Design Capital Limited — Capital/Financing Update 2015

Apr 2, 2015

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

KING STONE ENERGY GROUP LIMITED 金 山 能 源 集 團 有 限 公 司

(Incorporated in Hong Kong with limited liability) (Stock Code: 00663)

MAJOR TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE EQUITY INTEREST OF THE DISPOSAL COMPANY

THE PROPOSED DISPOSAL

On 2 April 2015 (after trading hours), the Company (as the vendor) and the Purchaser entered into the Disposal Agreement for the transfer of the Sale Share and Sale Loans.

Pursuant to the Disposal Agreement, the Company has conditionally agreed to sell and the Purchaser has conditionally agreed to purchase the Sale Share and Sale Loans at the aggregate consideration of HK$1. The Consideration shall be satisfied by the Purchaser in cash at Completion. The Consideration was arrived at after arm’s length negotiations between the Company and the Purchaser after taking into account (i) the unaudited consolidated net liabilities position of the Disposal Group in the amount of approximately HK$1,980.0 million as at 31 December 2014 as dealt with in the unaudited consolidated managements accounts of the Group; and (ii) the face value of the Sale Loans, which amounted to approximately HK$180.2 million as at 31 December 2014. The Disposal Group is principally engaged in the mining and selling of coal in Inner Mongolia, the PRC.

The Company will also carry out the Group Reorganisation prior to Completion, pursuant to which Eerduosi Hengtai will sell and Qingrui will acquire 30% equity interest in Liaoyuan at a consideration of RMB1.5 million (approximately HK$1.88 million). Pursuant to the Repurchase Agreement, Eerduosi Hengtai has agreed to repurchase the 30% equity interest in Liaoyuan held by Qingrui during the period of 10 years from the date of Completion at a cash consideration of RMB100 million (approximately HK$125 million).

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Upon the completion of the Group Reorganisation, the Company will indirectly hold 30% equity interest in Liaoyuan. Upon Completion, the Company will cease to hold any share capital in the Disposal Company and the Disposal Company will cease to be a subsidiary of the Company.

IMPLICATIONS UNDER THE LISTING RULES

As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) in respect of the Disposal calculated exceed 25% but less than 75%, the Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules and is subject to the reporting, announcement and Shareholders’ approval requirements under the Listing Rules.

Since (i) no Shareholder is required to abstain from voting on the resolution to be proposed at the EGM (if necessary) to approve the Disposal Agreement and the transactions contemplated thereunder; and (ii) on 2 April 2015, the Company received written shareholder’s approval, approving the Disposal from Belton Light Limited, being the Shareholder holding 1,885,555,000 Shares, representing approximately 56.4% of the entire issued share capital of the Company, no general meeting is required to be convened for the approval of the Disposal pursuant to Rule 14.44 of the Listing Rules.

A circular containing, among other things, further details of the Disposal Agreement and the transactions contemplated thereunder, is expected to be despatched to the Shareholders on or before 15 May 2015.

The Board is pleased to announce that, on 2 April 2015 (after trading hours), the Company and the Purchaser entered into the Disposal Agreement with particulars set out as follows:

DISPOSAL AGREEMENT

Date: 2 April 2015 (after trading hours)

Parties

Vendor: the Company Purchaser: Jumbo Talent Group Limited

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The Purchaser is a company incorporated in the British Virgin Islands with limited liability and is wholly-owned by Mr. Li Dongfeng. Mr. Li is a private investor in the PRC. The Directors confirm that, to the best of their knowledge, information and belief, after having made all reasonable enquiry, the Purchaser and its ultimate beneficial owner are independent third parties.

Assets to be disposed of

Subject to and upon the terms and conditions of the Disposal Agreement, the Company has agreed to sell and the Purchaser has agreed to purchase from the Company the Sale Share and the Sale Loans.

Sale Share:

1 ordinary share of US$1 of Magic Field, being the entire issued share capital of Magic Field, free from encumbrances and together with all rights now or thereinafter attached thereto.

As at the date of this announcement, Magic Field is a directly wholly-owned subsidiary of the Company.

Sale Loans:

The Sale Loans consist of the (i) Magic Field Loan; (ii) Triumph Fund A Loan; and (iii) Shanxi Hengchuang Loan. The Magic Field Loan represents a shareholder loan owing by Magic Field to the Company amounted to HK$81,697.2 as at 31 December 2014; the Triumph Fund A Loan represents a shareholder loan owing by Triumph Fund A to the Company amounted to HK$77,011.0 as at 31 December 2014 and the Shanxi Hengchuang Loan represents a shareholder loan owing by Shanxi Hengchuang to the Company amounted to HK$180.0 million as at 31 December 2014.

Consideration

The consideration for the Sale Share and the Sale Loans is HK$1, which shall be payable in cash by the Purchaser to the Company at Completion.

The consideration of the Disposal was determined after arm’s length negotiations between the Purchaser and the Company, in particular, with reference to (i) the unaudited consolidated net liabilities position of the Disposal Group in the amount of approximately HK$1,980.0 million as at 31 December 2014 as dealt with in the unaudited consolidated managements accounts of the Group; and (ii) the face value of the Sale Loans, which amounted to approximately HK$180.2 million as at 31 December 2014.

