fertilizers and related products, generated approximately 84.62%, 89.51% and 91.37% of its total revenue for the two years ended 31 December 2013 and the six months ended 30 June 2014, respectively. On the other hand, the production segment of Group only generated approximately 15.38%, 10.49% and 8.63% of its total revenue for the two years ended 31 December 2013 and the six months ended 30 June 2014, respectively.

The management of the Company expected that, as disclosed in the Company’s 2014 interim report, the PRC fertilizer market would still suffer from excessive oversupply, and the trend of recombination and integration in both production and distribution sectors will speed up. To cope with the severe market competition environment, the Group envisaged that it will implement market-oriented strategies, including but not limited to the promotion of the integration of mine and fertilizer, the integration of production and marketing and the integration of product and service, in order to build a sustainable commercial model and operation model so as to realize the sustainable development of the Group.

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LETTER FROM GUOTAI JUNAN

As the majority of the revenue of the Group is generated from the procurement and distribution of fertilizers and related products, the Company considers that the Acquisition will facilitate the Group’s access to more potash resources through the platform of Qinghai Salt Lake by making additional investments in Qinghai Salt Lake, which is principally engaged in the production and sales of major types of fertilizers and related products, such as potassium chloride, potassium sulfate, potassium carbonate, potassium hydroxide, and outdoor exploitation of potash, and in turn further improve the Group’s bargaining power. We concur with the view of the Directors that the Acquisition can maximize the value and use of the distribution network of the Group.

(iii) Information of Qinghai Salt Lake

As set out in the Letter from the Board, Qinghai Salt Lake is the largest potash production enterprise in the PRC and has an annual production capacity of potash of 3.5 million tons. Qinghai Salt Lake has the mining right of Chaerhan Salt Lake in Qinghai province, which is the largest potassium mine in the PRC. All potash and chemical products of Qinghai Salt Lake are produced from the natural resources extracted from Chaerhan Salt Lake. Qinghai Salt Lake’s actual production capacity of potassium chloride was approximately 3.26 million tons for the year ended 31 December 2013 and 3.28 million tons for the nine months ended 30 September 2014 according to Qinghai Salt Lake’s 2013 annual report and 2014 third quarterly report.

Set out below are certain key financial information of Qinghai Salt Lake for the three years ended 31 December 2013 and the nine months ended 30 September 2013 and 2014, as extracted from the accountants’ report on Qinghai Salt Lake prepared in accordance with Hong Kong Financial Reporting Standards contained in Appendix II to the Circular.

				Nine months ended	Nine months ended
	Year ended 31 December			30 September
	2011	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Audited)	(Unaudited)	(Audited)
Revenue	6,777,563	8,270,807	8,094,573	5,383,782	6,610,507
Profit before
taxation	3,353,864	3,219,775	1,431,142	928,974	875,174
Profit after tax for
the year/period	2,817,612	2,751,927	1,066,143	685,368	685,628
Profit for the
year/period
attributable to
shareholders of
Qinghai Salt
Lake	2,481,131	2,524,262	1,052,207	589,281	652,828

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LETTER FROM GUOTAI JUNAN

Qinghai Salt Lake recorded a revenue of approximately RMB8,271 million for the year ended 31 December 2012, representing an increase of 22.03% as compared to the revenue of approximately RMB6,778 million for the year ended 31 December 2011 as a result of the rise in the price of potassium chloride products and the increase in output and sales of potassium chloride products due to the continuous enhancement in the product quality. The profit attributable to shareholders of Qinghai Salt Lake for the year ended 31 December 2012 amounted to approximately RMB2,524 million, representing an increase of 1.74% when compared to 2011.

As a result of the combined effects of the increase in output and sales volume of potassium chloride products and the lower average selling price, Qinghai Salt Lake’s revenue for the year ended 31 December 2013 decreased by approximately RMB176 million to RMB8,095 million when compared to 2012, representing a decrease of approximately 2.18%. In addition, due to the increase in cost of sales and operating expenses, as well as distribution expenses, the profit attributable to shareholders of Qinghai Salt Lake for the year ended 31 December 2013 amounted to approximately RMB1,052 million, representing a decrease of approximately 58.32% when compared to 2012.

For the nine months ended 30 September 2014, Qinghai Salt Lake’s revenue experienced a growth of 22.79% to approximately RMB6,611 million when compared to approximately RMB5,384 million in the corresponding period in 2013. This is contributed by the increase in sales of potassium chloride and chemical products. The profit attributable to shareholders of Qinghai Salt Lake increased by 10.8% from approximately RMB589 million for the nine months ended 30 September 2013 to approximately RMB653 million in the corresponding period of 2014, which was mainly due to revenue growth but partially offset by the increase of distribution expenses and finance cost.

The return on equity attributable to shareholders of Qinghai Salt Lake was approximately 18.14%, 15.85%, 6.41% and 3.83% and the return on total assets was approximately 9.42%, 6.34%, 1.92% and 1.08% for each of the three years ended 31 December 2013 and the nine months ended 30 September 2014 respectively.

By making reference to the information available on the website of International Fertilizer Industry Association (the “ IFIA ”), potassium chloride is the most widely used fertilizer product worldwide, accounting for approximately 70% of all demand for fertilizers. In addition, according to the information on the website of China Inorganic Salts Industry Association, China ranked first on the consumption of potash but the domestic potash production can only satisfy a small portion of domestic demand, leading to the reliance on imports to meet the remaining domestic needs. In addition, according to the “Fertilizer Outlook 2014-2018” published by the IFIA, the global fertilizer demand is forecasted to expand by 2.1%, and demand for potassium fertilizers would continue to grow for 2014/2015, with global demand for potassium is estimated to have an average annual growth rate of 3.0% between 2013 and 2018. The medium-term outlook for

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LETTER FROM GUOTAI JUNAN

agriculture remains favourable overall, positive market fundamentals are expected to boost fertilizer use and demand for potassium fertilizers would expand faster. Furthermore, it is estimated that in the “Short-term Fertilizer Outlook 2014-2015” published by the IFIA, the global potash capacity in 2014 rose 5% while in 2015 global potash capacity is estimated to expand 8% with the main capacity additions in 2014/15 would occur in various countries, among others, China. In view of the short-term and medium-term outlook of the fertilizer market and considering Qinghai Salt Lake’s market position in the domestic production of potash in the PRC, we concur with the view of the Directors that the Acquisition will further improve the Group’s bargaining power and enhance the Group’s position in the potash market in the PRC.

As Sinochem Fertilizer is managing the shares of Qinghai Salt Lake held by Sinochem Corporation under the custody agreement currently, after the Acquisition, Sinochem Fertilizer will be the direct shareholder of these shares of Qinghai Salt Lake and enjoy the rights entitled to a shareholder. We concur with the view of the Directors that the Acquisition can enhance the efficiency of Sinochem Fertilizer’s management over Qinghai Salt Lake.

(iv) Reasons for and benefits of the Acquisition

As set out in the Letter from the Board, the Directors consider that the Acquisition can enhance the efficiency of Sinochem Fertilizer’s management over Qinghai Salt Lake, maximize the value and use of the distribution network of Sinochem Fertilizer, and further improve its bargaining power and consolidate its leading position in the potassium fertilizer industry of the PRC.

Taking into account (i) the business nature and industry of Qinghai Salt Lake which is the same as that of the Group as well as the prospect of the potassium fertilizer market; (ii) the production capacity of Qinghai Salt Lake; and (iii) the historical financial performance of Qinghai Salt Lake for the three years ended 31 December 2013 and the nine months ended 30 September 2014, we concur with the view of the Directors that the Acquisition is in the ordinary and usual course of business of the Group and is in the interest of the Company and the Shareholders as a whole.

2. Principal terms of the Share Transfer Agreement

(i) Assets to be acquired

238,791,954 shares of Qinghai Salt Lake (the “ Sale Shares ”), representing 15.01% of its total issued share capital as at the date of the Announcement.

(ii) Consideration

The total consideration for the Acquisition is RMB3,890,101,118.75 (equivalent to HK$4,917,087,814.10), representing RMB16.29 per Sale Share.

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LETTER FROM GUOTAI JUNAN

Pursuant to Article 24 of “Interim measures for the administration of state-owned shareholders’ transfer of their shares of listed companies” (《國有股東轉讓所持上市公司 股份管理暫行辦法》) promulgated by SASAC on 30 June 2007, the price for the transfer of the shares of listed companies from the state-owned enterprises shall be determined based on the daily volume weighted average closing price for the previous 30 trading days preceding the date of the indicative announcement published by the target company. In case a discount is considered, the transfer price after discount shall not be lower than 90% of the above-mentioned daily volume weighted average closing price. In this case, Qinghai Salt Lake issued an indicative announcement in relation to the Acquisition on 13 October 2014 (the “ Indicative Announcement Date ”). Thus, the consideration of approximately RMB16.29 per Sale Share represents 90% of the 30 trading day average of the daily volume weighted average price of approximately RMB18.10 per share from 20 August 2014 to 8 October 2014 (being the last trading day of the shares of Qinghai Salt Lake preceding the Indicative Announcement Date in relation to the Acquisition).

We understand from the Company that 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) as mentioned above, and a 10% discount has been secured by the Company.

The consideration of approximately RMB16.29 per Sale Share represents:

• (i) a discount of approximately 10.00% to the daily volume weighted average closing price of approximately RMB18.10 per Qinghai Salt Lake share for the 30 trading days preceding the Indicative Announcement Date (i.e. from 20 August 2014 to 8 October 2014) (Note: the dealing in the shares of Qinghai Salt Lake were suspended during the period from 9 October 2014 to the Indicative Announcement Date) ;

• (ii) a discount of approximately 12.93% to the closing price of RMB18.71 per Qinghai Salt Lake share as at the last trading day immediately before the Indicative Announcement Date (i.e. 8 October 2014);

• (iii) a discount of approximately 11.23% to the average closing price of approximately RMB18.35 per Qinghai Salt Lake share for the last five trading days immediately before the Indicative Announcement Date;

• (iv) a discount of approximately 9.40% to the average closing price of approximately RMB17.98 per Qinghai Salt Lake share for the last 10 trading days immediately before the Indicative Announcement Date;

• (v) a discount of approximately 24.55% to the closing price of RMB21.59 per Qinghai Salt Lake share as at the Latest Practicable Date; and

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LETTER FROM GUOTAI JUNAN

• (vi) a premium of approximately 38.52% over the consolidated net asset value of Qinghai Salt Lake of approximately RMB11.76 per share calculated based on the audited accounts prepared in accordance with Hong Kong Financial Reporting Standards as at 30 September 2014.

The chart below illustrates the movement of the closing price for Qinghai Salt Lake shares on the Shenzhen Stock Exchange during the period from 1 January 2014 up to the Latest Practicable Date (the “ Review Period ”) relative to the movement of Shenzhen Stock Exchange Component Index (“ SICOM Index ”):

==> picture [392 x 224] intentionally omitted <==

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

RMB SICOM Index
per share 12,000
24
11,000
22
10,000
20 Purchase price of RMB16.29
per Sale Share
9,000
18
Share Price
8,000
16 SICOM Index
14 7,000
12 6,000
10 5,000
2/1/20142/2/20142/3/20142/4/20142/5/20142/6/20142/7/20142/8/20142/9/20142/10/20142/11/20142/12/20142/1/2015
----- End of picture text -----

During the Review Period, the highest price and the lowest price of Qinghai Salt Lake share was RMB24.23 per share and RMB14.26 per share on 7 January 2015 and 28 April 2014, respectively. As illustrated by the chart above, the movement of share price of Qinghai Salt Lake shares was in line with the overall market. In addition, the Qinghai Salt Lake shares have been trading at a level above the purchase price of RMB16.29 per Sale Share on the Shenzhen Stock Exchange since early August 2014.

For the purpose of further assessing whether the consideration for the Acquisition is fair and reasonable, we have carried out research into other PRC fertilizers manufacturing companies and considered the basis of their valuation. We have considered the price earnings ratio (“ PER ”) and price to book ratio (“ PBR ”) of certain listed companies engaged in the fertilizers manufacturing business in the PRC. We have selected nine companies listed in the PRC for our assessment (the “ Comparable Companies ”), which we considered those Comparable Companies represent an exhaustive and representative list based on the selection criteria that they (i) are principally engaged in the fertilizers manufacturing business having their principal markets in the PRC; and (ii) had market capitalization of over RMB5,000 million as at the Indicative Announcement Date (Qinghai Salt Lake’s market capitalization was approximately RMB29,758 million as at the Indicative Announcement Date).

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Details of the Comparable Companies as at the Indicative Announcement Date (i.e. 13 October 2014) are summarized in the table below:

	Stock		Market	PER	PBR
Comparable Companies	Code	Principal Activities	Capitalization	(Note 1)	(Note 2)
			RMB’million
Yunnan Yuntianhua	600096	manufactures and	10,319.8	N/A	1.58
Co. Ltd.		markets fertilizers		(Note 3)
(雲南雲天化股份有限公		and other chemical
司)		products
Shandong Hualu	600426	manufactures urea,	8,639.8	10.9	1.35
Hengsheng Chemical		methanol,
Co. Ltd.		dimethylformamide,
(山東華魯恒升化工股份		formaldehyde,
有限公司)		trimethylamine,
		and other chemical
		products
Hubei Yihua Chemical	000422	manufactures and	5,746.3	N/A	0.94
Industry Co. Ltd.		sells fertilizers and		(Note 3)
(湖北宜化化工股份有限		other chemical
公司)		products
North Huajin Chemical	000059	manufactures and	9,267.9	N/A	1.54
Industries Co. Ltd.		markets fertilizers,		(Note 4)
(北方華錦化學工業股份		including urea,
有限公司)		liquid ammonia,
		and compound
		fertilizers
Jiangsu Chengxing	600078	manufactures and	5,075.3	481.8	2.87
Phosph-Chemical		markets phosphoric		(Note 5)
Co. Ltd.		acid, phosphates,
(江蘇澄星磷化工股份有		and other
限公司)		phosphoric
		chemicals
Luxi Chemical Group	000830	manufactures and	6,123.1	18.3	1.04
Co. Ltd.		markets a variety
(魯西化工集團股份有限		of fertilizers and
公司)		other chemical
		products
Sichuan Hebang	603077	manufactures	10,040.2	70.9	1.36
Corporation Limited		chemicals,		(Note 5)
(四川和邦股份有限公司)		develops salts and
		phosphates
Stanley Fertilizer	002588	develops, produces	8,234.1	15.9	2.38
Co., Ltd.		and sells fertilizer
(史丹利化肥股份有限公		products
司)

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LETTER FROM GUOTAI JUNAN

	Stock Market	PER	PBR
Comparable Companies Code Principal Activities Capitalization		(Note 1)	(Note 2)
	RMB’million
Shindoo Chemi-industry 002539 produces and sells 5,429.1		51.3	2.38
Co.,	Ltd. fertilizer
(成都市新都化工股份有
限公司)
**Simple **	average	24.1	1.72
(Note 6)		(Note 5)
**Range **	– Low	10.9	0.94
	– High (Note 7)	481.8	2.87
Qinghai Salt Lake 000792 25,909.4		24.3	1.39
at RMB16.29 per
**Sale **	Share
_Source: _	Bloomberg
Note 1:	PER is equal to share price divided by earnings per share as extracted from Bloomberg.
Note 2:	PBR is equal to share price divided by book value per share as extracted from Bloomberg.
Note 3:	The Comparable Companies recorded a loss for the year ended 31 December 2013 after taking
	into account non-recurring items (such as the changes in the value of financial assets, loss on
	disposal of non-current assets).
Note 4:	The Comparable Company recorded a loss for the year ended 31 December 2013.
Note 5:	The PER of Jiangsu Chengxing Phosph-Chemical Co. Ltd. and Sichuan	Hebang Corporation
	Limited were excluded from the analysis as they recorded a small amount	of profit attributable
	to shareholders for the year ended 31 December 2013 and have a low earning per share, which
	distorted the analysis.
Note 6:	Simple average is calculated based on summation of the relevant amount of all Comparable
	Companies divided by the number of Comparable Companies.
Note 7:	Low represents the lowest index among all Comparable Companies;	high represents the
	highest index among all Comparable Companies.

The PER represented by the Acquisition (based on RMB16.29 per Sale Share) is 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 is within range of the ratios and slightly lower than the average of the relevant ratios of other Comparable Companies.

In view of the consideration of the Acquisition (i) was determined based on the pricing formula governed by the regulation of the SASAC; (ii) represents a discount of 10% to the daily volume weighted average closing price of the Sale Shares of Qinghai Salt Lake for the 30 trading days preceding the Indicative Announcement Date; (iii) the PER and PBR represented by the Acquisition (based on RMB16.29 per Sale Share) are within the range of the PER and PBR of most of the Comparable Companies; and (iv) the movement of share price of Qinghai Salt Lake shares was in line with the overall market

– 28 –

LETTER FROM GUOTAI JUNAN

as illustrated by SICOM Index and the Qinghai Salt Lake shares have been trading at a level above the purchase price of RMB16.29 per Sale Share on the Shenzhen Stock Exchange since early August 2014, we are of the view that the consideration of the Acquisition is fair and reasonable.

(iii) Payment

The consideration for the Acquisition shall be paid by Sinochem Fertilizer to Sinochem Corporation in cash in two instalments as follows:

• (a) unless otherwise waived by Sinochem Corporation in accordance with (c) below, within five business days of signing of the Share Transfer Agreement, Sinochem Fertilizer shall pay 30% of the consideration as deposit to Sinochem Corporation in cash;

• (b) within ten business days upon satisfaction of the condition of the Acquisition, Sinochem Fertilizer shall pay the remaining 70% of the consideration to Sinochem Corporation in cash; and

• (c) where Sinochem Corporation, upon approval by SASAC, waives the deposit payment as described in (a) above, Sinochem Fertilizer shall pay the consideration in full within ten business days upon satisfaction of the condition of the Acquisition.

(iv) Conditions of the Acquisition

Sinochem Fertilizer and Sinochem Corporation will enter into the Share Transfer Agreement after the approval from the Independent Shareholders is obtained at the SGM. The Acquisition is conditional upon obtaining the approval from SASAC and relevant authorities with respect to the Share Transfer Agreement and the Acquisition.

If the condition of the Acquisition is not satisfied by 31 March 2015, either party shall have the right to terminate the Share Transfer Agreement and all moneys paid by Sinochem Fertilizer (if any) to Sinochem Corporation shall be refunded in full to Sinochem Fertilizer.

(v) Completion

Within ten business days after the conditions of the Acquisition is satisfied, Sinochem Corporation shall cooperate with Sinochem Fertilizer to complete the registration of the share transfer with China Securities Depository and Clearing Corporation Limited.

Completion of the Acquisition shall take place on the date when the registration of the share transfer is completed.

Based on the above, we are of the view that the terms of the Share Transfer Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

– 29 –

LETTER FROM GUOTAI JUNAN

3. Financial effects of the Proposed Acquisition

(i) Profit and losses

Following completion of the Acquisition, the Group’s shareholding in Qinghai Salt Lake will increase from 8.94% to 23.95%, and the 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 disclosed in the paragraph headed “Information of Qinghai Salt Lake” above, the Acquisition is expected to have a positive impact on the earnings of the Group.

(ii) Net assets

The net asset of the Group as at 30 June 2014 was approximately RMB13,409 million. Upon completion of the Acquisition, the net assets of the pro forma Group will be RMB13,407 million, which are not expected to have any significant impact on the Group’s net asset value as at 30 June 2014.

(iii) Gearing

The gearing ratio of the Group (calculated on the basis of interest-bearing debt divided by total equity) was 35.74% as at 30 June 2014. Since the Company is considering a number of options for financing the Acquisition, including internal cash resources and debt financing, should the Acquisition be financed entirely through draw down of the bank facilities and without utilising existing cash on hand, the interestbearing borrowings (due after one year balance) will increase by approximately RMB3.89 billion and the pro forma gearing ratio will be 64.76%.

RECOMMENDATION

Taking into consideration of the above factors, we consider that (i) the entering into the Share Transfer Agreement is in the ordinary and usual course of business of the Group; and (ii) the terms contained therein and the Acquisition are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Share Transfer Agreement and the Acquisition proposed to be contemplated thereunder.

Yours faithfully, For and on behalf of Guotai Junan Capital Limited Anthony Wong

Managing Director

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group for the three years ended 31 December 2011, 2012 and 2013, and the six months ended 30 June 2014 are disclosed in the following documents which have been published on the website of the Stock Exchange (www.hkexnews.hk) and the website of the Company (www.sinofert.com):

• the Annual Report 2011 published on 26 April 2012 (pages 82 to 167);

• the Annual Report 2012 published on 16 April 2013 (pages 84 to 171);

• the Annual Report 2013 published on 17 April 2014 (pages 83 to 167); and

• the Interim Report 2014 published on 2 September 2014 (pages 26 to 48).

INDEBTEDNESS

As at the close of business on 30 November 2014, the Group had total outstanding debts of approximately RMB3,979 million comprising secured bank borrowings of approximately RMB1,479 million and bonds with principal amount of approximately RMB2,500 million. The secured bank borrowings were guaranteed by the Company.

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 30 November 2014 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.

WORKING CAPITAL

Taking into account the Group’s cash and cash equivalents on hand, the financial resources available to the Group, and cash generated from future operations, the Directors after due and careful enquiry, are of the view that, in the absence of unforeseeable circumstances, 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.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Potassium is one of the scarce resources in the PRC. Currently, China’s annual consumption volume of potash is approximately 10 million tons, of which approximately 50% is sourced from overseas markets. In the meantime, Qinghai Salt Lake is the largest potash production enterprise in the PRC and has an annual production capacity of potash of 3.5 million tons.

– 31 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Sinochem Fertilizer is a comprehensive fertilizer production and distribution enterprise in the PRC with potash being one of its core businesses. Over the years, Sinochem Fertilizer has been enhancing its strategic partnership with overseas large potash suppliers. In the meantime, Sinochem Fertilizer is furthering its cooperation with Qinghai Salt Lake. The Acquisition will facilitate Sinochem Fertilizer’s access to scarce upstream potassium resource and potash production capacity in the PRC, help its strategy implementation and operational coordination of overseas potash importation and domestic potash production, and solidify its market leading position in the PRC.

Besides, the Company’s share in Qinghai Salt Lake’s profit would contribute to the Company’s results and the 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.

In 2015, the reorganization and consolidation of the fertilizer production and distribution industry will intensify. The Group will continue to promote the production and sale of its fertilizer products, as well as the integration of its products and services, with a view to creating a sustainable business model for the Group.

– 32 –

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 accountants, KPMG, Certified Public Accountants, Hong Kong.

8th Floor Prince’s Building 10 Chater Road Central Hong Kong 27 January 2015

The Directors Sinofert Holdings Limited

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information relating to Qinghai Salt Lake Industry Co., Ltd., (the “Target Company” or “Qinghai Salt Lake”) and its subsidiaries (hereinafter collectively referred to as the “Target Group”) comprising the consolidated statements of financial position of the Target Group and the statements of financial position of the Target Company as at 31 December 2011, 2012 and 2013 and 30 September 2014 and the consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements of the Target Group, for each of the years ended 31 December 2011, 2012 and 2013, and the nine months ended 30 September 2014 (the “Relevant Periods”), together with the explanatory notes thereto (the “Financial Information”), for inclusion in the circular dated 27 January 2015 (the “Circular”) issued by Sinofert Holdings Limited (“Sinofert” or the “Company”) in connection with the proposed acquisition of 15.01% equity interest in Qinghai Salt Lake (the “Acquisition”).

The Target Company was established in the People’s Republic of China (the “PRC”) with limited liabilities on 25 August 1997.

All companies comprising the Target Group have adopted 31 December as their financial year end date. Details of the companies comprising the Target Group that are subject to statutory audits during the Relevant Periods and the names of the respective auditors are set out in Note 32 of Section B. The statutory financial statements of these companies were prepared in accordance with the Accounting Standards for Business Enterprises issued by the Ministry of Finance of the PRC.

The directors of the Target Company have prepared the consolidated financial statements of the Target Group for the Relevant Periods (the “Underlying Financial Statements”) in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The Underlying Financial Statements for each of the Relevant Periods were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

– 33 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

The Financial Information has been prepared by the directors of the Company for inclusion in the Circular in connection with the Acquisition based on the Underlying Financial Statements, with no adjustments made thereon, and in accordance with the applicable disclosure provisions of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL INFORMATION

The directors of the Company are responsible for the preparation of the Financial Information that gives a true and fair view in accordance with HKFRSs issued by the HKICPA, the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Listing Rules, and for such internal control as the directors of the Company determine is necessary to enable the preparation of the Financial Information that is free from material misstatement, whether due to fraud or error.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to form an opinion on the Financial Information based on our procedures performed in accordance with Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA. We have not audited any financial statements of the Target Company, its subsidiaries or the Target Group in respect of any period subsequent to 30 September 2014.

OPINION

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 Target Group and the Target Company as at 31 December 2011, 2012 and 2013 and 30 September 2014 and the Target Group’s results and cash flows for the Relevant Periods then ended.

CORRESPONDING FINANCIAL INFORMATION

For the purpose of this report, we have also reviewed the unaudited corresponding interim financial information of the Target Group comprising the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the nine months ended 30 September 2013, together with the notes thereon (the “Corresponding Financial Information”), for which the directors of the Company are responsible, in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA.

The directors of the Company are responsible for the preparation of the Corresponding Financial Information in accordance with the same basis adopted in respect of the Financial Information. Our responsibility is to express a conclusion on the Corresponding Financial Information based on our review.

– 34 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the Corresponding Financial Information.

Based on our review, for the purpose of this report, nothing has come to our attention that causes us to believe that the Corresponding Financial Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information.

– 35 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

A FINANCIAL INFORMATION

1 CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Section B Note Revenue 4 Cost of sales Gross profit Other revenue 5 Other net expense 5 Distribution cost Administrative expenses Profit from operations Financial costs 6(a) Share of profits less losses of associates Profit before taxation 6 Income tax 7 Profit and total comprehensive income for the year/period Attributable to: Equity shareholders of the Target Company Non-controlling interests Earnings per share 10 Basic (RMB) Diluted (RMB)	Years ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 6,777,563 8,270,807 8,094,573 (2,869,076) (4,260,943) (5,003,975) 3,908,487 4,009,864 3,090,598 692,777 921,762 666,095 (17,449) (28,807) (69,385) (544,584) (887,992) (1,167,403) (548,210) (432,620) (457,505) 3,491,021 3,582,207 2,062,400 (137,157) (363,234) (633,132) – 802 1,874 3,353,864 3,219,775 1,431,142 (536,252) (467,848) (364,999) 2,817,612 2,751,927 1,066,143 2,481,131 2,524,262 1,052,207 336,481 227,665 13,936 1.79 1.59 0.66 1.79 1.59 0.66	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 5,383,782 6,610,507 (3,568,270) (4,233,511) 1,815,512 2,376,996 531,122 328,495 (49,157) (13,581) (683,533) (937,718) (277,435) (342,569) 1,336,509 1,411,623 (408,941) (534,291) 1,406 (2,158) 928,974 875,174 (243,606) (189,546) 685,368 685,628 589,281 652,828 96,087 32,800 0.37 0.41 0.37 0.41

The accompanying notes form part of the Financial Information.

– 36 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

2 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Section B Note Non-current assets Property, plant and equipment 11 Investment properties Intangible assets 12 Advance payments for acquisition of property, plant and equipment Goodwill 13 Interest in associates 14 Available-for-sale investments 15 Deferred tax assets 25 Other long-term assets Current assets Inventories 16 Trade and bills receivables 17 Other receivables and prepayments 18 Pledged bank deposit 19 Cash and cash equivalents 19 Current liabilities Trade and bills payables 20 Other payables and accrued expenses 21 Interest-bearing borrowings due within one year 22 Current portion of obligations under finance lease 24 Current tax liabilities Net current liabilities Total assets less current liabilities	Years ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 (Unaudited) 19,384,565 28,610,579 41,129,719 13,316 15,862 13,349 612,031 600,398 567,613 2,794,065 4,277,757 3,975,785 21,341 21,341 21,341 – 55,893 57,766 478,125 478,125 478,125 119,931 240,624 193,863 2,437 39,661 32,051 23,425,811 34,340,240 46,469,612 - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,735,184 2,063,614 2,383,798 1,975,367 3,656,457 2,388,155 828,649 1,151,733 1,986,857 46,651 53,758 7,219 1,900,040 2,112,249 2,324,215 6,485,891 9,037,811 9,090,244 - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,369,421 3,541,647 5,007,553 2,125,425 3,000,442 2,208,639 2,853,640 3,778,540 3,492,300 26,574 195,502 195,502 405,782 590,034 313,544 7,780,842 11,106,165 11,217,538 - - - - - - - - - - - - - - - - - - - - - - - - - - - (1,294,951) (2,068,354) (2,127,294) - - - - - - - - - - - - - - - - - - - - - - - - - - - 22,130,860 32,271,886 44,342,318 - - - - - - - - - - - - - - - - - - - - - - - - - - -	At 30 September 2014 RMB’000 48,450,678 15,919 543,470 4,905,016 21,341 78,339 478,125 175,540 26,228 54,694,656 - - - - - - - - - - - 2,628,020 1,107,134 2,419,769 321,000 2,256,261 8,732,184 - - - - - - - - - - - 5,605,478 2,588,668 4,591,500 195,502 158,612 13,139,760 - - - - - - - - - - - (4,407,576) - - - - - - - - - - - 50,287,080 - - - - - - - - - - -

The accompanying notes form part of the Financial Information.

– 37 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

2 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

Section B Note Non-current liabilities Interest-bearing borrowings due after one year 22 Deferred income 23 Obligations under finance lease 24 Provisions Other non-current liabilities NET ASSETS CAPITAL AND RESERVES 26(a) Share capital Reserves Total equity attributable to equity shareholders of the Target Company Non-controlling interests TOTAL EQUITY	Years ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 (Unaudited) 6,190,305 13,359,363 25,218,291 265,664 298,729 408,130 438,205 661,949 498,699 38,613 36,000 36,000 285,084 227,293 175,761 7,217,871 14,583,334 26,336,881 - - - - - - - - - - - - - - - - - - - - - - - - - - - 14,912,989 17,688,552 18,005,437 1,590,509 1,590,509 1,590,509 12,085,650 14,339,770 14,819,950 13,676,159 15,930,279 16,410,459 1,236,830 1,758,273 1,594,978 14,912,989 17,688,552 18,005,437	At 30 September 2014 RMB’000 30,565,827 404,617 364,346 36,000 211,724
		31,582,514 - - - - - - - - - - - 18,704,566
		1,590,509 15,451,538
		17,042,047 1,662,519
		18,704,566

The accompanying notes form part of the Financial Information.

– 38 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

3 STATEMENTS OF FINANCIAL POSITION OF THE TARGET COMPANY

Section B Note Non-current assets Property, plant and equipment 11 Investment properties Intangible assets 12 Advance payments for acquisition of property, plant and equipment Investment in subsidiaries 32 Interest in associates Available-for-sale investments 15 Deferred tax assets 25 Current assets Inventories 16 Trade and bills receivables 17 Other receivables and prepayments 18 Pledged bank deposit 19 Cash and cash equivalents 19 Current liabilities Trade and bills payables 20 Other payables and accrued expenses 21 Interest-bearing borrowings due within one year 22 Current portion of obligations under finance lease Current tax liabilities Net current assets Total assets less current liabilities	Years ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 (Unaudited) 11,571,637 12,196,969 13,698,069 5,703 5,291 4,878 548,966 522,350 496,633 389,217 732,746 453,198 2,727,815 4,563,915 7,511,907 – – – 403,000 403,000 403,000 56,720 87,165 87,117 15,703,058 18,511,436 22,654,802 - - - - - - - - - - - - - - - - - - - - - - - - - - - 875,324 1,024,482 1,059,051 1,938,228 3,512,546 2,063,194 3,864,657 9,248,961 15,958,176 – – – 1,216,298 1,037,675 1,437,618 7,894,507 14,823,664 20,518,039 - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,251,379 1,194,973 1,372,361 1,767,445 2,269,449 1,522,333 2,304,640 2,972,540 2,623,300 – 106,184 106,184 320,265 475,852 258,561 5,643,729 7,018,998 5,882,739 - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,250,778 7,804,666 14,635,300 - - - - - - - - - - - - - - - - - - - - - - - - - - - 17,953,836 26,316,102 37,290,102 - - - - - - - - - - - - - - - - - - - - - - - - - - -	At 30 September 2014 RMB’000 14,706,230 4,569 477,843 525,307 11,221,512 6,431 403,000 91,921
		27,436,813 - - - - - - - - - - - 1,002,451 819,912 19,339,214 200,000 1,458,976
		22,820,553 - - - - - - - - - - - 1,335,282 1,629,242 4,021,000 106,184 141,061
		7,232,769 - - - - - - - - - - -
		15,587,784 - - - - - - - - - - -
		43,024,597 - - - - - - - - - - -

The accompanying notes form part of the Financial Information.

– 39 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

• 3 STATEMENTS OF FINANCIAL POSITION OF THE TARGET COMPANY (CONTINUED)

Section B Note Non-current liabilities Interest-bearing borrowings due after one year 22 Deferred income 23 Obligations under finance lease Other non-current liabilities NET ASSETS CAPITAL AND RESERVES 26(a) Share capital Reserves TOTAL EQUITY	Years ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 (Unaudited) 4,432,305 10,310,363 20,490,291 176,434 59,000 74,000 – 299,675 212,986 223,950 166,583 115,051 4,832,689 10,835,621 20,892,328 - - - - - - - - - - - - - - - - - - - - - - - - - - - 13,121,147 15,480,481 16,397,774 1,590,509 1,590,509 1,590,509 11,530,638 13,889,972 14,807,265 13,121,147 15,480,481 16,397,774	At 30 September 2014 RMB’000 25,522,827 74,100 150,157 87,798
		25,834,882 - - - - - - - - - - - 17,189,715
		1,590,509 15,599,206
		17,189,715

The accompanying notes form part of the Financial Information.

– 40 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

4 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Balance 1 January 2011 Profit and total comprehensive income for the year Maintenance and production fund Distributions to non- controlling interests Transfer between reserves Capital increased through capital reserve Paid-in capital contributed by non-controlling interests Acquisition of non- controlling interests Balance at 31 December 2011 and 1 January 2012 Profit and total comprehensive income for the year Maintenance and production fund Dividends approved in respect of the previous year Distributions to non- controlling interests Transfer between reserves Paid-in capital contributed by non-controlling interests Balance at 31 December 2012 and 1 January 2013	Attributable to equity shareholders of the Target Company Share capital Capital reserve Statutory reserve Other reserve Retained profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 26(d)) (Note 26(d)) (Note 26(d)) 767,550 6,759,155 600,256 294,795 2,803,751 11,225,507 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - – – – – 2,481,131 2,481,131 – – – (9,137) – (9,137) – – – – – – – – 414,855 – (414,855) – 822,959 (822,959) – – – – – – – – – – – (21,342) – – – (21,342) 1,590,509 5,914,854 1,015,111 285,658 4,870,027 13,676,159 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - – – – – 2,524,262 2,524,262 – – – (66,650) – (66,650) – – – – (254,481) (254,481) – – – – – – – – 268,143 – (268,143) – – 50,989 – – – 50,989 1,590,509 5,965,843 1,283,254 219,008 6,871,665 15,930,279 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -	Non- controlling interests RMB’000 887,303 - - - - - - - - 336,481 – (128,563) – – 143,646 (2,037) 1,236,830 - - - - - - - - 227,665 – – (109,918) – 403,696 1,758,273 - - - - - - - -	Total equity RMB’000 12,112,810 - - - - - - - - 2,817,612 (9,137) (128,563) – – 143,646 (23,379)
			14,912,989 - - - - - - - - 2,751,927 (66,650) (254,481) (109,918) – 454,685
			17,688,552 - - - - - - - -

The accompanying notes form part of the Financial Information.

– 41 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

4 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

Balance at 31 December 2012 and 1 January 2013 Profit and total comprehensive income for the year Maintenance and production fund Dividends approved in respect of the previous year Distributions to non- controlling interests Transfer between reserves Acquisition of non- controlling interests Balance at 31 December 2013 and 1 January 2014 Balance at 31 December 2013 and 1 January 2014 Profit and total comprehensive income for the period Maintenance and production fund Dividends approved in respect of the previous years Distributions to non- controlling interests Paid-in capital contributed by non-controlling interests Balance at 30 September 2014	Attributable to equity shareholders of the Target Company Share capital Capital reserve Statutory reserve Other reserve Retained profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 26(d)) (Note 26(d)) (Note 26(d)) 1,590,509 5,965,843 1,283,254 219,008 6,871,665 15,930,279 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - – – – – 1,052,207 1,052,207 – – – 6,678 – 6,678 – – – – (508,963) (508,963) – – – – – – – – 142,531 – (142,531) – – (52,355) – – (17,387) (69,742) 1,590,509 5,913,488 1,425,785 225,686 7,254,991 16,410,459 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,590,509 5,913,488 1,425,785 225,686 7,254,991 16,410,459 – – – – 652,828 652,828 – – – 85,675 – 85,675 – – – – (106,564) (106,564) – – – – – – – (351) – – – (351) 1,590,509 5,913,137 1,425,785 311,361 7,801,255 17,042,047	Non- controlling interests RMB’000 1,758,273 - - - - - - - - 13,936 – – (159,221) – (18,010) 1,594,978 - - - - - - - - 1,594,978 32,800 – – (31,355) 66,096 1,662,519	Total equity RMB’000 17,688,552 - - - - - - - - 1,066,143 6,678 (508,963) (159,221) – (87,752)
			18,005,437 - - - - - - - - 18,005,437 685,628 85,675 (106,564) (31,355) 65,745
			18,704,566

The accompanying notes form part of the Financial Information.

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

4 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

Unaudited: Balance at 31 December 2012 and 1 January 2013 Profit and total comprehensive income for the period (Unaudited) Maintenance and production fund (Unaudited) Dividends approved in respect of the previous year (Unaudited) Distributions to non- controlling interests (Unaudited) Acquisition of non- controlling interests (Unaudited) Balance at 30 September 2013 (Unaudited)	Attributable to equity shareholders of the Target Company Share capital Capital reserve Statutory reserve Other reserve Retained profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 26(d)) (Note 26(d)) (Note 26(d)) 1,590,509 5,965,843 1,283,254 219,008 6,871,665 15,930,279 – – – – 589,281 589,281 – – – (17,766) – (17,766) – – – – (508,963) (508,963) – – – – – – – (52,228) – – (17,514) (69,742) 1,590,509 5,913,615 1,283,254 201,242 6,934,469 15,923,089	Non- controlling interests RMB’000 1,758,273 96,087 – – (104,730) (18,010) 1,731,620	Total equity RMB’000 17,688,552 685,368 (17,766) (508,963) (104,730) (87,752)
			17,654,709

The accompanying notes form part of the Financial Information.

– 43 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

5 CONSOLIDATED CASH FLOW STATEMENTS

Section B Note Operating activities Cash generated from operations 19(b) Income tax paid Net cash generated from operating activities Investing activities Payment for acquisition of property and equipment Payment for acquisition of intangible assets Payment for acquisition of other long-term assets Payment for acquisition of associates Payment for available-for- sale investments Interest income Proceeds from dividends from available-for-sale investments Proceeds received from disposal of property and equipment, investment properties and intangible assets	Years ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 3,426,490 2,762,161 3,481,867 (556,532) (404,289) (594,728) 2,869,958 2,357,872 2,887,139 - - - - - - - - - - - - - - - - - - - - - - - - (6,546,732) (9,632,706) (12,071,177) (70,611) (22,108) (1,473) (1,510) (45,808) (361) – (55,091) – (383,000) – – 42,258 17,466 17,343 – 10,000 12,000 27,972 7,809 21,988	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 1,897,157 3,111,256 (335,820) (326,155) 1,561,337 2,785,101 - - - - - - - - - - - - - - - - - (7,753,979) (7,504,396) (672) (531) – – – (46,680) – – 12,664 13,637 12,000 12,000 5,013 2,869

Net cash used in investing activities (6,931,623) (9,720,438) (12,021,680) (7,724,974) (7,523,101) - - - - - - - -

The accompanying notes form part of the Financial Information.

– 44 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

5 CONSOLIDATED CASH FLOW STATEMENTS (CONTINUED)

Section B Note Financing activities Interest paid Payment for acquisition of non-controlling interests Proceeds from loans and borrowings Proceeds from bonds Repayment of loans and borrowings Dividends paid Capital injection from non- controlling interests Payment for financial lease obligations Proceeds from borrowings for financial lease obligations Net cash generated from financing activities Net (decrease)/ increase in cash and cash equivalent Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December/ 30 September 19	Years ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 (408,775) (928,160) (1,320,905) (23,379) – (87,752) 4,265,633 11,040,098 10,803,655 – – 4,969,456 (930,000) (2,946,140) (4,203,540) (128,563) (364,399) (668,184) 143,646 454,685 – (135,418) (181,309) (146,223) 300,000 500,000 – 3,083,144 7,574,775 9,346,507 - - - - - - - - - - - - - - - - - - - - - - - - (978,521) 212,209 211,966 2,878,561 1,900,040 2,112,249 1,900,040 2,112,249 2,324,215	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) (961,280) (1,585,552) (87,752) – 6,963,655 9,485,982 4,969,456 – (3,545,195) (3,041,500) (613,693) (137,919) – 65,745 (76,269) (116,710) – – 6,648,922 4,670,046 - - - - - - - - - - - - - - - - - 485,285 (67,954) 2,112,249 2,324,215 2,597,534 2,256,261

The accompanying notes form part of the Financial Information.

– 45 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

B NOTES TO THE FINANCIAL INFORMATION

(Expressed in Renminbi unless otherwise indicated)

1 GENERAL

The Target 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 Target Company and its subsidiaries are principally engaged in manufacture and sales of potash and chemical products for industrial use.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”), which collective term includes all individual HKFRSs, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). Further details of the significant accounting policies adopted are set out in the remainder of this Section B.

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Financial Information, the Target Group has adopted all applicable new and revised HKFRSs to the Relevant Periods, except for any new standards or interpretations that are effective for the accounting periods beginning after 1 January 2014. The revised and new accounting standards and interpretations issued but not yet effective for the accounting periods beginning after 1 January 2014 are set out in Note 31.

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

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

The Corresponding Financial Information for the nine months ended 30 September 2013 has been prepared in accordance with the same basis and accounting policies adopted in respect of the Financial Information.

(b) Basis of presentation

The Financial Information is presented in Renminbi (“RMB”), rounded to the nearest thousand, which is the functional currency of the Target Company and its subsidiaries. The measurement basis used in the preparation of the Financial Information is the historical cost basis except that the following assets and liabilities are stated at their fair value as explained in the accounting policies set out below:

• investment property (see Note 2(g)); and

• financial instruments classified as available-for-sale securities (see Note 2(f)).

The Financial Information have been prepared on the basis that the Target Group will continue to operate throughout the next twelve months as a going concern. The Target Group’s current liabilities exceeded its current assets by RMB1,294,951,000, RMB2,068,354,000, RMB2,127,294,000 and RMB4,407,576,000 respectively, as at 31 December 2011, 2012 and 2013, and 30 September 2014. Based on future projections of the Target Group’s profits and cash inflows from operations and the ability of the Target Group to obtain continued bank financing to finance its continuing operation, the Target Company’s directors have prepared the financial statements on a going concern basis.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Basis of presentation (continued)

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

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

Judgements made by management in the application of HKFRSs that have significant effect on the Financial Information and major sources of estimation uncertainty are discussed in Note 3.

(c) Subsidiaries and non-controlling interests

Subsidiaries are entities controlled by the Target Group. The Target Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Target Group has power, only substantive rights (held by the Target Group and other parties) are considered.

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

Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Target Company, and in respect of which the Target Group has not agreed any additional terms with the holders of those interests which would result in the Target Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Target Group can elect to measure any non-controlling interests either at fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net identifiable assets.

Non-controlling interests are presented in the consolidated statements of financial position within equity, separately from equity attributable to the equity shareholders of the Target Company. Non-controlling interests in the results of the Target Group are presented on the face of the consolidated statements of profit or loss and other comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Target Company.

Changes in the Target Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.

When the Target Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 2(f)) or, when appropriate, the cost on initial recognition of an investment in an associate (see Note 2(d)).

In the Target Company’s statement of financial position, an investment in a subsidiaries is stated at cost less impairment losses (see Note 2(k)), unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale).

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(d) Associates

An associate is an entity in which the Target Group or the Target Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

An investment in an associate is accounted for in the Financial Information under the equity method, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Target Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Target Group’s share of the investee’s net assets and any impairment loss relating to the investment (see Notes 2(e) and (k)). Any acquisition-date excess over cost, the Target Group’s share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in profit or loss in the consolidated statement of profit or loss and other comprehensive income, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of profit or loss and other comprehensive income.

When the Target Group’s share of losses exceeds its interest in the associate, the Target Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Target Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Target Group’s interest is the carrying amount of the investment under the equity method together with the Target Group’s long-term interests that in substance form part of the Target Group’s net investment in the associate.

Unrealised profits and losses resulting from transactions between the Target Group and its associates are eliminated to the extent of the Target Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

In all other cases, when the Target Group ceases to have significant influence over an associate, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 2(f)).

In the Target Company’s statement of financial position, investment in an associate is stated at cost less impairment losses (see note 2(k)), unless classified as held for sale (or included in a disposal group that is classified as held for sale).

(e) Goodwill

Goodwill represents the excess of

• (i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Target Group’s previously held equity interest in the acquiree; over

• (ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see Note 2(k)).

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(f) Other investments in debt and equity securities

The Target Group’s and the Target Company’s policies for investments in debt and equity securities, other than investments in subsidiaries and associates, are as follows:

Investments in debt and equity securities are initially stated at fair value, which is their transaction price unless it is determined that the fair value at initial recognition differs from the transaction price and that fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. These investments are subsequently accounted for as follows, depending on their classification:

Investments in securities held for trading are classified as current assets. Any attributable transaction costs are recognised in profit or loss as incurred. At the end of each Relevant Periods the fair value is remeasured, with any resultant gain or loss being recognised in profit or loss. The net gain or loss recognised in profit or loss does not include any dividends or interest earned on these investments as these are recognised in accordance with the policies set out in Note 2(t)(iii) and (iv).

Dated debt securities that the Target Group and/or the Target Company have the positive ability and intention to hold to maturity are classified as held-to-maturity securities. Held-to-maturity securities are stated at amortised cost less impairment losses.

Investments in securities which do not fall into any of the above categories are classified as available-for-sale securities. At the end of each Relevant Periods the fair value is remeasured, with any resultant gain or loss being recognised in other comprehensive income and accumulated separately in equity in the fair value reserve. As an exception to this, investments in equity securities that do not have a quoted price in an active market for an identical instrument and whose fair value cannot otherwise be reliably measured are recognised in the statement of financial position at cost less impairment losses. Dividend income from equity securities and interest income from debt securities calculated using the effective interest method are recognised in profit or loss in accordance with the policies set out in Notes 2(t)(iii) and (iv), respectively. Foreign exchange gains and losses resulting from changes in the amortised cost of debt securities are also recognised in profit or loss.

When the investments are derecognised or impaired (see Note 2(k)), the cumulative gain or loss recognised in equity is reclassified to profit or loss. Investments are recognised/derecognised on the date the Target Group commits to purchase/sell the investments or they expire.

(g) Investment properties

Investment properties are buildings or plants which are owned or held under a leasehold interest to earn rental income and/or for capital appreciation.

Investment properties are stated at fair value, unless their fair value cannot be reliably measured at that time. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment properties is accounted for as described in Note 2(t)(ii).

(h) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see Note 2(k)).

The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (see Note 2(u)).

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(h) Property, plant and equipment (continued)

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives. The estimated useful lives of property, plant and equipment are as follows:

Category	Years of depreciation
Plants and buildings	10-40 years
Equipment	15 years
Motor vehicles and others	5-10 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

(i) Intangible assets (other than goodwill)

Intangible assets that are acquired by the Target Group and the Target Company are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see Note 2(k)). Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows:

Category	Years of amortisation
Mining rights	30 years
Patents	10 years
Others	10 years

Both the period and method of amortisation are reviewed annually.

Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above.

(j) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Target Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Target Group

Assets that are held by the Target Group under leases which transfer to the Target Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Target Group are classified as operating leases.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(j) Leased assets (continued)

(ii) Assets acquired under finance leases

Where the Target Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such assets are included in fixed assets and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Target Group will obtain ownership of the asset, the life of the asset, as set out in Note 2(h). Impairment losses are accounted for in accordance with the accounting policy as set out in Note 2(k). Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(iii) Operating lease charges

Where the Target Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(k) Impairment of assets

(i) Impairment of investments in debt and equity securities and receivables

Investments in debt and equity securities and current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at each statement of financial position date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Target Group about one or more of the following loss events:

• significant financial difficulty of the debtor;

• a breach of contract, such as a default or delinquency in interest or principal payments;

• it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;

• significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and

• a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

If any such evidence exists, any impairment loss is determined and recognised as follows:

• For investments in associates accounted for under the equity method in the Financial Information (see Note 2(d)), the impairment loss is measured by comparing the recoverable amount of the investment with its carrying amount in accordance with note 2(k)(ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with Note 2(k)(ii).

• For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities are not reversed.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(k) Impairment of assets (continued)

(i) Impairment of investments in debt and equity securities and receivables (continued)

• For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where these financial assets share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

• For available-for-sale securities, the cumulative loss that has been recognised in the fair value reserve is reclassified to profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.

Impairment losses recognised in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognised in other comprehensive income.

Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. Reversals of impairment losses in such circumstances are recognised in profit or loss.

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors and bills receivable included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Target Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against loans and receivables directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each statement of financial position date to identify indications that property and equipment may be impaired or an impairment loss previously recognised no longer exists or may have decreased.

• property, plant and equipment;

• intangible assets

• goodwill; and

• investment in associates.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(k) Impairment of assets (continued)

(ii) Impairment of other assets (continued)

• Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs to sell 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. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

–

Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).

Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(l) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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

(m) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less allowance for impairment of doubtful debts (see Note 2(k)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(n) Interest-bearing borrowings

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

(o) Trade and other payables

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

(p) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Target Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.

(q) Employee benefits

Short-term benefits

Salaries, wages, bonuses and other benefits and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees.

(r) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

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

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

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

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(r) Income tax (continued)

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Target Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

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

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

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

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

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

• the same taxable entity; or

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

(s) Provisions and contingent liabilities

Provisions are recognised for other liabilities of uncertain timing or amount when the Target Group or the Target Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

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

(t) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Target Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

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

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(t) Revenue recognition (continued)

(ii) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

(iii) Dividend

Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established.

• (iv) Interest income

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

(v) Government grants

Government grants are recognised in the statement of financial position initially when there is reasonable assurance that they will be received and that the Target Group will comply with the conditions attaching to them. Grants that compensate the Target Group for expenses incurred are recognised as income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Target Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

(u) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(v) Related parties

• (a) A person, or a close member of that person’s family, is related to the Target Group if that person:

• (i) has control or joint control over the Target Group;

• (ii) has significant influence over the Target Group; or

• (iii) is a member of the key management personnel of the Target Group or the Target Group’s parent.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

• (v) Related parties (continued)

• (b) An entity is related to the Target Group if any of the following conditions applies:

  • (i) The entity and the Target Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

  • (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

  • (iii) Both entities are joint ventures of the same third party.

  • (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

  • (v) The entity is a post-employment benefit plan for the benefit of employees of either the group or an entity related to the Target Group.

  • (vi) The entity is controlled or jointly controlled by a person identified in (a).

  • (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

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

(w) Segment reporting

Operating segments, and the amounts of each segment item reported in the Financial Information, are identified from the financial information provided regularly to the Target Group’s most senior executive management for the purpose of allocating resources to, and assessing the performance of, the Target Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

3 ACCOUNTING JUDGEMENT AND ESTIMATES

The key sources of estimation uncertainty and critical accounting judgements in applying the Target Company’s accounting policies are described below.

Impairment of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience of distributing and selling products of similar nature. It could change significantly as a result of competitor actions in response to severe industry cycles or other changes in market condition. The Target Group will reassess the estimations at each statement of financial position date.

Impairment of trade and other receivables

Impairment losses for trade and other receivables are assessed and provided based on the Target Group’s regular review of aging analysis and evaluation of collectibles. In considering the impairment losses that may be required for current receivables, future cash flows need to be determined. One of the key assumptions that has to be adopted is about the ability of the debtors to settle the receivables. Even though the Target Group has used all available information to make this estimation, inherent uncertainty exists and actual un-collectable amounts may be higher than the amount estimated.

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

3 ACCOUNTING JUDGEMENT AND ESTIMATES (CONTINUED)

Impairment of property, plant and equipment

In considering the impairment losses that may be required for the Target Group’s property, plant and equipment and construction in progress, the recoverable amount of the asset needs to be determined. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate the net selling price because quoted market prices for these assets may not be readily available. In determining the value in use, expected cash flows generated by the asset are discounted to their present values, which require significant judgement relating to items such as the level of sales volume, selling price and amount of operating costs. The Target Group uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of items such as sales volume, selling prices and amount of operating costs.

4 TURNOVER AND SEGMENT REPORTING

(a) Turnover

The principal activities of the Target Group are manufacturing and sales of potash and chemical products for industrial use.

Sale of potash and related products Sale of chemical products Others	Years 2011 RMB’000 5,890,191 451,450 435,922 6,777,563	ended 31 December 2012 2013 RMB’000 RMB’000 7,129,801 6,332,628 749,652 1,337,078 391,354 424,867 8,270,807 8,094,573	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 4,198,537 4,805,027 868,988 1,385,570 316,257 419,910 5,383,782 6,610,507	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 4,198,537 4,805,027 868,988 1,385,570 316,257 419,910 5,383,782 6,610,507
				6,610,507

(b) Segment reporting

The Target Group manages its business by products. In a manner consistent with the way in which information is reported internally to the Target Group’s most senior executive management for the purposes of resource allocation and performance assessment, the Target Group has presented the following reportable segments.

• Potash – this segment manufactures and sells products of potash and related products.

• Chemical products and others – this segment mainly manufactures and sells kinds of chemical products such as PVC, cement, potassium hydroxide and potassium carbonate and other business.

(i) Segment results, assets and liabilities

For the purposes of assessing segment performance and allocating resources between segments, the Target Group’s senior executive management monitors the results, assets and liabilities attributable to each reportable segment on the following bases:

Segment assets include all tangible, intangible assets and current assets, investments in financial assets and other corporate assets. Segment liabilities include trade and bills payable and other payables and accrued expenses and bank loans and other borrowings managed directly by the segments.

– 58 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

4 TURNOVER AND SEGMENT REPORTING (CONTINUED)

(b) Segment reporting (continued)

(i) Segment results, assets and liabilities (continued)

Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments or which otherwise arise from the depreciation or amortisation of assets attributable to those segments.

The measure used for reporting segment profit is “adjusted profit before taxation”. To arrive at adjusted profit before taxation, the Target Group’s profits are further adjusted for items not specifically attributed to an individual reportable segment, such as share of profits less losses of an associate, directors’ remuneration, auditors’ remuneration, finance costs in relation to the unallocated bank loans and other head office or corporate administration expenses.

In addition to receiving segment information concerning adjusted profit before taxation, management is provided with segment information concerning revenue, interest income and expense from cash balances and borrowings managed directly by the segments, depreciation, amortisation and impairment losses and additions to non-current segment assets used by the segments in their operations. Inter-segment sales are priced with reference to prices charged to external parties for similar orders.

– 59 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

Year ended 31 December Nine months ended 30 September	2011 2012 2013 2014	Chemical Chemical Chemical Chemical	products products products products	Potash and others Total Potash and others Total Potash and others Total Potash and others Total	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	Revenue from external customers 5,890,191 887,372 6,777,563 7,129,801 1,141,006 8,270,807 6,332,628 1,761,945 8,094,573 4,805,027 1,805,480 6,610,507	Inter-segment revenue 856 128,382 129,238 5,899 234,376 240,275 – 216,886 216,886 – 115,069 115,069	Reportable segment revenue 5,891,047 1,015,754 6,906,801 7,135,700 1,375,382 8,511,082 6,332,628 1,978,831 8,311,459 4,805,027 1,920,549 6,725,576	Reportable segment profit/(losses)	(adjusted profit/(losses) before	taxation) 3,592,761 (84,291) 3,508,470 4,588,771 (978,779) 3,609,992 3,078,811 (930,381) 2,148,430 2,109,035 (681,738) 1,427,297		Interest income 34,856 7,402 42,258 6,358 11,108 17,466 9,318 8,025 17,343 6,403 7,234 13,637	Interest expenses 99,229 37,928 137,157 138,408 224,826 363,234 213,176 419,956 633,132 195,587 338,704 534,291	Depreciation and amortisation for	the year/period 212,309 197,963 410,272 240,107 292,966 533,073 253,097 495,074 748,171 214,584 426,161 640,745	Impairment of plant and machinery 1,615 – 1,615 – – – 29,874 1,486 31,360 – – –	Reportable segment assets 21,782,928 21,694,312 43,477,240 29,412,703 32,082,454 61,495,157 35,694,851 44,840,139 80,534,990 39,647,540 53,055,573 92,703,113	Additions to non-current segment assets	during the year/period 954,718 4,309,095 5,263,813 1,082,912 8,658,058 9,740,970 1,095,665 12,180,315 13,275,980 888,774 7,043,926 7,932,700	Reportable segment liabilities 9,386,955 19,369,570 28,756,525 16,937,440 27,053,773 43,991,213 25,390,943 37,554,820 62,945,763 30,863,137 43,708,802 74,571,939

– 60 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

4 TURNOVER AND SEGMENT REPORTING (CONTINUED)

(b) Segment reporting (continued)

(i) Segment results, assets and liabilities (continued)

Revenue from external customers Inter-segment revenue Reportable segment revenue Reportable segment profit/(losses) (adjusted profit/(losses) before taxation) Interest income Interest expense Depreciation and amortisation for the period Impairment of plant and machinery	Nine months ended 30 September 2013 (Unaudited) Potash Chemical products and others Total RMB’000 RMB’000 RMB’000 4,198,537 1,185,245 5,383,782 – 115,338 115,338 4,198,537 1,300,583 5,499,120 2,136,597 (748,573) 1,388,024 3,559 9,105 12,664 141,463 267,478 408,941 192,488 284,043 476,531 29,874 1,486 31,360	Nine months ended 30 September 2013 (Unaudited) Potash Chemical products and others Total RMB’000 RMB’000 RMB’000 4,198,537 1,185,245 5,383,782 – 115,338 115,338 4,198,537 1,300,583 5,499,120 2,136,597 (748,573) 1,388,024 3,559 9,105 12,664 141,463 267,478 408,941 192,488 284,043 476,531 29,874 1,486 31,360
		5,499,120
		1,388,024
		12,664 408,941 476,531 31,360

(ii) Reconciliations of reportable segment revenues, profit or loss, assets and liabilities

Revenue Reportable segment revenue Elimination of inter-segment revenue Consolidated turnover Profit Reportable segment profit Elimination of inter-segment profits Reportable segment profit derived from the Target Group’s external customer Share of profits less losses of associates Other net expense Finance costs Consolidated profit before taxation	Years 2011 RMB’000 6,906,801 (129,238) 6,777,563 3,508,470 – s 3,508,470 – (17,449) (137,157) 3,353,864	ended 31 December 2012 2013 RMB’000 RMB’000 8,511,082 8,311,459 (240,275) (216,886) 8,270,807 8,094,573 3,609,992 2,148,430 1,022 (16,645) 3,611,014 2,131,785 802 1,874 (28,807) (69,385) (363,234) (633,132) 3,219,775 1,431,142	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 5,499,120 6,725,576 (115,338) (115,069) 5,383,782 6,610,507 1,388,024 1,427,297 (2,358) (2,093) 1,385,666 1,425,204 1,406 (2,158) (49,157) (13,581) (408,941) (534,291) 928,974 875,174	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 5,499,120 6,725,576 (115,338) (115,069) 5,383,782 6,610,507 1,388,024 1,427,297 (2,358) (2,093) 1,385,666 1,425,204 1,406 (2,158) (49,157) (13,581) (408,941) (534,291) 928,974 875,174
				6,610,507
				1,427,297 (2,093)
				1,425,204 (2,158) (13,581) (534,291)
				875,174

– 61 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

4 TURNOVER AND SEGMENT REPORTING (CONTINUED)

(b) Segment reporting (continued)

• (ii) Reconciliations of reportable segment revenues, profit or loss, assets and liabilities (continued)

Assets Reportable segment assets Elimination of inter-segment receivables Consolidated subtotal assets Interests in associates Available-for-sale investments Deferred tax assets Consolidated total assets Liabilities Reportable segment liabilities Elimination of inter-segment payables Consolidated subtotal liabilities Current tax liabilities Consolidated total liabilities	At 31 December 2011 2012 RMB’000 RMB’000 43,477,240 61,495,157 (14,163,594) (18,891,748) 29,313,646 42,603,409 – 55,893 478,125 478,125 119,931 240,624 29,911,702 43,378,051 28,756,525 43,991,213 (14,163,594) (18,891,748) 14,592,931 25,099,465 405,782 590,034 14,998,713 25,689,499	2013 RMB’000 80,534,990 (25,704,888) 54,830,102 57,766 478,125 193,863 55,559,856 62,945,763 (25,704,888) 37,240,875 313,544 37,554,419	At 30 September 2014 RMB’000 92,703,113 (30,008,277) 62,694,836 78,339 478,125 175,540 63,426,840 74,571,939 (30,008,277) 44,563,662 158,612 44,722,274

– 62 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

5 OTHER REVENUE AND OTHER NET EXPENSE

						Nine months ended	Nine months ended	Nine months ended
	Years ended 31 December					30 September
	2011		2012		2013	2013		2014
	RMB’000	RMB’000			RMB’000	RMB’000	RMB’000
						(Unaudited)
Other revenue
Dividend income from
available-for-sale
investments	–		10,000		12,000	12,000	12,000
Interest income	42,258		17,466		17,343	12,664	13,637
Government grants	640,882		703,258		606,319	487,462	290,844
Amortisation of deferred
income	400		173,475		10,434	7,771		4,731
Net gain on sale of
property, plant and
equipment	1,089		5,709		3,973	94		1,907
Others	8,148		11,854		16,026	11,131		5,376
	692,777		921,762		666,095	531,122	328,495
						Nine months ended
		**Years ended **		31 December		30 September
	Note	2011		2012	2013	2013		2014
	RMB’000		RMB’000		RMB’000	RMB’000	RMB’000
						(Unaudited)
Other net expense
Bad debts of trade and
other receivables		4,031		7,166	12,127	458		8,053
Impairment losses of
property, plant and
equipment	11	1,615		–	31,360	29,874		–
Donation		2,702		3,983	3,951	952		2,365
Bank charges		2,272		3,837	3,346	1,913		1,351
Others		6,829	13,821		18,601	15,960		1,812
		17,449	28,807		69,385	49,157	13,581

– 63 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

6 PROFIT BEFORE TAXATION

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

(a) Financial costs

Interest expense on loans and borrowings Less: Interest expense capitalised* Finance charges on obligations under financial lease	Years 2011 RMB’000 408,775 (324,166) 84,609 52,548 137,157	ended 31 December 2012 2013 RMB’000 RMB’000 928,160 1,534,125 (638,907) (979,017) 289,253 555,108 73,981 78,024 363,234 633,132	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 1,078,166 1,527,056 (717,379) (1,042,830) 360,787 484,226 48,154 50,065 408,941 534,291

• The borrowing costs have been capitalised at rates of 6.62%, 6.69%, 6.59%, 6.52% (Unaudited) and 6.56% per annum for the years ended 31 December 2011, 2012 and 2013, and the nine months ended 30 September 2013 and 2014, respectively.

(b) Staff costs

				**Nine months **	ended
	**Years **	ended 31 December		30 September
	2011	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Salaries, wages and
other benefits	911,627	1,284,267	1,640,217	936,884	1,181,776

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

6 PROFIT BEFORE TAXATION (CONTINUED)

(c) Other items

Amortisation – land lease premium (note 11) – intangible assets (note 12) – other long-term assets Depreciation (note 11) Impairment losses – Property, plant and equipment (note 11) – trade receivables – other receivables – inventory Operating lease charges Auditors’ remuneration Cost of inventories	Years 2011 RMB’000 3,011 35,644 1,009 39,664 370,608 1,615 792 6,662 54,008 63,077 7,355 660 2,374,078	ended 31 December 2012 2013 RMB’000 RMB’000 5,433 5,032 33,741 32,758 8,584 7,971 47,758 45,761 485,315 702,410 – 31,360 1,826 3,377 7,725 10,171 145,766 551,555 155,317 596,463 4,459 5,962 850 1,245 3,690,705 4,404,281	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 3,768 3,929 25,239 24,193 5,957 5,823 34,964 33,945 441,567 606,800 29,874 – 916 7,510 963 3,777 350,283 504,747 382,036 516,034 903 2,466 – – 3,016,357 3,676,613	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 3,768 3,929 25,239 24,193 5,957 5,823 34,964 33,945 441,567 606,800 29,874 – 916 7,510 963 3,777 350,283 504,747 382,036 516,034 903 2,466 – – 3,016,357 3,676,613
				33,945
				606,800
				– 7,510 3,777 504,747
				516,034
				2,466
				–
				3,676,613

– 65 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

7 INCOME TAX IN THE CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

• (a) Taxation in the consolidated statements of profit or loss represents:

Note Provision for the year/period Over-provision in respect of prior years Deferred tax 25(a)	Years ended 31 December Nine months ended 30 September 2011 2012 2013 2013 2014 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 512,176 588,983 321,778 219,308 171,326 (5,804) (442) (3,540) (3,540) (103) 29,880 (120,693) 46,761 27,838 18,323 536,252 467,848 364,999 243,606 189,546

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

Profit before taxation Tax calculated at the applicable tax rate of 25% Effect of different income tax rates Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of share of profits less losses of associates Effect of prior year’s tax losses and deductible temporary difference utilised during the year/period Effect of tax losses and deductible temporary difference not recognised Tax effect of write-down of deferred tax assets recognised in prior years Over-provision in respect of prior years Income tax expense for the year/period	Years 2011 RMB’000 3,353,864 838,466 (331,172) 42,229 (8,928) – (5,491) 6,952 – (5,804) 536,252	ended 31 December 2012 2013 RMB’000 RMB’000 3,219,775 1,431,142 804,944 357,786 (360,686) (193,830) 18,399 42,234 (3,867) (4,628) (200) (468) (5,037) (550) 11,839 111,251 2,898 56,744 (442) (3,540) 467,848 364,999	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 928,974 875,174 232,244 218,793 (129,158) (116,416) 26,331 15,917 (4,171) (3,501) (351) 539 (564) (612) 69,139 74,929 53,676 – (3,540) (103) 243,606 189,546

Note: The provision for the PRC Enterprise Income Tax of the Target Group is based on the statutory rate of 25% on the estimated taxable profits determined in accordance with the relevant income tax rules and regulations of the PRC for the year, except for certain subsidiaries of the Target Group which enjoy a preferential tax rate according to related tax policies.

– 66 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

8 DIRECTORS’ REMUNERATION

The directors believe the presentation of such information is not meaningful for the purpose of this report.

9 INDIVIDUALS WITH HIGHEST EMOLUMENTS

The directors believe the presentation of the five highest paid employees information is not meaningful for the purpose of this report.

10 EARNINGS PER SHARE

Earnings Earnings for the purpose of basic/diluted earnings per share Number of shares Weighted average number of ordinary shares for the purpose of basic/diluted earnings per share	Years 2011 RMB’000 2,481,131 Years 2011 ’000 shares 1,384,769	ended 31 December 2012 2013 RMB’000 RMB’000 2,524,262 1,052,207 ended 31 December 2012 2013 ’000 shares ’000 shares 1,590,509 1,590,509	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 589,281 652,828 Nine months ended 30 September 2013 2014 ’000 shares ’000 shares (Unaudited) 1,590,509 1,590,509

– 67 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

11 PROPERTY, PLANT AND EQUIPMENT

The Target Group Cost: At 1 January 2011 Additions Transfers from construction in progress Disposals At 31 December 2011 and 1 January 2012 Additions Transfers from construction in progress Disposals At 31 December 2012 and 1 January 2013 Additions Transfers from construction in progress Disposals At 31 December 2013 and 1 January 2014 Additions Transfers from construction in progress Disposals At 30 September 2014	Plants and buildings RMB’000 2,512,630 21,511 1,840,232 (9,328) 4,365,045 - - - - - - - 31,930 1,180,417 (3,467) 5,573,925 - - - - - - - 6,236 2,061,919 (10,248) 7,631,832 - - - - - - - 11,842 50,230 (5,257) 7,688,647 - - - - - - -	Equipment RMB’000 1,950,157 93,858 1,563,136 (20,192) 3,586,959 - - - - - - - - 95,746 1,304,684 (2,835) 4,984,554 - - - - - - - - 28,998 1,657,540 (36,332) 6,634,760 - - - - - - - - 54,394 – (288) 6,688,866 - - - - - - - -	Motor vehicles and others RMB’000 772,728 70,962 284,170 (9,493) 1,118,367 - - - - - - - 59,857 176,945 (20,969) 1,334,200 - - - - - - - 49,949 125,373 (9,170) 1,500,352 - - - - - - - 42,483 – (516) 1,542,319 - - - - - - -	Construction in progress RMB’000 11,405,114 4,916,261 (3,687,538) (10,911) 12,622,926 - - - - - - - - - 9,487,146 (2,662,046) – 19,448,026 - - - - - - - - - 13,187,105 (3,844,832) – 28,790,299 - - - - - - - - - 7,822,002 (50,230) – 36,562,071 - - - - - - - - -	Sub-total RMB’000 16,640,629 5,102,592 – (49,924) 21,693,297 - - - - - - - - 9,674,679 – (27,271) 31,340,705 - - - - - - - - 13,272,288 – (55,750) 44,557,243 - - - - - - - - 7,930,721 – (6,061) 52,481,903 - - - - - - - -	Interests in Leasehold land held for own use under operating lease RMB’000 134,762 43,687 – – 178,449 - - - - - - - - - 44,183 – – 222,632 - - - - - - - - - 2,219 – (2,246) 222,605 - - - - - - - - - 1,448 – – 224,053 - - - - - - - - -	Total property, plant and equipment RMB’000 16,775,391 5,146,279 – (49,924)
							21,871,746 - - - - - - - 9,718,862 – (27,271)
							31,563,337 - - - - - - - 13,274,507 – (57,996)
							44,779,848 - - - - - - - 7,932,169 – (6,061)
							52,705,956 - - - - - - -

– 68 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

11 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

The Target Group Accumulated amortisation and depreciation At 1 January 2011 Charge for the year Impairment loss for the year Written back on disposals At 31 December 2011 and 1 January 2012 Charge for the year Written back on disposals At 31 December 2012 and 1 January 2013 Charge for the year Impairment loss for the year Written back on disposals At 31 December 2013 and 1 January 2014 Charge for the period Written back on disposals At 30 September 2014 Net book value: At 31 December 2011 At 31 December 2012 At 31 December 2013 At 30 September 2014	Plants and buildings RMB’000 (834,746) (117,550) (1,469) 6,993 (946,772) - - - - - - - (150,108) 3,344 (1,093,536) - - - - - - - (213,871) – 8,732 (1,298,675) - - - - - - - (190,578) 4,904 (1,484,349) - - - - - - - 3,418,273 4,480,389 6,333,157 6,204,298	Equipment RMB’000 (936,060) (136,830) (104) 11,474 (1,061,520) - - - - - - - - (237,512) 2,762 (1,296,270) - - - - - - - - (343,442) – 26,175 (1,613,537) - - - - - - - - (310,569) 194 (1,923,912) - - - - - - - - 2,525,439 3,688,284 5,021,223 4,764,954	Motor vehicles and others RMB’000 (351,206) (116,228) (42) 3,924 (463,552) - - - - - - - (97,695) 19,065 (542,182) - - - - - - - (145,097) – 6,178 (681,101) - - - - - - - (105,653) 482 (786,272) - - - - - - - 654,815 792,018 819,251 756,047	Construction in progress RMB’000 (10,911) – – 10,911 – - - - - - - - - - – – – - - - - - - - - - – (31,360) – (31,360) - - - - - - - - - – – (31,360) - - - - - - - - - 12,622,926 19,448,026 28,758,939 36,530,711	Sub-total RMB’000 (2,132,923) (370,608) (1,615) 33,302 (2,471,844) - - - - - - - - (485,315) 25,171 (2,931,988) - - - - - - - - (702,410) (31,360) 41,085 (3,624,673) - - - - - - - - (606,800) 5,580 (4,225,893) - - - - - - - - 19,221,453 28,408,717 40,932,570 48,256,010	Interests in Leasehold land held for own use under operating lease RMB’000 (12,326) (3,011) – – (15,337) - - - - - - - - - (5,433) – (20,770) - - - - - - - - - (5,032) – 346 (25,456) - - - - - - - - - (3,929) – (29,385) - - - - - - - - - 163,112 201,862 197,149 194,668	Total property, plant and equipment RMB’000 (2,145,249) (373,619) (1,615) 33,302
							(2,487,181) - - - - - - - (490,748) 25,171
							(2,952,758) - - - - - - - (707,442) (31,360) 41,431
							(3,650,129) - - - - - - - (610,729) 5,580
							(4,255,278) - - - - - - -
							19,384,565
							28,610,579
							41,129,719
							48,450,678

– 69 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

11 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

The Target Company Cost: At 1 January 2011 Additions Transfers from construction in progress Disposals At 31 December 2011 and 1 January 2012 Additions Transfers from construction in progress Disposals Transfer to subsidiaries At 31 December 2012 and 1 January 2013 Additions Transfers from construction in progress Disposals At 31 December 2013 and 1 January 2014 Additions Transfers from construction in progress Disposals At 30 September 2014 Accumulated amortisation and depreciation At 1 January 2011 Charge for the year Written back on disposals At 31 December 2011 and 1 January 2012	Plants and buildings RMB’000 1,971,135 11,754 1,421,998 – 3,404,887 - - - - - - - 17,255 260,612 – – 3,682,754 - - - - - - - 12,336 1,059,157 – 4,754,247 - - - - - - - 4,139 50,230 – 4,808,616 - - - - - - - (700,431) (65,216) – (765,647) - - - - - - -	Equipment RMB’000 1,446,831 60,331 900,103 – 2,407,265 - - - - - - - - 61,922 1,015,012 – – 3,484,199 - - - - - - - - 10,342 778,994 (790) 4,272,745 - - - - - - - - 26,473 – – 4,299,218 - - - - - - - - (771,986) (64,415) – (836,401) - - - - - - - -	Motor vehicles and others RMB’000 563,853 34,945 214,864 (3,415) 810,247 - - - - - - - 39,144 61,030 (8,511) – 901,910 - - - - - - - 10,735 255,899 (5,094) 1,163,450 - - - - - - - 25,918 – (203) 1,189,165 - - - - - - - (269,595) (69,638) 784 (338,449) - - - - - - -	Construction in progress RMB’000 7,383,176 2,020,135 (2,536,965) – 6,866,346 - - - - - - - - - 841,813 (1,336,654) – – 6,371,505 - - - - - - - - - 1,889,847 (2,094,050) – 6,167,302 - - - - - - - - - 1,338,859 (50,230) – 7,455,931 - - - - - - - - - – – – – - - - - - - - - -	Sub-total RMB’000 11,364,995 2,127,165 – (3,415) 13,488,745 - - - - - - - - 960,134 – (8,511) – 14,440,368 - - - - - - - - 1,923,260 – (5,884) 16,357,744 - - - - - - - - 1,395,389 – (203) 17,752,930 - - - - - - - - (1,742,012) (199,269) 784 (1,940,497) - - - - - - - -	Interests in Leasehold land held for own use under operating lease RMB’000 28,080 – – – 28,080 - - - - - - - - - – – – (10,470) 17,610 - - - - - - - - - – – – 17,610 - - - - - - - - - – – – 17,610 - - - - - - - - - (3,893) (798) – (4,691) - - - - - - - - -	Total property, plant and equipment RMB’000 11,393,075 2,127,165 – (3,415)
							13,516,825 - - - - - - - 960,134 – (8,511) (10,470)
							14,457,978 - - - - - - - 1,923,260 – (5,884)
							16,375,354 - - - - - - - 1,395,389 – (203)
							17,770,540 - - - - - - -
							(1,745,905) (200,067) 784
							(1,945,188) - - - - - - -

– 70 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

11 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

The Target Company Charge for the year Written back on disposals Transfer to subsidiaries At 31 December 2012 and 1 January 2013 Charge for the year Written back on disposals At 31 December 2013 and 1 January 2014 Charge for the period Written back on disposals At 30 September 2014 Net book value: At 31 December 2011 At 31 December 2012 At 31 December 2013 At 30 September 2014	Plants and buildings RMB’000 (110,879) – – (876,526) - - - - - - - (147,339) – (1,023,865) - - - - - - - (121,657) – (1,145,522) - - - - - - - 2,639,240 2,806,228 3,730,382 3,663,094	Equipment RMB’000 (154,873) – – (991,274) - - - - - - - - (175,118) 309 (1,166,083) - - - - - - - - (193,921) – (1,360,004) - - - - - - - - 1,570,864 2,492,925 3,106,662 2,939,214	Motor vehicles and others RMB’000 (55,872) 6,571 – (387,750) - - - - - - - (95,858) 2,485 (481,123) - - - - - - - (71,067) 197 (551,993) - - - - - - - 471,798 514,160 682,327 637,172	Construction in progress RMB’000 – – – – - - - - - - - - - – – – - - - - - - - - - – – – - - - - - - - - - 6,866,346 6,371,505 6,167,302 7,455,931	Sub-total RMB’000 (321,624) 6,571 – (2,255,550) - - - - - - - - (418,315) 2,794 (2,671,071) - - - - - - - - (386,645) 197 (3,057,519) - - - - - - - - 11,548,248 12,184,818 13,686,673 14,695,411	Interests in Leasehold land held for own use under operating lease RMB’000 (1,272) – 504 (5,459) - - - - - - - - - (755) – (6,214) - - - - - - - - - (577) – (6,791) - - - - - - - - - 23,389 12,151 11,396 10,819	Total property, plant and equipment RMB’000 (322,896) 6,571 504
							(2,261,009) - - - - - - - (419,070) 2,794
							(2,677,285) - - - - - - - (387,222) 197
							(3,064,310) - - - - - - -
							11,571,637
							12,196,969
							13,698,069
							14,706,230

Notes:

• (a) All plants, buildings and interests in leasehold land held for own uses under operating leases are located in the PRC. The Target Group’s interests in leasehold land held for own uses under operating leases expire between 34 years and 50 years.

• (b) Certain plants and buildings, equipment and interests in leasehold land held for own use under operating lease of the Target Group with an aggregate carrying amount of RMB1,137,033,000, RMB1,188,995,000, RMB1,108,281,000 and RMB1,000,502,000 for the years ended 31 December 2011, 2012 and 2013 and for nine months ended 30 September 2014, respectively, are pledged to secure bank loans and other borrowings (see note 22) granted to the Target Group.

• (c) As at the date of this report, the ownership certificates for certain plants and buildings of the Target Group with a carrying amount of RMB nil, RMB nil, RMB196,528,000 and RMB192,871,000 for the years ended 31 December 2011, 2012 and 2013 and for nine months ended 30 September 2014, respectively, have not been obtained.

• (d) Certain property, plant and equipment which were obsolete, damaged or that could not generate future economic benefits were provided against for impairment for the years ended 31 December 2011, 2012 and 2013 and for nine months ended 30 September 2014 was RMB1,615,000, RMB Nil, RMB31,360,000 and RMB Nil respectively.

– 71 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

12 INTANGIBLE ASSETS

The Target Group Cost: At 1 January 2011 Additions Disposals At 31 December 2011 and 1 January 2012 Additions At 31 December 2012 and 1 January 2013 Additions Disposals At 31 December 2013 and 1 January 2014 Additions Disposals At 30 September 2014 Accumulated amortisation: At 1 January 2011 Charge for the year Written back on disposals At 31 December 2011 and 1 January 2012 Charge for the year At 31 December 2012 and 1 January 2013 Charge for the year At 31 December 2013 and 1 January 2014 Charge for the period Written back on disposals At 30 September 2014 Net book value: At 31 December 2011 At 31 December 2012 At 31 December 2013 At 30 September 2014	Mining rights RMB’000 535,449 63,125 – 598,574 - - - - - - - - - - - 20,138 618,712 - - - - - - - - - - - – – 618,712 - - - - - - - - - - - – – 618,712 - - - - - - - - - - - (58,171) (19,315) – (77,486) - - - - - - - - - - - (21,198) (98,684) - - - - - - - - - - - (20,862) (119,546) - - - - - - - - - - - (15,378) – (134,924) - - - - - - - - - - - 521,088 520,028 499,166 483,788	Patents RMB’000 129,720 51,260 (64,750) 116,230 - - - - - - - - - - - 1,500 117,730 - - - - - - - - - - - – (1,500) 116,230 - - - - - - - - - - - – – 116,230 - - - - - - - - - - - (33,229) (15,273) 17,827 (30,675) - - - - - - - - - - - (10,935) (41,610) - - - - - - - - - - - (10,351) (51,961) - - - - - - - - - - - (7,435) – (59,396) - - - - - - - - - - - 85,555 76,120 64,269 56,834	Others RMB’000 9,580 3,149 – 12,729 - - - - - - - - - - - 470 13,199 - - - - - - - - - - - 1,473 – 14,672 - - - - - - - - - - - 531 (530) 14,673 - - - - - - - - - - - (6,285) (1,056) – (7,341) - - - - - - - - - - - (1,608) (8,949) - - - - - - - - - - - (1,545) (10,494) - - - - - - - - - - - (1,380) 49 (11,825) - - - - - - - - - - - 5,388 4,250 4,178 2,848	Total RMB’000 674,749 117,534 (64,750) 727,533 - - - - - - - - - - - 22,108 749,641 - - - - - - - - - - - 1,473 (1,500) 749,614 - - - - - - - - - - - 531 (530) 749,615 - - - - - - - - - - - (97,685) (35,644) 17,827 (115,502) - - - - - - - - - - - (33,741) (149,243) - - - - - - - - - - - (32,758) (182,001) - - - - - - - - - - - (24,193) 49 (206,145) - - - - - - - - - - - 612,031 600,398 567,613 543,470

– 72 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

12 INTANGIBLE ASSETS (CONTINUED)

The Target Company Cost: At 1 January 2011 Additions Disposals At 31 December 2011 and 31 December 2012 Additions At 31 December 2013 and 1 January 2014 Additions At 30 September 2014 Accumulated amortisation: At 1 January 2011 Charge for the year Written back on disposals At 31 December 2011 and 1 January 2012 Charge for the year At 31 December 2012 and 1 January 2013 Charge for the year At 31 December 2013 and 1 January 2014 Charge for the period At 30 September 2014 Net book value: At 31 December 2011 At 31 December 2012 At 31 December 2013 At 30 September 2014	Mining rights RMB’000 512,149 63,125 – 575,274 - - - - - - - - - - - – 575,274 - - - - - - - - - - - – 575,274 - - - - - - - - - - - (51,215) (18,299) – (69,514) - - - - - - - - - - - (19,176) (88,690) - - - - - - - - - - - (19,176) (107,866) - - - - - - - - - - - (14,653) (122,519) - - - - - - - - - - - 505,760 486,584 467,408 452,755	Patents RMB’000 64,362 – (109) 64,253 - - - - - - - - - - - – 64,253 - - - - - - - - - - - – 64,253 - - - - - - - - - - - (19,311) (6,353) 9 (25,655) - - - - - - - - - - - (4,446) (30,101) - - - - - - - - - - - (5,322) (35,423) - - - - - - - - - - - (3,991) (39,414) - - - - - - - - - - - 38,598 34,152 28,830 24,839	Others RMB’000 7,066 2,863 – 9,929 - - - - - - - - - - - 204 10,133 - - - - - - - - - - - 479 10,612 - - - - - - - - - - - (4,494) (827) – (5,321) - - - - - - - - - - - (2,994) (8,315) - - - - - - - - - - - (1,423) (9,738) - - - - - - - - - - - (625) (10,363) - - - - - - - - - - - 4,608 1,614 395 249	Total RMB’000 583,577 65,988 (109) 649,456 - - - - - - - - - - - 204 649,660 - - - - - - - - - - - 479 650,139 - - - - - - - - - - - (75,020) (25,479) 9 (100,490) - - - - - - - - - - - (26,616) (127,106) - - - - - - - - - - - (25,921) (153,027) - - - - - - - - - - - (19,269) (172,296) - - - - - - - - - - - 548,966 522,350 496,633 477,843

– 73 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

13 GOODWILL

Cost Impairment loss Carrying amount	At 31 December 2011 2012 RMB’000 RMB’000 55,941 55,941 (34,600) (34,600) 21,341 21,341	2013 RMB’000 55,941 (34,600) 21,341	At 30 September 2014 RMB’000 55,941 (34,600)
			21,341

14 INTEREST IN ASSOCIATES

										At
					**At **	**31 **	December		**30 **	September
				2011			2012	2013		2014
				RMB’000			RMB’000	RMB’000		RMB’000
Share	of	net	assets	–			55,893	57,766		78,339

The following lists are associates of the Target Group as at 30 September 2014:

		Particulars of	The Target	The Target
	Place and date of	issued and paid	Group’s effective
Name of associate	incorporation	up capital	interests		Principal Activity
Magontec Limited	Australia	AUD51,597,000		29.65%	Sales of alloys
(澳大利亞海鎂特有限公					and anodes
司)
Anhui Huilong South Salt	The PRC	RMB30,000,000		26.00%	Sales of potash
Lake Trading Co. Ltd.
(安徽鹽湖輝隆南方貿易
有限公司)
Inner Mongolia North Salt	The PRC	RMB50,000,000		30.00%	Sales of potash
Lake Trading Co. Ltd.
(內蒙古北方鹽湖商貿有
限公司)
Sichuan Salt Lake Huili	The PRC	RMB50,000,000	15.00%*		Sales of potash
Trading Co., Ltd.
(四川鹽湖匯力貿易有限
公司)

• As the Target Company has rights to appoint three out of nine directors of this company, the Target Company has significant influence on this company.

– 74 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

14 INTEREST IN ASSOCIATES (CONTINUED)

The directors of the Target Company are of the opinion that no associates are individually material to the Target Group. Aggregate information of associates that are not individually material are listed below:

At 31 December 2011 2012 RMB’000 RMB’000 Aggregate carrying amount of individually immaterial associates in the consolidated financial statements – 55,893 Aggregate amounts of the Target Group’s share of those associates’ – Profit/(loss) from continuing operation – 802 – Total comprehensive income/(expense) – 802 AVAILABLE-FOR-SALE INVESTMENTS At 31 December 2011 2012 RMB’000 RMB’000 The Target Group Available-for-sale equity securities: – Unlisted 478,125 478,125 The Target Company Available-for-sale equity securities: – Unlisted 403,000 403,000	2013 RMB’000 57,766 1,874 1,874 2013 RMB’000 478,125 403,000	At 30 September 2014 RMB’000 78,339 (2,158) (2,158) At 30 September 2014 RMB’000 478,125 403,000

15 AVAILABLE-FOR-SALE INVESTMENTS

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

– 75 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

16 INVENTORIES

(a) Inventories in the statement of financial position comprise:

The Target Group Raw materials Work in progress Finished goods Goods in transit The Target Company Raw materials Work in progress Finished goods Goods in transit	At 31 December 2011 2012 RMB’000 RMB’000 379,865 637,181 124,885 142,105 972,591 1,126,808 257,843 157,520 1,735,184 2,063,614 At 31 December 2011 2012 RMB’000 RMB’000 333,968 655,347 5,181 7,872 340,613 361,263 195,562 – 875,324 1,024,482	2013 RMB’000 750,884 245,973 1,228,028 158,913 2,383,798 2013 RMB’000 551,866 110,346 396,839 – 1,059,051	At 30 September 2014 RMB’000 946,412 382,756 1,114,500 184,352
			2,628,020
			At 30 September 2014 RMB’000 498,405 270,054 233,992 –
			1,002,451

(b) The analysis of the amount of inventories recognised as an expense and included in profit or loss is as follows:

Carrying amount of inventories sold Write down of inventories	At 31 December 2011 2012 RMB’000 RMB’000 2,320,070 3,544,939 54,008 145,766 2,374,078 3,690,705	2013 RMB’000 3,852,726 551,555 4,404,281	At 30 September 2014 RMB’000 3,171,866 504,747
			3,676,613

– 76 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

17 TRADE AND BILLS RECEIVABLES

The Target Group Trade receivable Less: allowance for doubtful debts (Note 17(b)) Bill receivables The Target Company Amount due from subsidiaries Trade receivable Less: allowance for doubtful debts (Note 17(b)) Bill receivables	At 31 December 2011 2012 RMB’000 RMB’000 201,688 274,874 (124,593) (124,498) 77,095 150,376 1,898,272 3,506,081 1,975,367 3,656,457 At 31 December 2011 2012 RMB’000 RMB’000 44,252 221 112,486 153,654 (102,282) (101,379) 54,456 52,496 1,883,772 3,460,050 1,938,228 3,512,546	2013 RMB’000 423,019 (127,051) 295,968 2,092,187 2,388,155 2013 RMB’000 36,370 242,243 (102,299) 176,314 1,886,880 2,063,194	At 30 September 2014 RMB’000 504,989 (133,293)
			371,696 735,438
			1,107,134
			At 30 September 2014 RMB’000 70,098 371,271 (107,279)
			334,090 485,822
			819,912

(a) Ageing analysis

The ageing analysis of trade and bills receivable, based on the invoice date and net of allowance for doubtful debts, is as follows:

The Target Group Within 3 months 3 to 6 months 6 to 12 months Over 12 months	At 31 December 2011 2012 RMB’000 RMB’000 860,985 1,603,330 1,100,999 2,033,526 – 1,133 13,383 18,468 1,975,367 3,656,457	2013 RMB’000 1,155,076 1,213,468 553 19,058 2,388,155	At 30 September 2014 RMB’000 674,621 426,554 3,543 2,416
			1,107,134

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

17 TRADE AND BILLS RECEIVABLES (CONTINUED)

(a) Ageing analysis (continued)

The Target Company Within 3 months 3 to 6 months 6 to 12 months Over 12 months	At 31 December 2011 2012 RMB’000 RMB’000 845,414 1,505,638 1,092,588 2,006,828 – – 226 80 1,938,228 3,512,546	2013 RMB’000 968,795 1,094,391 – 8 2,063,194	At 30 September 2014 RMB’000 536,607 281,777 – 1,528
			819,912

Trade and bills receivable are due within 30 days from the date of billing. Further details on the Target Group’s credit policy are set out in Note 27(a).

(b) Impairment of trade receivable

The movement in the allowance for doubtful debts during the year/period is as follows:

The Target Group At 1 January Impairment loss recognised Reversal of doubtful debt At 31 December/30 September The Target Company At 1 January Impairment loss recognised Reversal of doubtful debt At 31 December/30 September	At 31 December 2011 2012 RMB’000 RMB’000 125,580 124,593 792 1,826 (1,779) (1,921) 124,593 124,498 At 31 December 2011 2012 RMB’000 RMB’000 101,863 102,282 419 525 – (1,428) 102,282 101,379	2013 RMB’000 124,498 3,377 (824) 127,051 2013 RMB’000 101,379 1,451 (531) 102,299	At 30 September 2014 RMB’000 127,051 7,510 (1,268)
			133,293
			At 30 September 2014 RMB’000 102,299 5,469 (489)
			107,279

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

17 TRADE AND BILLS RECEIVABLES (CONTINUED)

(c) Trade debtors and bills receivable that are not impaired

The Target Group Neither past due nor impaired Less than three months past due Over three months At 31 December/30 September The Target Company Neither past due nor impaired Less than three months past due Over three months At 31 December/30 September	At 31 December 2011 2012 RMB’000 RMB’000 1,910,958 3,523,470 51,026 114,520 13,383 18,467 1,975,367 3,656,457 At 31 December 2011 2012 RMB’000 RMB’000 1,938,002 3,460,182 – 52,284 226 80 1,938,228 3,512,546	2013 RMB’000 2,116,640 252,231 19,284 2,388,155 2013 RMB’000 1,923,250 139,936 8 2,063,194	At 30 September 2014 RMB’000 962,896 138,279 5,959
			1,107,134
			At 30 September 2014 RMB’000 744,548 73,836 1,528
			819,912

Receivables that were neither past due nor impaired relate to customers for whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Target Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Target Group does not hold any collateral over these balances.

18 OTHER RECEIVABLES AND PREPAYMENTS

The Target Group Deductible input VAT Advance payments Other receivables Less: allowance for doubtful debts (Note 18(a))	At 31 December 2011 2012 RMB’000 RMB’000 540,489 938,005 117,579 27,996 298,651 284,400 (128,070) (98,668) 828,649 1,151,733	2013 RMB’000 1,759,190 83,716 252,193 (108,242) 1,986,857	At 30 September 2014 RMB’000 2,141,623 97,047 291,152 (110,053)
			2,419,769

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

18 OTHER RECEIVABLES AND PREPAYMENTS (CONTINUED)

The Target Company Deductible input VAT Amounts due from subsidiaries Other receivables Less: allowance for doubtful debts (Note 18(a))	At 31 December 2011 2012 RMB’000 RMB’000 238,921 268,380 3,598,400 8,932,173 103,716 128,712 (76,380) (80,304) 3,864,657 9,248,961	2013 RMB’000 251,097 15,669,482 124,492 (86,895) 15,958,176	At 30 September 2014 RMB’000 164,723 19,125,726 137,098 (88,333) 19,339,214

(a) Impairment of other receivables and prepayments

The movement in the allowance for doubtful debts during the year is as follows:

The Target Group At 1 January Impairment loss recognised Reversal of doubtful debt Uncollectible amounts written off At 31 December/30 September The Target Company At 1 January Impairment loss recognised Reversal of doubtful debt Uncollectible amounts written off At 31 December/30 September	At 31 December 2011 2012 RMB’000 RMB’000 139,704 128,070 6,662 7,725 (1,644) (464) (16,652) (36,663) 128,070 98,668 At 31 December 2011 2012 RMB’000 RMB’000 88,157 76,380 4,749 4,451 – – (16,526) (527) 76,380 80,304	2013 RMB’000 98,668 10,171 (597) – 108,242 2013 RMB’000 80,304 6,988 (397) – 86,895	At 30 September 2014 RMB’000 108,242 3,777 (1,966) – 110,053 At 30 September 2014 RMB’000 86,895 1,438 – – 88,333

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

19 CASH AND CASH EQUIVALENTS

• (a) Cash and cash equivalents comprise:

Note The Target Group Cash at bank and in hand Pledged bank deposits (i) Less: Pledged bank deposits Cash and cash equivalents Note The Target Company Cash at bank and in hand Pledged bank deposits (i) Less: Pledged bank deposits Cash and cash equivalents	At 31 December 2011 2012 RMB’000 RMB’000 1,900,040 2,112,249 46,651 53,758 1,946,691 2,166,007 (46,651) (53,758) 1,900,040 2,112,249 At 31 December 2011 2012 RMB’000 RMB’000 1,216,298 1,037,675 – – 1,216,298 1,037,675 – – 1,216,298 1,037,675	2013 RMB’000 2,324,215 7,219 2,331,434 (7,219) 2,324,215 2013 RMB’000 1,437,618 – 1,437,618 – 1,437,618	At 30 September 2014 RMB’000 2,256,261 321,000 2,577,261 (321,000) 2,256,261 At 30 September 2014 RMB’000 1,458,976 200,000 1,658,976 (200,000) 1,458,976

Note:

(i) Cash deposits of RMB321,000,000 for the Target Group and RMB200,000,000 for the Target Company as at 30 September 2014 were mainly pledged to banks for the performance guarantee in relation to bills payables.

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

19 CASH AND CASH EQUIVALENTS (CONTINUED)

(b) Reconciliation of profit before taxation to cash generated from operations:

Profit before taxation Adjustments for: Depreciation Impairment loss on property, plant and equipment Amortisation of land lease premium Amortisation of intangible assets Amortisation of other long- term assets Impairment loss on trade receivables and other receivables Reversal of impairment loss on trade receivables and other receivables Impairment loss on inventories Reversal of provision Write-off of waived payables Finance costs Dividend income from available-for-sale investments Interest income Share of profits less losses of associates Loss on sale of property, plant and equipment Amortisation of deferred income Changes in working capital: Increase in inventories Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Cash generated from operations	Years 2011 RMB’000 3,353,864 370,608 1,615 3,011 35,644 1,009 7,454 (3,423) 54,008 (2,360) – 137,157 – (42,258) – (1,089) (400) 3,914,840 (120,411) 1,305,564 (1,673,503) 3,426,490	ended 31 December 2012 2013 RMB’000 RMB’000 3,219,775 1,431,142 485,315 702,410 – 31,360 5,433 5,032 33,741 32,758 8,584 7,971 9,551 13,548 (2,385) (1,421) 145,766 551,555 (2,613) – (7,425) (146) 363,234 633,132 (10,000) (12,000) (17,466) (17,343) (802) (1,874) (5,709) (3,973) (173,475) (10,434) 4,051,524 3,361,717 (474,196) (871,739) (2,016,847) 470,154 1,201,680 521,735 2,762,161 3,481,867	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 928,974 875,174 441,567 606,800 29,874 – 3,768 3,929 25,239 24,193 5,957 5,823 1,879 11,287 (1,421) (3,234) 350,283 504,747 – – (146) (522) 408,941 534,291 (12,000) (12,000) (12,664) (13,637) (1,406) 2,158 (94) (1,907) (7,771) (4,731) 2,160,980 2,532,371 (826,539) (748,969) 784,932 551,742 (222,216) 776,112 1,897,157 3,111,256

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

20 TRADE AND BILLS PAYABLES

The Target Group Trade payable Bills payable The Target Company Trade payable Bills payable	At 31 December 2011 2012 RMB’000 RMB’000 2,369,421 3,496,176 – 45,471 2,369,421 3,541,647 At 31 December 2011 2012 RMB’000 RMB’000 1,251,379 1,149,502 – 45,471 1,251,379 1,194,973	2013 RMB’000 4,970,107 37,446 5,007,553 2013 RMB’000 1,334,915 37,446 1,372,361	At 30 September 2014 RMB’000 5,400,547 204,931
			5,605,478
			At 30 September 2014 RMB’000 1,251,351 83,931
			1,335,282

The carrying amount of trade payable mainly represents the payables for the construction projects of the Target Group and the Target Company. As of the end of the reporting periods, the ageing analysis of trade and bills payable, based on the invoice date, is as follows:

The Target Group Within 3 months 3 to 6 months 6 to 12 months Over 12 months The Target Company Within 3 months 3 to 6 months 6 to 12 months Over 12 months	At 31 December 2011 2012 RMB’000 RMB’000 812,281 1,531,569 583,523 911,247 133,850 369,756 839,767 729,075 2,369,421 3,541,647 At 31 December 2011 2012 RMB’000 RMB’000 368,908 131,555 444,638 745,649 2,073 51,405 435,760 266,364 1,251,379 1,194,973	2013 RMB’000 2,372,868 1,194,517 330,673 1,109,495 5,007,553 2013 RMB’000 163,292 942,699 65,378 200,992 1,372,361	At 30 September 2014 RMB’000 2,769,974 763,746 335,070 1,736,688
			5,605,478
			At 30 September 2014 RMB’000 297,752 458,068 10,869 568,593
			1,335,282

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

21 OTHER PAYABLES AND ACCRUED EXPENSES

The Target Group Receipt in advance Deposit payable Accrued payroll and welfare Interest payable Other tax payables Others The Target Company Receipt in advance Deposit payable Accrued payroll and welfare Interest payable Advance to subsidiaries Other tax payables Others	At 31 December 2011 2012 RMB’000 RMB’000 1,234,246 1,907,745 391,041 540,476 135,671 203,648 1,573 1,573 225,048 146,056 137,846 200,944 2,125,425 3,000,442 At 31 December 2011 2012 RMB’000 RMB’000 1,071,353 1,656,021 162,074 141,942 83,379 122,903 – – 313,947 144,387 59,067 68,009 77,625 136,187 1,767,445 2,269,449	2013 RMB’000 785,773 567,751 293,088 211,676 177,821 172,530 2,208,639 2013 RMB’000 526,690 71,037 170,558 207,917 339,056 83,052 124,023 1,522,333	At 30 September 2014 RMB’000 1,225,668 691,301 82,970 150,836 136,672 301,221
			2,588,668
			At 30 September 2014 RMB’000 861,743 49,333 32,552 145,542 292,926 97,882 149,264
			1,629,242

22 INTEREST-BEARING BORROWINGS

The analysis of the carrying amount of interest-bearing borrowings is as follows:

Note The Target Group Bank loans – secured (i) – unsecured Bonds (ii) Principal amount Less: unamortised transaction costs	At 31 December 2011 2012 RMB’000 RMB’000 1,327,000 2,619,000 7,716,945 14,518,903 9,043,945 17,137,903 - - - - - - - - - - - - - - - - - - – – – – – – - - - - - - - - - - - - - - - - - - 9,043,945 17,137,903	2013 RMB’000 4,706,000 19,032,018 23,738,018 - - - - - - - - - 5,000,000 (27,427) 4,972,573 - - - - - - - - - 28,710,591	At 30 September 2014 RMB’000 5,002,000 25,180,500
			30,182,500 - - - - - - - - - - - 5,000,000 (25,173)
			4,974,827 - - - - - - - - - - -
			35,157,327

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

22 INTEREST-BEARING BORROWINGS (CONTINUED)

These interest-bearing borrowings were repayable as follows:

The Target Group Within 1 year or on demand After 1 year but within 2 years After 2 year but within 5 years After 5 years Note The Target Company Bank loans – secured (i) – unsecured Bonds (ii) Principal amount Less: unamortised transaction costs The Target Company Within 1 year or on demand After 1 year but within 2 years After 2 year but within 5 years After 5 years	- - -	At 31 December 2011 2012 RMB’000 RMB’000 2,853,640 3,778,540 - - - - - - - - - - - - - - - - - - - - 1,262,540 1,463,300 4,709,765 10,489,971 218,000 1,406,092 6,190,305 13,359,363 - - - - - - - - - - - - - - - - - - - - 9,043,945 17,137,903 At 31 December 2011 2012 RMB’000 RMB’000 300,000 – 6,436,945 13,282,903 6,736,945 13,282,903 - - - - - - - - - - - - - - - - - - – – – – – – - - - - - - - - - - - - - - - - - - 6,736,945 13,282,903 At 31 December 2011 2012 RMB’000 RMB’000 2,304,640 2,972,540 - - - - - - - - - - - - - - - - - - - - 872,540 1,303,300 3,559,765 8,740,971 – 266,092 4,432,305 10,310,363 - - - - - - - - - - - - - - - - - - - - 6,736,945 13,282,903	-	2013 RMB’000 3,492,300 - - - - - - - - - - 3,653,000 10,937,000 10,628,291 25,218,291 - - - - - - - - - - 28,710,591 2013 RMB’000 – 18,141,018 18,141,018 - - - - - - - - - 5,000,000 (27,427) 4,972,573 - - - - - - - - - 23,113,591 2013 RMB’000 2,623,300 - - - - - - - - - - 3,510,000 9,810,000 7,170,291 20,490,291 - - - - - - - - - - 23,113,591	At 30 September 2014 RMB’000 4,591,500 - - - - - - - - - - - 4,347,500 12,130,000 14,088,327 30,565,827 - - - - - - - - - - - 35,157,327 At 30 September 2014 RMB’000 – 24,569,000 24,569,000 - - - - - - - - - - - 5,000,000 (25,173) 4,974,827 - - - - - - - - - - - 29,543,827 At 30 September 2014 RMB’000 4,021,000 - - - - - - - - - - - 4,161,000 9,854,000 11,507,827 25,522,827 - - - - - - - - - - - 29,543,827
	- - -		-
	- - -
	- - -		-

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

22 INTEREST-BEARING BORROWINGS (CONTINUED)

Notes:

• (i) Bank loans were either pledged by certain items of property, plant and equipment and interests in leasehold land held for own use under operating lease as disclosed in note 11, or guaranteed by companies within the Target Group, except for bank loans of RMB300,000,000 of the Target Company is guaranteed by bills receivable of RMB348,000,000 as at 31 December 2011.

• (ii) On 6 March 2013, the Target Company issued a corporate bond with an aggregate principal amount of RMB5 billion with a maturity of 7 years at a fixed interest rate of 4.99% per annum. The transaction costs of RMB30,544,000 directly attributable to issuance of the bond have been deducted from the principal amount of the bonds.

23 DEFERRED INCOME

The Target Group At 1 January Additions Recognised in consolidated statement of profit or loss At 31 December/30 September The Target Company At 1 January Additions Recognised in consolidated statement of profit or loss At 31 December/30 September	At 31 December 2011 2012 RMB’000 RMB’000 243,284 265,664 22,780 206,540 (400) (173,475) 265,664 298,729 At 31 December 2011 2012 RMB’000 RMB’000 168,434 176,434 8,000 51,000 – (168,434) 176,434 59,000	2013 RMB’000 298,729 119,835 (10,434) 408,130 2013 RMB’000 59,000 15,000 – 74,000	At 30 September 2014 RMB’000 408,130 1,218 (4,731) 404,617 At 30 September 2014 RMB’000 74,000 100 – 74,100

Deferred income mainly represents the PRC local government grants received from relevant PRC authorities for fixed asset investment of the Target Group. The subsidies are recognised in the consolidated statement of profit or loss over the estimated useful lives of the respective assets.

– 86 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

24 OBLIGATIONS UNDER FINANCE LEASES

The Target Group had obligations under finance leases repayable as follows:

Within 1 year After 1 year but within 2 years After 2 years but within 5 years After 5 years Total Less: total future interest expenses Present value of lease obligation Within 1 year After 1 year but within 2 years After 2 years but within 5 years After 5 years Total Less: total future interest expenses Present value of lease obligation	At December 2011 Present value of the minimum lease payments Total minimum lease payments RMB’000 RMB’000 26,574 28,251 - - - - - - - - - - - - - - - - - - - - - - - - 84,014 94,959 225,360 284,877 128,831 189,918 438,205 569,754 - - - - - - - - - - - - - - - - - - - - - - - - 464,779 598,005 133,226 464,779 At December 2013 Present value of the minimum lease payments Total minimum lease payments RMB’000 RMB’000 195,502 212,634 - - - - - - - - - - - - - - - - - - - - - - - - 179,828 212,634 318,871 461,390 – – 498,699 674,024 - - - - - - - - - - - - - - - - - - - - - - - - 694,201 886,658 192,457 694,201	At December 2012 Present value of the minimum lease payments Total minimum lease payments RMB’000 RMB’000 195,502 212,634 - - - - - - - - - - - - - - - - - - - - - - - - 179,828 212,634 417,237 579,066 64,884 94,959 661,949 886,659 - - - - - - - - - - - - - - - - - - - - - - - - 857,451 1,099,293 241,842 857,451 At September 2014 Present value of the minimum lease payments Total minimum lease payments RMB’000 RMB’000 195,502 212,634 - - - - - - - - - - - - - - - - - - - - - - - - 179,827 212,634 184,519 280,454 – – 364,346 493,088 - - - - - - - - - - - - - - - - - - - - - - - - 559,848 705,722 145,874 559,848	At December 2012 Present value of the minimum lease payments Total minimum lease payments RMB’000 RMB’000 195,502 212,634 - - - - - - - - - - - - - - - - - - - - - - - - 179,828 212,634 417,237 579,066 64,884 94,959 661,949 886,659 - - - - - - - - - - - - - - - - - - - - - - - - 857,451 1,099,293 241,842 857,451 At September 2014 Present value of the minimum lease payments Total minimum lease payments RMB’000 RMB’000 195,502 212,634 - - - - - - - - - - - - - - - - - - - - - - - - 179,827 212,634 184,519 280,454 – – 364,346 493,088 - - - - - - - - - - - - - - - - - - - - - - - - 559,848 705,722 145,874 559,848
			493,088 - - - - - - - - - - - -
			705,722 145,874
			559,848

– 87 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

Deferred tax assets recognised	(i) The components of deferred tax assets/(liabilities) recognised in the consolidated statements of financial position and the movements during the Relevant Period are as	follows:	Impairment	losses for Accrued	Intra-group property, Impairment Write safety	unrealised plant and of trade down of Deferred production	Note profits equipment receivable inventories Tax loss income fund Other Total	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	The Target Group	At 1 January 2011 68,172 8,750 30,056 81 4,497 14,963 12,046 11,246 149,811	(Charged)/credited to	profit or loss 7(a) (46,464) (1,826) 1,925 8,132 10,050 2,265 2,889 (6,851) (29,880)	At 31 December 2011 21,708 6,924 31,981 8,213 14,547 17,228 14,935 4,395 119,931		At 1 January 2012 21,708 6,924 31,981 8,213 14,547 17,228 14,935 4,395 119,931	(Charged)/credited to	profit or loss 7(a) 15,638 (466) 322 21,846 58,939 8,270 16,878 (734) 120,693	At 31 December 2012 37,346 6,458 32,303 30,059 73,486 25,498 31,813 3,661 240,624		At 1 January 2013 37,346 6,458 32,303 30,059 73,486 25,498 31,813 3,661 240,624	(Charged)/credited to	profit or loss 7(a) (7,682) 223 1,704 16,670 (47,478) 3,264 (13,417) (45) (46,761)	At 31 December 2013 29,664 6,681 34,007 46,729 26,008 28,762 18,396 3,616 193,863		At 1 January 2014 29,664 6,681 34,007 46,729 26,008 28,762 18,396 3,616 193,863	(Charged)/credited to	profit or loss 7(a) (23,124) – 963 (1,497) – – 5,335 – (18,323)	At 30 September 2014 6,540 6,681 34,970 45,232 26,008 28,762 23,731 3,616 175,540
(a)

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

25 DEFERRED TAX ASSETS (CONTINUED)

(a) Deferred tax assets recognised (continued)

• (i) The components of deferred tax assets/(liabilities) recognised in the consolidated statements of financial position and the movements during the Relevant Period are as follows: (continued)

The Target Company At 1 January 2011 Credited to profit or loss At 31 December 2011 At 1 January 2012 Credited to profit or loss At 31 December 2012 At 1 January 2013 Credited/(charged) to profit or loss At 31 December 2013 At 1 January 2014 Credited/(charged) to profit or loss At 30 September 2014	Impairment losses for property, plant and equipment RMB’000 3,385 – 3,385 3,385 – 3,385 3,385 – 3,385 3,385 – 3,385	Impairment of trade receivable RMB’000 22,955 3,844 26,799 26,799 453 27,252 27,252 1,128 28,380 28,380 966 29,346	Write down of inventories RMB’000 – 8,132 8,132 8,132 5,995 14,127 14,127 8,619 22,746 22,746 (1,497) 21,249	Deferred income RMB’000 450 1,200 1,650 1,650 7,200 8,850 8,850 2,250 11,100 11,100 – 11,100	Accrued safety production fund RMB’000 1,166 11,519 12,685 12,685 16,797 29,482 29,482 (12,045) 17,437 17,437 5,335 22,772	Other RMB’000 4,069 – 4,069 4,069 – 4,069 4,069 – 4,069 4,069 – 4,069	Total RMB’000 32,025 24,695
							56,720
							56,720 30,445
							87,165
							87,165 (48)
							87,117
							87,117 4,804
							91,921

(ii) Reconciliation to the statement of financial position:

The Target Group Net deferred tax asset recognised in the statement of financial position The Target Company Net deferred tax asset recognised in the statement of financial position	At 31 December 2011 2012 RMB’000 RMB’000 119,931 240,624 56,720 87,165	2013 RMB’000 193,863 87,117	At 30 September 2014 RMB’000 175,540
			91,921

(b) Deferred tax assets not recognised

The Target Group has not recognised deferred tax assets in respect of cumulative tax losses in certain subsidiaries of RMB56,445,000, RMB83,960,000, RMB526,695,000, and RMB857,161,000 as at 31 December 2011, 2012 and 2013 and 30 September 2014, respectively, as it is not probable that future taxable profits against which the losses can be utilised will be available in the relevant subsidiaries.

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

26 CAPITAL, RESERVES AND DIVIDENDS

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Target Group’s consolidated equity is set out in the consolidated statements of changes in equity. Details of the changes in the Target Company’s individual components of equity between the beginning and the end of the Relevant Periods are set out below:

The Target Company Balance 1 January 2011 Profit and total comprehensive income for the year Maintenance and production fund Transfer between reserves Capital increased through capital reserve Balance at 31 December 2011 and 1 January 2012 Profit and total comprehensive income for the year Maintenance and production fund Dividends approved in respect of the previous year Transfer between reserves Balance at 31 December 2012 and 1 January 2013 Profit and total comprehensive income for the year Maintenance and production fund Dividends approved in respect of the previous year Transfer between reserves Balance at 31 December 2013 and 1 January 2014 Profit and total comprehensive income for the year Maintenance and production fund Dividends approved in respect of the previous year Others Balance at 30 September 2014	Share capital RMB’000 767,550 - - - - - - - - – – – 822,959 1,590,509 - - - - - - - - – – – – 1,590,509 - - - - - - - - – – – – 1,590,509 - - - - - - - - – – – – 1,590,509	Capital reserve RMB’000 (Note 26(d)) 6,841,624 - - - - - - - - – – – (822,959) 6,018,665 - - - - - - - - – – – – 6,018,665 - - - - - - - - – – – – 6,018,665 - - - - - - - - – – – 7 6,018,672	Statutory reserve RMB’000 (Note 26(d)) 574,906 - - - - - - - - – – 414,855 – 989,761 - - - - - - - - – – – 268,143 1,257,904 - - - - - - - - – – – 142,531 1,400,435 - - - - - - - - – – – – 1,400,435	Other reserve RMB’000 (Note 26(d)) 12,010 - - - - - - - - – 252,147 – – 264,157 - - - - - - - - – (67,612) – – 196,545 - - - - - - - - – 942 – – 197,487 - - - - - - - - – 78,630 – – 276,117	Retained profits RMB’000 524,364 - - - - - - - - 4,148,546 – (414,855) – 4,258,055 - - - - - - - - 2,681,427 – (254,481) (268,143) 6,416,858 - - - - - - - - 1,425,314 – (508,963) (142,531) 7,190,678 - - - - - - - - 819,868 – (106,564) – 7,903,982	Total Equity RMB’000 8,720,454 - - - - - - - - 4,148,546 252,147 – –
						13,121,147 - - - - - - - - 2,681,427 (67,612) (254,481) –
						15,480,481 - - - - - - - - 1,425,314 942 (508,963) –
						16,397,774 - - - - - - - - 819,868 78,630 (106,564) 7
						17,189,715

– 90 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

26 CAPITAL, RESERVES AND DIVIDENDS (CONTINUED)

(b) Dividends

• (i) Dividends payable to equity shareholders of the Target Company attributable to the year/period:

					At
		**At **	31 December		30 September
	2011		2012	2013	2014
	RMB’000		RMB’000	RMB’000	RMB’000
Final dividend proposed after
the end of the Relevant
Periods	254,481		508,963	106,564	–

The final dividend proposed after the end of each of the Relevant Periods has not been recognised as a liability at the end of each of the Relevant Periods.

• (ii) Dividends payable to equity shareholders of the Target Company attributable to the previous financial year, approved and paid during the year/period:

					At
		**At **	31 December		30 September
	2011		2012	2013	2014
	RMB’000		RMB’000	RMB’000	RMB’000
Final dividend in respect of
the previous financial year,
approved and paid the
year/period	–		254,481	508,963	106,564

(c) Share capital

Authorised and issued share capital

Authorised: Ordinary shares of the Target Company of RMB1.00 each Ordinary shares, issued and fully paid: At 1 January/At 31 December/30 September	Years ended 31 December 2011, 2012 and 2013 and nine months ended 30 September 2014 Number of shares (’000) RMB’000 1,590,509 1,590,509 1,590,509 1,590,509	Years ended 31 December 2011, 2012 and 2013 and nine months ended 30 September 2014 Number of shares (’000) RMB’000 1,590,509 1,590,509 1,590,509 1,590,509
		1,590,509

– 91 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

26 CAPITAL, RESERVES AND DIVIDENDS (CONTINUED)

(d) Nature and purpose of reserves

Capital reserve

The capital reserve of the Target Group mainly represents contributions from the shareholders of the Target Company, and difference between the carrying amount of non-controlling interests acquired and the fair value of consideration paid.

Statutory reserve

Statutory reserves were established in accordance with the relevant PRC rules and regulations and the articles of association of the companies comprising the Target Group which are incorporated in the PRC. Appropriations to the reserves were approved by the respective boards of directors.

For the entity concerned, statutory reserves can be used to make good previous years’ losses, if any, and may be converted into capital in proportion to the existing equity interests of investors, provided that the balance after such conversion is not less than 25% of the registered capital.

Other reserve

Other reserve comprises the fund received which can only be utilized for energy saving and emission reduction projects, and the maintenance and production fund appropriated/utilized in accordance to relevant PRC regulations on certain enterprises.

(e) Capital management

The Target Group’s primary objectives when managing capital are to safeguard the Target Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders to maintain an optimal capital structure to reduce the cost of capital.

The Target Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in the light of changes in economic conditions.

The directors of the Target Company review the capital structure on a semi-annual basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. The Target Group will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption of existing debt.

There were no changes in the Target Group’s approach to capital management compared with previous years. Companies comprising the Target Group are not subject to externally imposed capital requirements.

27 FINANCIAL RISK MANAGEMENT AND FAIR VALUES

Exposure to credit, liquidity and interest rate risks arises in the normal course of the Target Group’s business. The Target Group’s exposure to these risks and the financial risk management policies and practices used by the Target Group to manage these risks are described below.

(a) Credit risk

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

– 92 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

27 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (CONTINUED)

(a) Credit risk (continued)

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

Other than concentration of credit risk on liquid funds, bills receivables which are deposited with several banks with high credit ratings, the Group does not have any other significant concentration of credit risk.

(b) Liquidity risk

Individual operating entities within the Target Group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval by the parent company’s board when the borrowings exceed certain predetermined level of authority. The Target Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate committed lines of funding from major financial institutions to meet it liquidity requirements in the short and longer term.

The following tables show the remaining contractual maturities at the end of the reporting periods of the Target Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Target Group can be required to pay:

The Target Group At 31 December 2011 Interest-bearing borrowings Trade and bills payables Other payables and accrued expenses Current tax liabilities Obligation under finance leases At 31 December 2012 Interest-bearing borrowings Trade and bills payables Other payables and accrued expenses Current tax liabilities Obligation under finance leases	Within 1 year or on demand RMB’000 3,445,137 2,369,421 2,125,425 405,782 28,251 8,374,016 4,894,977 3,541,647 3,000,442 590,034 212,634 12,239,734	Contractual undiscounted cash outflow More than 1 year but less than 2 years More than 2 years but less than 5 years More than 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 1,667,401 5,032,053 232,258 10,376,849 – – – 2,369,421 – – – 2,125,425 – – – 405,782 94,959 284,877 189,918 598,005 1,762,360 5,316,930 422,176 15,875,482 2,333,587 11,264,932 1,497,691 19,991,187 – – – 3,541,647 – – – 3,000,442 – – – 590,034 212,634 579,066 94,959 1,099,293 2,546,221 11,843,998 1,592,650 28,222,603	Balance sheet carrying amount RMB’000 9,043,945 2,369,421 2,125,425 405,782 464,779
			14,409,352
			17,137,903 3,541,647 3,000,442 590,034 857,451
			25,127,477

– 93 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

27 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (CONTINUED)

(b) Liquidity risk (continued)

At 31 December 2013 Interest-bearing borrowings Trade and bills payables Other payables and accrued expenses Current tax liabilities Obligation under finance leases At 30 September 2014 Interest-bearing borrowings Trade and bills payables Other payables and accrued expenses Current tax liabilities Obligation under finance leases The Target Company At 31 December 2011 Interest-bearing borrowings Trade and bills payables Other payables and accrued expenses Current tax liabilities At 31 December 2012 Interest-bearing borrowings Trade and bills payables Other payables and accrued expenses Current tax liabilities Obligation under finance leases	Within 1 year or on demand RMB’000 5,295,526 5,007,553 2,208,639 313,544 212,634 13,037,896 6,789,752 5,605,478 2,588,668 158,612 212,634 15,355,144 2,755,436 1,251,379 1,767,445 320,265 6,094,525 3,844,895 1,194,973 2,269,449 475,852 117,675 7,902,844	Contractual undiscounted cash outflow More than 1 year but less than 2 years More than 2 years but less than 5 years More than 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 5,227,644 12,771,544 11,337,777 34,632,491 – – – 5,007,553 – – – 2,208,639 – – – 313,544 212,634 461,390 – 886,658 5,440,278 13,232,934 11,337,777 43,048,885 6,249,299 14,250,100 14,764,294 42,053,445 – – – 5,605,478 – – – 2,588,668 – – – 158,612 212,634 280,454 – 705,722 6,461,933 14,530,554 14,764,294 51,111,925 1,169,123 3,797,963 – 7,722,522 – – – 1,251,379 – – – 1,767,445 – – – 320,265 1,169,123 3,797,963 – 11,061,611 1,980,433 9,332,509 283,568 15,441,405 – – – 1,194,973 – – – 2,269,449 – – – 475,852 117,675 294,189 – 529,539 2,098,108 9,626,698 283,568 19,911,218	Balance sheet carrying amount RMB’000 28,710,591 5,007,553 2,208,639 313,544 694,201
			36,934,528
			35,157,327 5,605,478 2,588,668 158,612 559,848
			44,069,933
			6,736,945 1,251,379 1,767,445 320,265
			10,076,034
			13,282,903 1,194,973 2,269,449 475,852 405,859
			17,629,036

– 94 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

27 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (CONTINUED)

(b) Liquidity risk (continued)

At 31 December 2013 Interest-bearing borrowings Trade and bills payables Other payables and accrued expenses Current tax liabilities Obligation under finance leases At 30 September 2014 Interest-bearing borrowings Trade and bills payables Other payables and accrued expenses Current tax liabilities Obligation under finance leases	Within 1 year or on demand RMB’000 4,066,080 1,372,361 1,522,333 258,561 117,675 7,337,010 5,857,535 1,335,282 1,629,242 141,061 117,675 9,080,795	Contractual undiscounted cash outflow More than 1 year but less than 2 years More than 2 years but less than 5 years More than 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 4,780,224 11,348,344 7,654,154 27,848,802 – – – 1,372,361 – – – 1,522,333 – – – 258,561 117,675 176,513 – 411,863 4,897,899 11,524,857 7,654,154 31,413,920 5,737,798 11,661,018 12,017,374 35,273,725 – – – 1,335,282 – – – 1,629,242 – – – 141,061 117,675 88,257 – 323,607 5,855,473 11,749,275 12,017,374 38,702,917	Balance sheet carrying amount RMB’000 23,113,591 1,372,361 1,522,333 258,561 319,170
			26,586,016
			29,543,827 1,335,282 1,629,242 141,061 256,341
			32,905,753

(c) Interest rate risk

Cash and cash equivalents, pledged bank deposits, bank loans and other borrowings and long-term bonds are the major types of the Target Group’s financial instruments subject to interest rate risk. The Target Group does not anticipate significant impact to cash and cash equivalents and the pledged bank deposits because the interest rates of bank deposits and are not expected to change significantly.

– 95 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

27 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (CONTINUED)

(c) Interest rate risk (continued)

The Target Group’s interest rate risk arises primarily from bank loans, other borrowings and long-term bonds. Borrowings issued at variable rates and at fixed rates expose the Target Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates and terms of repayment of the Target Group’s borrowings are disclosed in note 22 respectively. The Target Group’s interest rate profile as monitored by management is set out in (i) below.

(i) Interest rate profile

The following table details the interest rate profile of the Target Group’s interest-bearing borrowings at the end of the reporting period.

										**Nine months **	**Nine months **	ended
			**Years ended 31 **			December				31 September
	2011			2012			2013			2014
	Effective		Effective				Effective			Effective
	interest rate		interest rate				interest rate			interest rate
	%	RMB’000		%		RMB’000	%		RMB’000	%		RMB’000
The Target Group
Fixed rate
borrowings:
	5.76%		5.60%				5.70%			5.70%
Bank loans	~6.56%	2,947,000	~6.72%			2,997,000	~6.72%		3,203,000	~6.72%		3,733,000
Bonds		–				–	4.99%		4,972,573	4.99%		4,974,827
		2,947,000				2,997,000			8,175,573			8,707,827
Variable rate
borrowings:
	6.10%		6.10%				5.54%			5.54%
Bank loans	~7.05%	6,096,945	~7.05%		14,140,903		~7.05%	20,535,018		~7.05%	26,449,500
Total borrowings		9,043,945			17,137,903			28,710,591			35,157,327
Net fixed rate
borrowings as a
percentage of total
net borrowings		33%				17%			28%			25%
										**Nine months **		ended
			**Years ended 31 **			December				31 September
	2011			2012			2013			2014
	Effective		Effective				Effective			Effective
	interest rate		interest rate				interest rate			interest rate
	%	RMB’000		%		RMB’000	%		RMB’000	%		RMB’000
The Target
Company
Fixed rate
borrowings:
	6.10%		5.60%				5.60%			5.70%
Bank loans	~6.56%	1,500,000	~6.56%			1,650,000	~6.72%		1,530,000	~6.00%		2,030,000
Bonds		–				–	4.99%		4,972,573	4.99%		4,974,827
		1,500,000				1,650,000			6,502,573			7,004,827

– 96 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

27 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (CONTINUED)

(c) Interest rate risk (continued)

(i) Interest rate profile (continued)

==> picture [404 x 212] intentionally omitted <==

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

Nine months ended
Years ended 31 December 31 September
2011 2012 2013 2014
Effective Effective Effective Effective
interest rate interest rate interest rate interest rate
% RMB’000 % RMB’000 % RMB’000 % RMB’000
Variable rate
borrowings:
6.10% 6.10% 5.54% 5.54%
Bank loans ~7.05% 5,236,945 ~7.05% 11,632,903 ~7.05% 16,611,018 ~7.05% 22,539,000
Total borrowings 6,736,945 13,282,903 23,113,591 29,543,827
Net fixed rate
borrowings as a
percentage of total
net borrowings 22% 12% 28% 24%
----- End of picture text -----

(ii) Sensitivity analysis

The interest rate of the variable rate borrowing of the Target Group is based on the base rate announced by the People’s Bank of China or applicable market rates.

As at 31 December 2011, 2012 and 2013 and 30 September 2014, it is estimated that a general increase/decrease of 100 basis points in interest rates for loans and borrowings, with all other variables held constant, would decrease/increase the Target Group’s and the Target Company’s profit after tax and retained profits by approximately RMB51,824,000 and RMB44,514,000, RMB120,198,000 and RMB98,879,000, RMB174,548,000 and RMB141,194,000, and RMB224,821,000 and RMB191,582,000, respectively. Other components of consolidated equity would not change in response to the general increase/decrease in interest rates.

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the statement of financial position dates and had been applied to the exposure to interest rate risk for financial instruments in existence at the statement of financial position dates.

The sensitivity analysis is performed on the same basis for the entire Relevant Period.

(d) Fair values

During the Relevant Periods, no financial instruments of the Target Group was measured at fair value across the three levels of the fair value hierarchy defined in IFRS 7, Financial Instruments: Disclosures .

In respect of the Target Group’s cash and cash equivalents, trade and other receivables, and trade and other payables, the carrying amounts approximated fair values during the Relevant Periods due to the relatively short term nature of these financial assets or liabilities.

In respect of the Target Group’s borrowings, the carrying amounts were not materially different from their fair values during the Relevant Periods. The fair value of borrowings were estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

– 97 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

28 MATERIAL RELATED PARTY TRANSACTIONS

During the years ended 31 December 2011, 2012 and 2013, and the nine months ended 30 September 2013 and 2014, transactions with the following parties are considered as related party transaction.

Non-controlling shareholder

Sinofert Holdings Limited (“The Company”)* (中化化肥控股有限公司)

Associates

Anhui Huilong South Salt Lake Trading Co. Ltd. (“Anhui Huilong”) (安徽鹽湖輝隆南方貿易有限公司) Inner Mongolia North Salt Lake Trading Co. Ltd. (“Inner Mongolia North Salt Lake”) (內蒙古北方鹽湖商貿有限公司) Sichuan Salt Lake Huili Trading Co., Ltd. (“Sichuan Salt Lake Huili”) (四川鹽湖匯力貿易有限公司)

• The Company and Sinochem Corporation (“Sinochem Corporation”) have 8.94% and 15.01% equity interest in the Target Company, respectively. As Sinochem Corporation has authorised the Company to exercise it’s voting rights in the Target Company on behalf of itself, the directors of the Company are of the opinion that the Company has significant influence on the Target Company.

(a) Transactions with related parties

The principal transactions which were carried out in the ordinary course of business are as follows:

Note Recurring transactions Sales: – The Company (i) – Anhui Huilong – Inner Mongolia North Salt Lake – Sichuan Salt Lake Huili	Years ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 526,287 427,013 142,332 – – – – – – – – – 526,287 427,013 142,332	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 136,924 238,027 – 423,054 – 380,129 – 148,105 136,924 1,189,315	Nine months ended 30 September 2013 2014 RMB’000 RMB’000 (Unaudited) 136,924 238,027 – 423,054 – 380,129 – 148,105 136,924 1,189,315
			1,189,315

Note:

• (i) These represent sales of potash fertilizer to the Company. The directors of the Target Group are of the opinion that these transactions were conducted on normal commercial terms and in the ordinary course of business of the Target Group.

– 98 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

28 MATERIAL RELATED PARTY TRANSACTIONS (CONTINUED)

(b) Balances with related parties

The Target Group Trade receivables: – Inner Mongolia North Salt Lake Advances from customers: – The Company – Sichuan Salt Lake Huili – Anhui Huilong	At 31 December 2011 2012 RMB’000 RMB’000 – – 1,990 216,308 – – – – 1,990 216,308	2013 RMB’000 – 5,273 – – 5,273	At 30 September 2014 RMB’000 188,627 161,549 120,407 21,163
			491,746

(c) Transactions/balances with other state-controlled entities in the PRC

The directors believe the presentation of such information is not meaningful for the purpose of this report.

29 COMMITMENTS

Capital commitments outstanding at Relevant Periods not provided for in the Financial Information were as follows:

The Target Group Contracted for the acquisitions of fixed assets Authorised but not contracted for the acquisitions of fixed assets The Target Company Contracted for the acquisitions of fixed assets	At 31 December 2011 2012 RMB’000 RMB’000 17,115,657 14,995,739 – – 17,115,657 14,995,739 At 31 December 2011 2012 RMB’000 RMB’000 1,619,043 196,432	2013 RMB’000 14,687,377 328,776 15,016,153 2013 RMB’000 195,462	At 30 September 2014 RMB’000 14,153,269 700,000
			14,853,269
			At 30 September 2014 RMB’000 477,629

30 PARENT AND ULTIMATE HOLDING COMPANY

At the balance sheet dates, the directors of the Target Company consider the parent and ultimate holding company is State-owned Properties Investment & Management Co., Ltd. of Qinghai Province (青海省國有資產投資 管理有限公司).

– 99 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

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

Up to the date of issue of this Financial Information, the HKICPA has issued a few amendments and new standards which are not yet effective for the Relevant Periods and which have not been adopted in the preparation of this Financial Information. These include the following which may be relevant to the Target Group.

	Effective for
	accounting periods
	beginning on or after
Amendments to HKAS 19, Defined benefit plans: Employee Contributions	1 July 2014
Annual improvements to HKFRSs 2010-2012 cycle	1 July 2014
Annual improvements to HKFRSs 2011-2013 cycle	1 July 2014
Amendments to HKFRS 11, Accounting for acquisitions of interests in joint	1 January 2016
operations
Amendments to HKAS 16 and HKAS 38, Clarification of acceptable methods of	1 January 2016
depreciation and amortisation
HKFRS 15, Revenue from contracts with customers	1 January 2017
HKFRS 9, Financial instruments	1 January 2018

32 INVESTMENTS IN SUBSIDIARIES AND STATUTORY FINANCIAL STATEMENTS INFORMATION

				At
		At 31 December		30 September
	2011	2012	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000
The Target Company
Unlisted shares, at cost	2,727,815	4,563,915	7,511,907	11,221,512

Particulars of the subsidiaries of the Target Group during the Relevant Periods are listed below:

			**Proportion **	of ownership interest	of ownership interest
		Issued	The Target
	Place of	and fully	Group’	held by
	incorporation/	paid-up	effective	the Target	**held **	by	Principal
Name of subsidiaries	registration	capital	interests	Company	subsidiaries		activities
		RMB’000
Qinghai Salt Lake Haina	The PRC	2,582,150	97.75%	97.75%		–	Production
Chemical Co., Ltd.							and sales
青海鹽湖海納化工有限							of chemical
公司							products
Qinghai Salt Lake Trimag	The PRC	40,000	100%	100%		–	Production
Co., Ltd.							and sales
青海鹽湖特立鎂有限公司							of metal
							and alloy
							aluminum
Qinghai Salt Lake Hairun	The PRC	100,000	100%	100%		–	Hotel
Hotel Management							management,
Co. Ltd.							conference
青海鹽湖海潤酒店管理							and
有限公司							exhibition
							service

– 100 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

32 INVESTMENTS IN SUBSIDIARIES AND STATUTORY FINANCIAL STATEMENTS INFORMATION (CONTINUED)

			**Proportion **	of ownership interest	of ownership interest
		Issued	The Target
	Place of	and fully	Group’	held by
	incorporation/	paid-up	effective	the Target	**held **	by	Principal
Name of subsidiaries	registration	capital	interests	Company	subsidiaries		activities
		RMB’000
Jiujiang Salt Lake	The PRC	28,500	100%	100%		–	Production
Materials Co., Ltd.							and sales
九江鹽湖新材料有限							of PVC
公司							products
Qinghai Salt Lake	The PRC	25,000	100%	100%		–	Potassium
Technology							chloride
Development Co., Ltd.							and potash
青海鹽湖科技開發有限							sales
公司
Qinghai Jinshiji Project	The PRC	4,000	100%	100%		–	Construction
Management Co., Ltd.							project
青海金世紀工程項目管							management
理有限公司							and design
Qinghai Salt Lake Tianshi	The PRC	30,000	100%	100%		–	Limestone
Mining Co., Ltd.							sales
青海鹽湖天石礦業有限
公司
Qinghai Salt Lake	The PRC	50,000	50%	50%		–	Installation of
Mechanical and				note (a)			chemical
Electrical Equipment							equipments
Manufacturing Co., Ltd.
青海鹽湖機電裝備製造
有限公司
Qinghai Salt Lake Energy	The PRC	50,000	100%	100%		–	Production
Co., Ltd.							and sales
青海鹽湖能源有限公司							of chemical
							products
Qinghai Salt Lake Xinyu	The PRC	780,000	100%	100%		–	Investment
Asset Management							holding
Co., Ltd.
青海鹽湖新域資產管理
有限公司
Qinghai Salt Lake	The PRC	175,500	57%	57%		–	Production
Sanyuan Potash							and sales
Co., Ltd.							of potash
青海鹽湖三元鉀肥股份							fertilizer
有限公司
Qinghai Yanyun Potash	The PRC	14,330	35%	35%		–	Production
Co., Ltd.				note (b)			and sales
青海鹽雲鉀鹽有限公司							of potash
							fertilizer

– 101 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

32 INVESTMENTS IN SUBSIDIARIES AND STATUTORY FINANCIAL STATEMENTS INFORMATION (CONTINUED)

			**Proportion **	of ownership interest	of ownership interest
		Issued	The Target
	Place of	and fully	Group’	held by
	incorporation/	paid-up	effective	the Target	**held **	by	Principal
Name of subsidiaries	registration	capital	interests	Company	subsidiaries		activities
		RMB’000
Qinghai Jingda	The PRC	110,914	73.2%	73.2%		–	Production
Technology Co., Ltd.							and sales
青海晶達科技股份有限							of
公司							potassium
							and sodium
Qinghai Salt Lake	The PRC	8,000,105	94.19%	94.19%		–	Production
Magnesium Co., Ltd.							and sales
青海鹽湖鎂業有限公司							of metal
							magnesium,
							soda ash
							and
							calcium
							chloride
Sichuan Salt Lake	The PRC	10,000	55%	55%		–	Sales of
Chemical Sales							chemical
Co., Ltd.							products
四川鹽湖化工銷售有限
公司
Qinghai Salt Lake Fine	The PRC	20,000	94%	–	94%		Production
Chemical Co., Ltd.							and sales
青海鹽湖精細化工有限							chemical
公司							products
Qinghai Salt Lake	The PRC	300,000	85%	–	85%		Production
Haihong chemical							and sales
limited by share Ltd							of flame
青海鹽湖海虹化工股份							retardant
有限公司							and other
							chemical
							products
Qinghai Jin Bo Chemical	The PRC	8,000	55%	–	55%		Production
Co., Ltd.							and sales
青海金博化工有限公司							of chemical
							products
Qinghai Salt Lake Fozhao	The PRC	222,000	41.67%	–	41.67%		Production
Lanke Co., Ltd.					_note _	(c)	and sales
青海鹽湖佛照藍科鋰業							of lithium
股份有限公司							product
Qinghai Cement	The PRC	110,000	94.04%	–	94.04%		Production
Co., Ltd.							and sales
青海水泥股份有限公司							of cement
							and clinker

– 102 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

32 INVESTMENTS IN SUBSIDIARIES AND STATUTORY FINANCIAL STATEMENTS INFORMATION (CONTINUED)

			**Proportion **	of ownership interest	of ownership interest
		Issued	The Target
	Place of	and fully	Group’	held by
	incorporation/	paid-up	effective	the Target	held by	Principal
Name of subsidiaries	registration	capital	interests	Company	subsidiaries	activities
		RMB’000
Qinghai Salt Lake Real	The PRC	20,000	100%	–	100%	Real estate
Estate Development						development
Co., Ltd.						and
青海鹽湖房地產開發有						property
限公司						management
Shanghai Fuyou Real	The PRC	50,000	100%	–	100%	Real estate
Estate Co., Ltd.						development
上海富友房產有限公司
Qinghai Baili	The PRC	2,400	100%	–	100%	Railway
transportation limited						transit
liability company						services
青海百立儲運有限責任
公司
Qinghai Baiyi property	The PRC	3,000	100%	–	100%	Property
development limited						management
liability company
青海百益物業發展有限
責任公司
Jiujiang 3T Digital	The PRC	50,000	93.41%	–	93.41%	Production of
Projection Technology						media
Co., Ltd.						projectors
九江3T數字投影技術發
展公司
Qinghai Department Store	The PRC	24,500	100%	–	100%	Operation of
Co., Ltd.						department
青海百貨有限責任公司						store
Qinghai Salt Lake	The PRC	60,000	57%	–	100%	Production
Sanyuan Chemical						and sale of
Co., Ltd.						chemical
青海鹽湖三元化工有限						products
公司
Qinghai Salt Lake	The PRC	360,000	29.07%	–	51%	Production
Yuantong Potash						and sales
Fertilizer Co. Ltd.						of potash
青海鹽湖元通鉀肥有限						fertilizer
公司
Qinghai Salt Lake Xinyu	The PRC	20,000	100%	–	100%	Production
Cement Product						and sales
Co. Ltd.						of cement
青海鹽湖新域水泥製造						and clinker
有限公司

– 103 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

• 32 INVESTMENTS IN SUBSIDIARIES AND STATUTORY FINANCIAL STATEMENTS INFORMATION (CONTINUED)

			**Proportion **	of ownership interest	of ownership interest
		Issued	The Target
	Place of	and fully	Group’	held by
	incorporation/	paid-up	effective	the Target	held by	Principal
Name of subsidiaries	registration	capital	interests	Company	subsidiaries	activities
		RMB’000
Qinghai Hai Lake Cement	The PRC	14,780	93.72%	–	99.66%	Production
Product Co., Ltd.						and sales
青海海湖水泥製品有限						of cement
公司						and clinker
Suzhou salt Yun Industrial	The PRC	200,000	35%	–	100%	Sales of
Co. Ltd.						potash
蘇州鹽雲實業有限公司						fertilizer

Notes:

• (a) The operation of this company is to install the chemical equipments. The Target Group is the solo customer of this company. In addition, The Target Group also determined and approved the annual budget of this company.

• (b) The operation of this company is to product and sales of potash fertilizer. The Target Group is the solo supplier of this company and this company used the Target Group’s sales channel for its own sales. In addition, The Target Group also determined and approved the annual budget of this company.

• (c) The operation of this company is to product and sales of lithium product. The Target Group is the solo supplier of this company and this company used the Target Group’s sales channel for its own sales. In addition, The Target Group also determined and approved the annual budget and appointed senior management of this company.

Due to the above reasons, the Target Group are of the view that the Target Group have (i) existing rights that give it the current ability to direct the relevant activities which significantly affect these three entities’ returns; (ii) exposure and rights to variable returns from its involvement with these three entities; and (iii) the ability to affect the returns of these three entities through its power over them. Accordingly, the Target Group treated these three entities as subsidiaries.

The statutory financial statements of the Target Company and its the subsidiaries for each of the three years ended 31 December 2011, 2012 and 2013, or since their respective dates of establishment, where this is a shorter period, were audited by following auditors:

	**Name of statutory auditor for the financial period **	**Name of statutory auditor for the financial period **	ended 31 December
Name of company	2011	2012	2013
The Target Company	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
青海鹽湖工業股份有	Certified Public	Certified Public	Accountants LLP
限公司	Accountants LLP	Accountants LLP
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Haina Chemical	Certified Public	Certified Public	Accountants LLP
Co., Ltd.	Accountants LLP	Accountants LLP
青海鹽湖海納化工有
限公司
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Trimag Co., Ltd.	Certified Public	Certified Public	Accountants LLP
青海鹽湖特立鎂有限	Accountants LLP	Accountants LLP
公司

– 104 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

32 INVESTMENTS IN SUBSIDIARIES AND STATUTORY FINANCIAL STATEMENTS INFORMATION (CONTINUED)

	**Name of statutory auditor for the financial period **	**Name of statutory auditor for the financial period **	ended 31 December
Name of company	2011	2012	2013
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Hairun Hotel	Certified Public	Certified Public	Accountants LLP
Management	Accountants LLP	Accountants LLP
Co. Ltd.
青海鹽湖海潤酒店管
理有限公司
Jiujiang Salt Lake	N/A	Crowe Horwath China	Ruihua Certified Public
Materials Co., Ltd.		Certified Public	Accountants LLP
九江鹽湖新材料有限		Accountants LLP
公司
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Technology	Certified Public	Certified Public	Accountants LLP
Development	Accountants LLP	Accountants LLP
Co., Ltd.
青海鹽湖科技開發有
限公司
Qinghai Jinshiji Project	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Management Co., Ltd.	Certified Public	Certified Public	Accountants LLP
青海金世紀工程項目	Accountants LLP	Accountants LLP
管理有限公司
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Tianshi Mining	Certified Public	Certified Public	Accountants LLP
Co., Ltd.	Accountants LLP	Accountants LLP
青海鹽湖天石礦業有
限公司
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Mechanical and	Certified Public	Certified Public	Accountants LLP
Electrical Equipment	Accountants LLP	Accountants LLP
Manufacturing
Co., Ltd.
青海鹽湖機電裝備製
造有限公司
Qinghai Salt Lake	N/A	Crowe Horwath China	Ruihua Certified Public
Energy Co., Ltd.		Certified Public	Accountants LLP
青海鹽湖能源有限公司		Accountants LLP
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Xinyu Asset	Certified Public	Certified Public	Accountants LLP
Management Co., Ltd.	Accountants LLP	Accountants LLP
青海鹽湖新域資產管
理有限公司
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Sanyuan Potash	Certified Public	Certified Public	Accountants LLP
Co., Ltd.	Accountants LLP	Accountants LLP
青海鹽湖三元鉀肥股
份有限公司

– 105 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

32 INVESTMENTS IN SUBSIDIARIES AND STATUTORY FINANCIAL STATEMENTS INFORMATION (CONTINUED)

	**Name of statutory auditor for the financial period **	**Name of statutory auditor for the financial period **	ended 31 December
Name of company	2011	2012	2013
Qinghai Yanyun Potash	RSM China Certified	RSM China Certified	Ruihua Certified Public
Co., Ltd.	Public Accountants	Public Accountants	Accountants LLP
青海鹽雲鉀鹽有限公司	LLP	LLP
Qinghai Jingda	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Technology Co., Ltd.	Certified Public	Certified Public	Accountants LLP
青海晶達科技股份有	Accountants LLP	Accountants LLP
限公司
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Magnesium Co., Ltd.	Certified Public	Certified Public	Accountants LLP
青海鹽湖鎂業有限公司	Accountants LLP	Accountants LLP
Sichuan Salt Lake	N/A	N/A	N/A
Chemical Sales
Co., Ltd.
四川鹽湖化工銷售有
限公司
Qinghai Salt Lake Fine	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Chemical Co., Ltd.	Certified Public	Certified Public	Accountants LLP
青海鹽湖精細化工有	Accountants LLP	Accountants LLP
限公司
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Haihong chemical	Certified Public	Certified Public	Accountants LLP
Limited by Share Ltd	Accountants LLP	Accountants LLP
青海鹽湖海虹化工股
份有限公司
Qinghai Jin Bo	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Chemical Co., Ltd.	Certified Public	Certified Public	Accountants LLP
青海金博化工有限公司	Accountants LLP	Accountants LLP
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Fozhaolanke Co., Ltd.	Certified Public	Certified Public	Accountants LLP
青海鹽湖佛照藍科鋰	Accountants LLP	Accountants LLP
業股份有限公司
Qinghai Cement	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Co., Ltd.	Certified Public	Certified Public	Accountants LLP
青海水泥股份有限公司	Accountants LLP	Accountants LLP
Qinghai Salt Lake Real	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Estate Development	Certified Public	Certified Public	Accountants LLP
Co., Ltd.	Accountants LLP	Accountants LLP
青海鹽湖房地產開發
有限公司
Shanghai Fuyou Real	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Estate Co., Ltd.	Certified Public	Certified Public	Accountants LLP
上海富友房產有限公司	Accountants LLP	Accountants LLP

– 106 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

32 INVESTMENTS IN SUBSIDIARIES AND STATUTORY FINANCIAL STATEMENTS INFORMATION (CONTINUED)

	**Name of statutory auditor for the financial period **	**Name of statutory auditor for the financial period **	ended 31 December
Name of company	2011	2012	2013
Qinghai Baili	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
transportation limited	Certified Public	Certified Public	Accountants LLP
liability company	Accountants LLP	Accountants LLP
青海百立儲運有限責
任公司
Qinghai Baiyi property	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
development limited	Certified Public	Certified Public	Accountants LLP
liability company	Accountants LLP	Accountants LLP
青海百益物業發展有
限責任公司
Jiujiang 3T Digital	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Projection Technology	Certified Public	Certified Public	Accountants LLP
Co., Ltd.	Accountants LLP	Accountants LLP
九江3T數字投影技術
發展公司
Qinghai Department	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Store Co., Ltd.	Certified Public	Certified Public	Accountants LLP
青海百貨有限責任公司	Accountants LLP	Accountants LLP
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Sanyuan Chemical	Certified Public	Certified Public	Accountants LLP
Co., Ltd.	Accountants LLP	Accountants LLP
青海鹽湖三元化工有
限公司
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Yuantong Potash	Certified Public	Certified Public	Accountants LLP
Fertilizer Co. Ltd.	Accountants LLP	Accountants LLP
青海鹽湖元通鉀肥有
限公司
Qinghai Salt Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Xinyu Cement	Certified Public	Certified Public	Accountants LLP
Product Co. Ltd.	Accountants LLP	Accountants LLP
青海鹽湖新域水泥製
造有限公司
Qinghai Hai Lake	Crowe Horwath China	Crowe Horwath China	Ruihua Certified Public
Cement Product	Certified Public	Certified Public	Accountants LLP
Co. Ltd.	Accountants LLP	Accountants LLP
青海海湖水泥製品有
限公司
Suzhou salt Yun	RSM China Certified	RSM China Certified	Ruihua Certified Public
Industrial Co. Ltd.	Public Accountants LLP	Public Accountants LLP	Accountants LLP
蘇州鹽雲實業有限公司

– 107 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

C SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company and its subsidiaries in respect of any period subsequent to 30 September 2014. No dividend or distribution has been declared or made by the Target Company or any of its subsidiaries in respect of any period subsequent to 30 September 2014.

Yours faithfully,

KPMG

Certified Public Accountants Hong Kong

– 108 –

MANAGEMENT DISCUSSION AND ANALYSIS OF QINGHAI SALT LAKE

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS

The results of the nine months ended 30 September 2014 compared to the nine months ended 30 September 2013

Turnover

Qinghai Salt Lake’s turnover for the nine months ended 30 September 2014 amounted to RMB6,610.51 million, representing an increase of 23% as compared to RMB5,383.78 million for the nine months ended 30 September 2013.

Turnover recorded from potassium chloride and related products was RMB4,805.03 million for the nine months ended 30 September 2014, an increase of 14% from RMB4,198.54 million for the same period of last year. This increase mainly reflected the combined effects of the remarkable increase in sales volume of potassium chloride products and lower average selling price during the reporting period. During the nine months ended 30 September 2014, Qinghai Salt Lake’s actual sales volume of potassium chloride products reached 2.84 million tons, representing an increase of 43% over that of the same period in 2013. However, the average selling price was RMB1,696.13 per ton, representing a decrease of 19% over that of the same period in 2013.

Turnover recorded from chemical products and others was RMB1,805.48 million for the nine months ended 30 September 2014, up 52% from RMB1,185.25 million for the same period of last year. The increase in turnover of chemical products and others over same period of last year was mainly attributable to the great increase in output and sales volume of chemical products during the nine months ended 30 September 2014.

Gross profit

Qinghai Salt Lake’s gross profit for the nine months ended 30 September 2014 amounted to RMB2,377.00 million, representing an increase of 31% as compared to RMB1,815.51 million for the nine months ended 30 September 2013. This increase mainly reflected the turnover growth and the gross profit margin improvement from 34% for the nine months ended 30 September 2013 to 36% for the nine months ended 30 September 2014, which was primarily due to the rise in products’ sales volume and the increase in the gross profit margin of chemical products since several new chemical production lines became more stable and more production capacity reached during the reporting period.

– 109 –

MANAGEMENT DISCUSSION AND ANALYSIS OF QINGHAI SALT LAKE

APPENDIX III

Operating profit

For the nine months ended 30 September 2014, Qinghai Salt Lake realised operating profit of RMB1,411.62 million, representing an increase of 6% from RMB1,336.51 million for the nine months ended 30 September 2013. This increase reflected turnover growth and gross profit margin improvement which was partially offset by: (1) the decrease of the other revenue (mainly including interest income and government grants) by 38% from RMB531.12 million for the nine months ended 30 September 2013 to RMB328.50 million for the nine months ended 30 September 2014; (2) the increase of operating expenses from RMB960.97 million for the nine months ended 30 September 2013 to RMB1,280.29 million for the nine months ended 30 September 2014, representing an increase of 33%.

Out of the operating expenses, distribution cost increased by 37% from RMB683.53 million for the nine months ended 30 September 2013 to RMB937.72 million for the nine months ended 30 September 2014 due to significant increase in sales volumes of potassium chloride and chemical products from Qinghai Salt Lake and its subsidiaries.

Net profit

For the nine months ended 30 September 2014, Qinghai Salt Lake realised net profit of RMB685.63 million, which is at the same level as RMB685.37 million for the nine months ended 30 September 2013. The net profit margin decreased from 13% for the nine months ended 30 September 2013 to 10% for the nine months ended 30 September 2014. This decrease mainly reflected the growth in operating profit, which was totally offset by the increase of finance cost due to more loans and borrowings occurred in the reporting period of 2014 than that of the same period in 2013.

The results of the year ended 31 December 2013 compared to the year ended 31 December 2012

Turnover

Qinghai Salt Lake’s turnover for the year ended 31 December 2013 amounted to RMB8,094.57 million, representing a decrease of 2% as compared to RMB8,270.81 million for the year ended 31 December 2012.

Turnover recorded from potassium chloride and related products was RMB6,332.63 million for 2013, a decrease of 11% from RMB7,129.80 million for 2012. This decrease mainly reflected the combined effects of the remarkable increase in sales volume of potassium chloride products and lower average selling price during the reporting period. During 2013, Qinghai Salt Lake’s sales volume of potassium chloride products reached 3.28 million tons, representing an increase of 14% over that of 2012. However, the average selling price was RMB1,904.22 per ton, representing a decrease of 23% over that of 2012.

Turnover recorded from chemical products and others was RMB1,761.95 million for 2013, up 54% from RMB1,141.01 million for 2012. The increase in turnover of chemical products and others over 2012 was mainly attributable to the great increase in sales volume of chemical products during 2013.

– 110 –

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS OF QINGHAI SALT LAKE

Gross profit

Qinghai Salt Lake’s gross profit for the year ended 31 December 2013 amounted to RMB3,090.60 million, representing a decrease of 23% as compared to RMB4,009.86 million for the year ended 31 December 2012. This decrease mainly reflected the decline in gross profit margin from 48% for the year ended 31 December 2012 to 38% for the year ended 31 December 2013. The decline in the gross profit margin was primarily attributable to (1) the decrease of the selling prices of potassium chloride and related products in 2013 which reduced the gross profit margin of potassium chloride and related products from 73% for 2012 to 68% for 2013; (2) certain chemical production lines were in test run in 2013 with high level production costs which contributed to a low gross profit margin in 2013.

Operating profit

For the year ended 31 December 2013, Qinghai Salt Lake realised operating profit of RMB2,062.40 million, representing a decrease of 42% from RMB3,582.21 million for the year ended 31 December 2012. This decrease mainly reflected the decrease of gross profit by RMB919.26 million, the decrease of the other income (mainly including interest income and government grants) by 28% from RMB921.76 million for the year ended 31 December 2012 to RMB666.10 million for the year ended 31 December 2013, and the increase of operating expenses from RMB1,320.61 million for the year ended 31 December 2012 to RMB1,624.91 million for the year ended 31 December 2013, representing an increase of 23%.

Out of the operating expenses, distribution cost increased by 31% from RMB887.99 million for the year ended 31 December 2012 to RMB1,167.40 million for the year ended 31 December 2013 due to significant increase in sales volumes of potassium chloride and chemical products from Qinghai Salt Lake and its subsidiaries in 2013.

Net profit

For the year ended 31 December 2013, Qinghai Salt Lake realised net profit of RMB1,066.14 million, representing a decrease of 61% from RMB2,751.93 million for the year ended 31 December 2012. The net profit margin decreased from 33% for the year ended 31 December 2012 to 13% for the year ended 31 December 2013. This decrease mainly reflected the strong decline in operating profit due to the reason mentioned above and the significant increase in finance cost due to more loans and borrowings occurred in 2013 than that of 2012.

– 111 –

MANAGEMENT DISCUSSION AND ANALYSIS OF QINGHAI SALT LAKE

APPENDIX III

The results of the year ended 31 December 2012 compared to the year ended 31 December 2011

Turnover

Qinghai Salt Lake’s turnover for the year ended 31 December 2012 amounted to RMB8,270.81 million, representing an increase of 22% as compared to RMB6,777.56 million for the year ended 31 December 2011. This increase mainly reflected the increase in its sales volume of potassium chloride products in 2012. Qinghai Salt Lake’s actual sale volume of potassium chloride products reached 2.86 million tons in 2012, representing an increase of 19% over that of 2011.

Gross profit

Qinghai Salt Lake’s gross profit for the year ended 31 December 2012 amounted to RMB4,009.86 million, representing an increase of 3% as compared to RMB3,908.49 million for the year ended 31 December 2011. This increase mainly reflected the growth in turnover and the decline in gross profit margin from 58% for the year ended 31 December 2011 to 48% for the year ended 31 December 2012. The decline in the gross profit margin was primarily attributable to the slight rise in the market price of potassium chloride products and a significant increase in production cost of chemical products due to that certain chemical production lines were in test run in 2012 with high level production costs.

Operating profit

For the year ended 31 December 2012, Qinghai Salt Lake realised operating profit of RMB3,582.21 million, representing an increase of 3% from RMB3,491.02 million for the year ended 31 December 2011. This increase mainly reflected the slight growth of gross profit and an increase of 33% in other income (including mainly interest income and government grants) from RMB692.78 million for the year ended 31 December 2011 to RMB921.76 million for the year ended 31 December 2012 and an increase of 21% in operating expenses from RMB1,092.79 million for the year ended 31 December 2011 to RMB1,320.61 million for the year ended 31 December 2012.

Out of the operating expenses, distribution cost increased by 63% from RMB544.58 million for the year ended 31 December 2011 to RMB887.99 million for the year ended 31 December 2012 due to significant increase in sales volumes of potassium chloride and chemical products from Qinghai Salt Lake and its subsidiaries.

Net profit

For the year ended 31 December 2012, Qinghai Salt Lake realised net profit of RMB2,751.93 million, representing a decrease of 2% from RMB2,817.61 million for the year ended 31 December 2011. The net profit margin decreased from 42% for the year ended 31 December 2011 to 33% for the year ended 31 December 2012. This decrease mainly reflected the combined effects of the slight growth in operating profit due to the reasons mentioned above and the strong increase in finance cost due to more loans and borrowings occurred in 2012 than that of 2011.

– 112 –

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS OF QINGHAI SALT LAKE

Segment reporting

The principal activities of Qinghai Salt Lake are manufacturing and sales of potash and chemical products, and the reportable segment losses of chemical products for the three years ended 31 December 2011, 2012 and 2013 and the nine months ended 30 September 2014 were RMB84.29 million, RMB978.78 million, RMB930.38 million and RMB681.74 million, respectively.

In order to better utilize salt lake resources, Qinghai Salt Lake has launched the Salt Lake Comprehensive Utilization Project during the relevant periods, which is designed to produce chemical products. The reportable segment losses are mainly due to the reason that certain chemical production lines included in the Salt Lake Comprehensive Utilization Project were transferred to property, plant and equipment gradually when they reached ready-to-use status and began depreciation during the relevant periods. However, these production lines were in trial production during the relevant periods and the actual production volume was significantly under their full production capacity, which contributed to a high level of fixed costs per unit.

Capital structure, liquidity and financial resources

The total assets of Qinghai Salt Lake amounted to RMB63,426.84 million as at 30 September 2014, which included non-current assets of RMB54,694.66 million and current assets of RMB8,732.18 million. Non-current assets primarily consisted of property, plant and equipment amounting to RMB48,450.68 million, while current assets primarily consisted of cash and cash equivalents of RMB2,256.26 million, trade and bill receivables of RMB1,107.13 million, other receivables and prepayments of RMB2,419.77 million, and inventory of RMB2,628.02 million. The non-current liabilities of Qinghai Salt Lake mainly comprised interest-bearing borrowings due after one year of RMB30,565.83 million. Its current liabilities amounted to RMB13,139.76 million, primarily consisting of trade and bill payables of RMB5,605.48 million, other payables and accrued expenses of RMB2,588.67 million and interest-bearing borrowings due within one year of RMB4,591.50 million. The net current liabilities of Qinghai Salt Lake amounted to RMB4,407.58 million as at 30 September 2014.

The net assets of Qinghai Salt Lake amounted to RMB14,912.99 million, RMB17,688.55 million, RMB18,005.44 million and RMB18,704.57 million as at 31 December 2011, 2012, and 2013 and 30 September 2014 respectively, and the gearing ratio, which was calculated by total liabilities divided by total assets, was approximately 50%, 59%, 68% and 71% respectively.

– 113 –

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS OF QINGHAI SALT LAKE

Borrowings

Bank loans – Secured – Unsecured Bonds Principal amount Less: unamortised transaction costs The borrowings are repayable as follows: Within 1 year or on demand After 1 year but within 2 years After 2 years but within 5 years After five years Total borrowings – at fixed rates – at floating rates Analysis of borrowings by currency: – denominated in RMB	At 2011 RMB’000 1,327,000 7,716,945 – – 9,043,945 2,853,640 1,262,540 4,709,765 218,000 9,043,945 2,947,000 6,096,945 9,043,945 9,043,945	31 December 2012 2013 RMB’000 RMB’000 2,619,000 4,706,000 14,518,903 19,032,018 – 5,000,000 – (27,427) 17,137,903 28,710,591 3,778,540 3,492,300 1,463,300 3,653,000 10,489,971 10,937,000 1,406,092 10,628,291 17,137,903 28,710,591 2,997,000 8,175,573 14,140,903 20,535,018 17,137,903 28,710,591 17,137,903 28,710,591	At 30 September 2014 RMB’000 5,002,000 25,180,500 5,000,000 (25,173) 35,157,327 4,591,500 4,347,500 12,130,000 14,088,327 35,157,327 8,707,827 26,449,500 35,157,327 35,157,327

Fixed interest rate borrowings are charged at a range from 5.76% to 6.56%, from 5.60% to 6.72%, from 4.99% to 6.72% and from 4.99% to 6.72% per annum for the years ended 31 December 2011, 2012 and 2013 and the nine months ended 30 September 2014 respectively.

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

Capital expenditure

During the years ended 31 December 2011, 2012 and 2013 and the nine months ended 30 September 2014, the capital expenditure used in purchase of property, plant and equipment and lease payment on land use rights were RMB6,546.73 million, RMB9,632.71 million, RMB12,071.18 million and RMB7,504.40 million respectively.

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MANAGEMENT DISCUSSION AND ANALYSIS OF QINGHAI SALT LAKE

APPENDIX III

Capital commitments

Qinghai Salt Lake had additional capital commitments of RMB14,853.27 million as at 30 September 2014 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 31 December 2011, 2012 and 2013 and 30 September 2014, Qinghai Salt Lake did not hold any significant investment.

Charge on assets

As at 31 December 2011, 2012 and 2013 and 30 September 2014, certain of Qinghai Salt Lake’s property, plant and equipment with an aggregate carrying value of RMB1,137.03 million, RMB1,189.00 million, RMB1,108.28 million and RMB1,000.50 million were pledged to bank to secure certain banking facilities.

Contingent liabilities

As at 31 December 2011, 2012 and 2013 and 30 September 2014, Qinghai Salt Lake had no significant contingent liabilities.

Employees and remuneration policies

Qinghai Salt Lake provides remuneration to its employees including a monthly salary, plus performance related bonus and other welfare. Total staff costs for the years ended 31 December 2011, 2012 and 2013 and nine months ended 30 September 2014 were RMB911.63 million, RMB1,284.27 million, RMB1,640.22 million and RMB1,181.78 million respectively.

Material transaction

Qinghai Salt Lake had no material acquisitions or disposals of subsidiaries and associated companies during the three years ended 31 December 2013 and the nine months ended 30 September 2014.

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.

Project investment and prospects

In order to better utilize salt lake resources, Qinghai Salt Lake has launched the Salt Lake Comprehensive Utilization Project, which is divided into three phases: Phase 1 and 2 have already begun production. Phase 3, the magnesium integration project, is currently the project

– 115 –

MANAGEMENT DISCUSSION AND ANALYSIS OF QINGHAI SALT LAKE

APPENDIX III

with the largest investment amount of Qinghai Salt Lake, with total investment reaching RMB29.1 billion. The main products of the project include magnesium, PVC, sodium carbonate, potash, polypropylene and magnesium hydroxide. Magnesium is widely used in vehicles, aerospace and railroad transportation fields.

Currently, the sodium carbonate and a proportion of the production lines of the magnesium integration project have been completed and have entered trial production phases. The crucial magnesium equipment is predicted to undergo test-run in the second half of 2015 and gradually commence production in 2016. The remaining proportions of the project are also expected to commence production gradually in 2016.

Besides the Salt Lake Comprehensive Utilization Project, Qinghai Salt Lake also have three major chemical projects, which are the PVC integration project, the 10,000 tons of lithium carbonate project and the capacity expansion project of annual production of 1,500,000 tons of potassium chloride.

On 6 November 2014, Qinghai Salt Lake announced its plans to raise RMB5.4 billion through non-public issue of shares, of which RMB3.8 billion will mainly be used in the construction of potash projects, while the remaining RMB1.6 billion will be used to replenish working capital.

– 116 –

APPENDIX IV PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The following is the text of a report received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong, in respect of the Group’s pro forma financial information for the purpose in this circular.

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

27 January 2015

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

TO THE DIRECTORS OF SINOFERT HOLDINGS LIMITED

We have completed our assurance engagement to report on the compilation of pro forma financial information of Sinofert Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 30 June 2014 and related notes as set out on pages 121 to 122 of Appendix IV to the circular dated 27 January 2015 (the “Circular”) issued by the Company. The applicable criteria on the basis of which the Directors have compiled the pro forma financial information are described on page 120 of Appendix IV to the Circular.

The pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed acquisition of 15.01% equity interest in Qinghai Salt Lake Industry Co., Ltd. (the “Acquisition”) on the Group’s financial position as at 30 June 2014 as if the Acquisition had taken place at 30 June 2014. As part of this process, information about the Group’s financial position as at 30 June 2014 has been extracted by the Directors from the condensed consolidated financial statements of the Group for the six months ended 30 June 2014, on which a review report has been published.

Directors’ Responsibilities for the Pro Forma Financial Information

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

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APPENDIX IV PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the 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 pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements (“HKSAE”) 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting accountants comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the pro forma financial information in accordance with paragraph 4.29 of the Listing Rules, and with reference to AG 7 issued by the HKICPA.

For purpose of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on the unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the events or transactions at 30 June 2014 would have been as presented.

A reasonable assurance engagement to report on whether the pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

• the related pro forma adjustments give appropriate effect to those criteria; and

• the pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the pro forma financial information.

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APPENDIX IV PRO FORMA FINANCIAL INFORMATION OF THE GROUP

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

• (a) the pro forma financial information has been properly compiled on the basis stated;

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

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

KPMG

Certified Public Accountants Hong Kong

– 119 –

APPENDIX IV PRO FORMA FINANCIAL INFORMATION OF THE GROUP

A. INTRODUCTION TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the unaudited pro forma consolidated statement of financial position of the Group (“Unaudited Pro Forma Financial Information”) as if the Acquisition had been completed on 30 June 2014. Details of the Acquisition are set out in the section headed “Letter from the Board” contained in this circular.

The Unaudited Pro Forma Financial Information has been prepared in accordance with paragraph 4.29 of the Listing Rules, for the purpose of illustrating the effect of the Acquisition whereby which Sinochem Fertilizer, a subsidiary of the Group, proposed to enter into the Share Transfer Agreement with Sinochem Corporation, pursuant to which Sinochem Fertilizer shall acquire, and Sinochem Corporation shall sell, 238,791,954 issued shares of Qinghai Salt Lake, representing 15.01% of its total issued share capital, at a total consideration of approximately RMB3,890 million. Because of its hypothetical nature, the Unaudited Pro Forma Financial Information may not give a true picture of the financial position or results of the Group had the Acquisition been completed as of the specified date or any future date.

The Unaudited Pro Forma Financial Information of the Group is based upon the unaudited condensed consolidated statement of financial position of the Group as at 30 June 2014, which has been extracted from the Company’s published interim financial report for the six months ended 30 June 2014, and adjusted on a pro forma basis to reflect the effect of the Acquisition. These pro forma adjustments are (i) directly attributable to the Acquisition and not relating to other future events and decision and (ii) factually supportable based on the terms of the Share Transfer Agreement.

– 120 –

APPENDIX IV PRO FORMA FINANCIAL INFORMATION OF THE GROUP

B. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014

(Expressed in Renminbi unless otherwise indicated)

Non-current assets Property, plant and equipment Prepaid lease payments Mining rights Goodwill Other long-term assets Interests in associates Interests in joint ventures Available-for-sale investments Advance payments for acquisition of property, plant and equipment Deferred tax assets Current assets Inventories Trade and bills receivables Other receivables and advance payments Loans to an associate Prepaid lease payments Other deposits Bank balances and cash Current liabilities Trade and bills payables Other payables and receipt in advance Interest-bearing borrowings – due within one year Tax liabilities Net current assets/(liabilities) Total assets less current liabilities	The Group At 30 June 2014 RMB’000 (Unaudited) 3,440,779 502,354 690,899 814,066 7,838 8,255,502 517,138 380,860 35,866 291,385 14,936,687 3,866,403 1,104,111 1,189,757 747,000 12,020 1,876,800 466,547 9,262,638 3,556,726 2,019,117 2,104,511 11,569 7,691,923 1,570,715 - - - - - - - - - - - - 16,507,402 - - - - - - - - - - - -	Pro forma adjustment Note RMB’000 – – – – – 3,890,101 Note 1 – – – – 3,890,101 – – – – – – (3,892,284) Notes 2 & 3 (3,892,284) – – – – – (3,892,284) ----------- (2,183) -----------	Pro forma Group RMB’000 3,440,779 502,354 690,899 814,066 7,838 12,145,603 517,138 380,860 35,866 291,385 18,826,788 3,866,403 1,104,111 1,189,757 747,000 12,020 1,876,800 (3,425,737) 5,370,354 3,556,726 2,019,117 2,104,511 11,569 7,691,923 (2,321,569) ----------- 16,505,219 -----------

– 121 –

APPENDIX IV PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Non-current liabilities Interest-bearing borrowings – due after one year Deferred income Deferred tax liabilities Other long-term liabilities NET ASSETS CAPITAL AND RESERVES Issued equity Reserves Total equity attributable to owners of the company Non-controlling interests TOTAL EQUITY	The Group At 30 June 2014 RMB’000 (Unaudited) 2,687,310 117,309 252,691 41,339 3,098,649 - - - - - - - - - - - - 13,408,753 8,267,384 4,995,984 13,263,368 145,385 13,408,753	Pro forma adjustment Note RMB’000 – – – – – ----------- (2,183) – (2,183) Note 2 (2,183) – (2,183)	Pro forma Group RMB’000 2,687,310 117,309 252,691 41,339
			3,098,649 -----------
			13,406,570
			8,267,384 4,993,801
			13,261,185 145,385
			13,406,570

• Note 1: The adjustment represents the Acquisition of 15.01% interest in the Qinghai Salt Lake with the consideration payable by the Group amounting to approximately RMB3,890,101,000 as if the Acquisition was completed on 30 June 2014. Total consideration for the Acquisition will be satisfied in cash by the Group on completion.

• Note 2: Acquisition-related costs, such as professional fees for legal services, accounting service, stamp duty tax and other transaction costs, are included as part of the acquisition cost of the associate. For the purpose of the preparation of the Unaudited Pro Forma Financial Information of the Group, such costs related to the Acquisition are estimated to be RMB2,183,000.

• Note 3: Despite that the Group had a pro forma deficit in cash of RMB3,425,737,000 as at 30 June 2014 upon completion of the Acquisition, the Directors of the Company considered that the Company will have sufficient fund to complete the Acquisition as the Company will draw down unutilised bank facilities with different financial institutions to settle the purchase consideration. These unutilised bank facilities will be charged at the basic borrowing rate quoted by the People’s Bank of China.

The unutilised RMB denominated bank facilities of the Group at 30 November 2014 amounted to RMB6,780,000,000. Should the acquisition be financed entirely through draw down of the bank facilities and without utilising existing cash on hand, the interest-bearing borrowings – due after one year balance will increase by RMB3,892,284,000 and the bank balances and cash will remain at RMB466,547,000.

• Note 4: No adjustment has been made to reflect any trading results or other transactions of the Group entered into subsequent to 30 June 2014.

– 122 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. INTEREST IN SECURITIES

Save as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executives of the Company had any interest or short position in the Shares, underlying Shares and debt securities of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) nor had any interest in the 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 Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, a Director of the Company had long position in the Shares of the Company as follows:

				Percentage of
				the issued
				share capital
			Number of	of the
**Name **	of Director	Capacity	Shares held	Company
Harry	Yang	Beneficial owner	600	0.000009%

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:

• (a) as disclosed in the Company’s announcement dated 24 January 2013, a capital contribution agreement was entered into on 24 January 2013 by and among Sinochem Fertilizer, Sinochem Hebei Company Limited and Shijiazhuang Bolong Agricultural Products Trading Company Limited in relation to the establishment of Sinochem Shijiazhuang Agricultural Materials and Logistics Company Limited with a registered capital of RMB60 million, of which RMB30.6 million was contributed by Sinochem Fertilizer;

– 123 –

APPENDIX V

GENERAL INFORMATION

• (b) as disclosed in the Company’s announcement dated 7 March 2013, a property purchase agreement was entered into on 7 March 2013 by and between Sinochem Fertilizer and Meixi Lake International Research and Development Center Properties Co., Ltd. ( Meixi Lake Properties ), pursuant to which Sinochem Fertilizer purchased from Meixi Lake Properties No. 2 office building situated in Meixi Lake International Research and Development Center, Changsha, Hunan Province, PRC at a consideration of approximately RMB19.34 million;

• (c) as disclosed in the Company’s announcement dated 29 September 2014, a capital increase agreement was entered into on 29 September 2014 by and among Sinochem Fertilizer, Guizhou Kailin Holdings (Group) Co., Ltd., Guizhou Kailin Group Co., Ltd. ( Kailin Group ) and other parties, pursuant to which Sinochem Fertilizer subscribed for approximately 3.71% of the enlarged registered capital of Kailin Group and as a consideration of which, Sinochem Fertilizer disposed of its 13.41% equity interest in Guiyang Sinochem Kailin Fertilizer Co., Ltd. to Kailin Group; and

• (d) the Share Transfer Agreement.

4. DIRECTORS’ SERVICE CONTRACTS

On 15 May 2014, Mr. Wang Hong Jun, executive Director and Chief Executive Officer of the Company entered into a service contract with the Company for a term of three year. On 15 May 2014, Mr. Harry Yang, executive Director and Deputy General Manager of the Company, renewed his service contract with the Company for a term of three years. Pursuant to the terms stipulated in the service contracts of Mr. Wang and Mr. Yang, the respective service contract with the Company may be (i) terminated prior to its expiry if either party serves two months’ prior notice to the other in writing; or (ii) terminated by the Company in case of bankruptcy, diseases and any other significant faults of a director as described in the respective service contract. Should the Company terminate the respective service contract with Mr. Wang Hong Jun or Mr. Harry Yang prior to its expiry, Mr. Wang Hong Jun or Mr. Harry Yang will be entitled to receive a cash compensation equivalent to 11 months of his annual director’s salary, save for the circumstances described in item (ii) above.

Saved 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 which is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

5. COMPETING INTERESTS

As at the Latest Practicable Date, Mr. Harry Yang, executive Director and Deputy General Manager of the Company, is also a director of US Agri-Chemicals Corporation, which is a wholly-owned subsidiary of Sinochem Group and was engaged in the production of fertilizer prior to its cessation of business in November 2005. Although US Agri-Chemicals Corporation still maintained its company registration with the relevant authorities in the United States, as at the Latest Practicable Date, it had ceased its operation and accordingly, there is no competing business with the Group. As at the same date, other than Mr. Harry Yang, none of the directors of US Agri-Chemicals Corporation held any positions or assumed any role in the Group.

– 124 –

APPENDIX V

GENERAL INFORMATION

In addition, as at the Latest Practicable Date, Dr. Stephen Francis Dowdle, non-executive Director of the Company, is a director of Canpotex Limited, a Canadian corporation equally owned by Potash Corporation of Saskatchewan Inc. and two other potash producers. Canpotex Limited is principally engaged in offshore marketing of potash products for its three owners and is currently one of the major suppliers of fertilizer products to the Group. Since the Group and Canpotex Limited currently focus on different sales regions, the Company believes that there is no competition between the Group and Canpotex Limited. As at the same date, other than Dr. Stephen Francis Dowdle, none of the directors of Canpotex Limited held any positions or assumed any role in the Group.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and their respective close associates were 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 entered into by any member of the Group subsisting at the Latest Practicable Date and which was 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 2013 (the date to which the latest published audited consolidated financial statements of the Company were made up), (i) acquired or disposed of by; (ii) leased to; or (iii) are proposed to be acquired or disposed of by; or (iv) are proposed to be leased to any member of the Group.

7. MATERIAL ADVERSE CHANGES

Save as disclosed in the Company’s announcements dated 5 August and 21 August 2014, as at the Latest Practicable Date, the Directors were not aware of any material adverse changes in the financial or trading position of the Company since 31 December 2013, being the date to which the latest published audited consolidated financial statements of the Group were made up.

8. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, no 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 against any member of the Group.

– 125 –

GENERAL INFORMATION

APPENDIX V

9. EXPERTS

The following is the qualification of the expert who has given its opinions or advice, which are contained or referred to in this circular:

Name

Qualification

Guotai Junan a licensed corporation under the SFO to engage in type 6 (advising on corporate finance) regulated activity KPMG Certified Public Accountants

As at the date of this circular, each of Guotai Junan and KPMG:

• (a) has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name, in the form and context in which it appears;

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

• (c) did not have any direct or indirect interest in any assets which had been since 31 December 2013 (the date to which the latest published audited consolidated 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 or disposed of by, or leased to any member of the Group.

10. MISCELLANEOUS

• (a) The company secretary of the Company is Ms. CHEUNG Kar Mun, Cindy, a fellow member of both the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants, and an associate member of The Hong Kong Institute of Chartered Secretaries.

• (b) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda.

• (c) The principal place of business and head office of the Company in Hong Kong is at Units 4601-4610, 46th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.

• (d) The principal share registrar and transfer office of the Company is Codan Services Limited at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda.

• (e) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

– 126 –

GENERAL INFORMATION

APPENDIX V

• (f) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copied of the following documents will be available for inspection during normal business hours on any weekday (excluding Saturdays, Sundays and public holidays) at the principal place of business of the Company at Units 4601-4610, 46th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong up to and including the date of the SGM:

• (a) the bye-laws of the Company;

• (b) the Share Transfer Agreement;

• (c) the service contracts referred to in the section headed “Directors’ Service Contracts” in this appendix;

• (d) the material contracts referred to in the section headed “Material Contracts” in this appendix;

• (e) the accountants’ report on Qinghai Salt Lake from KPMG, the text of which is set out in Appendix II of this circular;

• (f) the report from KPMG on the unaudited pro forma financial information of the Group, the text of which is set out in Appendix IV of this circular;

• (g) the letter from the Independent Board Committee, the text of which is set out on pages 13 to 14 of this circular;

• (h) the letter of advice from Guotai Junan to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 15 to 30 of this circular;

• (i) the written consents referred to in the section headed “Experts” in this appendix;

• (j) the annual reports and consolidated financial statements of the Company for each of the two years ended 31 December 2012 and 2013 and the interim report and consolidated financial statements of the Company for the six months ended 30 June 2014; and

• (k) 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 2013, being the date of the Company’s latest published audited consolidated financial statements.

– 127 –

NOTICE OF SPECIAL GENERAL MEETING

==> picture [61 x 59] intentionally omitted <==

SINOFERT HOLDINGS LIMITED 中化化肥控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Sinofert Holdings Limited (the “ Company ”) will be held at Drawing Room, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on 12 February 2015 at 10:00 a.m., or any adjournment thereof, to consider and, if thought fit, pass, with or without modifications, the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

1. “ THAT :

2. (a) the transactions contemplated under the Share Transfer Agreement (as defined and described in the circular to the shareholders of the Company dated 27 January 2015, 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) be and are hereby approved, ratified and confirmed; and

3. (b) the directors of the Company or any other person authorized by the directors of the Company be and are hereby authorized 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 Share Transfer 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 Share Transfer Agreement which in their opinion is not of a material nature and to effect or implement any other matters referred to in this resolution.”

For and on behalf of the Board of Sinofert Holdings Limited Wang Hong Jun

Executive Director and Chief Executive Officer

• Hong Kong Special Administrative Region of the People’s Republic of China

• 27 January 2015

• For identification purposes only

– 128 –

NOTICE OF SPECIAL GENERAL MEETING

Notes:

• 1 The register of members of the Company will be closed from 11 February 2015 to 12 February 2015, 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, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, by not later than 4:30 p.m. on 10 February 2015.

• 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 on his behalf. A proxy need not be a member of the Company.

• 3 To be valid, the form of proxy, 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 Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed 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 resolution set out in this notice will be by way of poll.

As at the date of this notice, the executive directors of the Company are Mr. Wang Hong Jun (Chief Executive Officer) and Mr. Harry Yang; the non-executive directors of the Company are Mr. Liu De Shu (Chairman), Mr. Yang Lin, Dr. Stephen Francis Dowdle and Ms. Xiang Dandan; and the independent non-executive directors of the Company are Mr. Ko Ming Tung, Edward and Mr. Tse Hau Yin, Aloysius.

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