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Taking into account the consolidated net liabilities position and the loss-making position of the Disposal Group, the Directors consider that the consideration of the Disposal to be fair and reasonable.

Group Reorganisation and debt restructuring

The Company will carry out the Group Reorganisation prior to Completion, pursuant to which Eerduosi Hengtai will sell and Qingrui will acquire 30% equity interest in Liaoyuan at a consideration of RMB1.5 million (approximately HK$1.88 million). In addition, the Company will carry out a debt restructuring prior to Completion, where (i) Shanxi Hengchuang and Fu’an Leixin have entered into the Deed of Waiver on 2 April 2015 (after trading hours), pursuant to which Shanxi Hengchuang has waived the repayment obligations of a loan owed by Fu’an Leixin in the amount of RMB60 million (approximately HK$75 million); and (ii) pursuant to the Deed of Novation entered into between Molto Fortune, the Company and the Purchaser on 2 April 2015 (after trading hours), the Purchaser agrees to and accepts the liabilities of the Company under the Debt provided by Molto Fortune and upon completion of the Deed of Novation (which is conditional upon the completion of the Disposal), the Purchaser will assume the obligations and liabilities under the Debt, and the Company will have no further rights and obligations against the Debt.

Repurchase Agreement and the Share Pledge Agreement

Qingrui has entered into the Repurchase Agreement with Eerduosi Hengtai on 2 April 2015 (after trading hours), pursuant to which Eerduosi Hengtai has agreed to repurchase the 30% equity interest in Liaoyuan held by Qingrui during the period of 10 years from the date of Completion at a cash consideration of RMB100 million (approximately HK$125 million). Meanwhile, Qingrui and Eerduosi Hengtai have also entered into the Share Pledge Agreement on 2 April 2015 (after trading hours), pursuant to which Eerduosi Hengtai will pledge its 69% equity interest in Liaoyuan to Qingrui as collateral for honouring the obligations under the Repurchase Agreement. The pledge of the 69% equity interest in Liaoyuan shall be released upon the completion of the repurchase of the 30% equity interest in Liaoyuan held by Qingrui under the Repurchase Agreement.

Conditions precedent

The Completion shall be subject to fulfilment of the following conditions:

• (i) the Disposal Agreement and the transactions contemplated thereunder having complied with the requirements of the Listing Rules and having been approved by the Shareholders at the EGM (or by way of written shareholders’ approval obtained from shareholder(s) holding more than 50% issued share capital of the Company);

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• (ii) the Company having completed the Group Reorganisation (including obtaining all the required approvals from the relevant government authorities and completed the registration);

• (iii) all the intra-group balances and debts between the Disposal Group and the Remaining Group having been set-off, settled and released; and

• (iv) all relevant necessary approvals, consents, authorisations, and permits in relation to the transfer of the Sale Share and the Sale Loans having been obtained and continuing to be in effect (including but not limited to approvals or consents from the Chinese regulatory authorities, the Stock Exchange, banks or creditors).

None of the conditions is a waivable condition. As at the date of this announcement, none of the conditions have been fulfilled. If the conditions above have not been fulfilled by 12:00 p.m. on 30 September 2015 (or such later date as the parties may agree), the Disposal agreement (save and except for certain terms of the Disposal Agreement in relation to confidentiality, fees and applicable laws) shall terminate and neither party shall have any obligations or liabilities under the Disposal Agreement except for any antecedent breaches.

Completion

The Completion shall take place at 4:00 p.m. on the business day which the last of the conditions as mentioned above is fulfilled. Upon Completion, the Company will cease to hold any issued share capital in the Disposal Company and the Disposal Company will cease to be a subsidiary of the Company.

INFORMATION OF THE DISPOSAL GROUP

Corporate structure and business of the Disposal Group

The Disposal Company is a company established in the British Virgin Islands with limited liability and is a direct wholly owned subsidiary of the Company. As at the date of this announcement, the Disposal Company wholly owns Triumph Fund A, and Triumph Fund A wholly owns Shanxi Hengchuang which in turn owns 99% of the entire equity interest of Shanxi Puhua, which is interested in (i) 95% of the equity interests of Eerduosi Hengtai; (ii) the entire equity interests of Liaoyuan (as to approximately 99% and 1% held by Eerduosi Hengtai and Shanxi Puhua respectively); and (iii) 45% of the equity interest of the Fund Management Company.

Eerduosi Hengtai Group

Eerduosi Hengtai is a company established in the PRC with limited liability, which together with its 99%-owned subsidiary Liaoyuan, are principally engaged in the mining and selling of coal. The principal assets of Eerduosi Hengtai are the mining

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licenses of No. 1 Coal Mine and No. 2 Coal Mine located in Dongsheng District of Eerduosi, Inner Mongolia. No. 1 Coal Mine is an operating coal mine while No. 2 Coal Mine is pending the approval by the relevant government authorities for a possible coal mine exchange, the production schedule of which has been therefore delayed. Liaoyuan is a company established in the PRC with limited liability. The principal asset of Liaoyuan is the mining license of an operating coal mine located in Yijinhuo Luoqi, Eerduosi, Inner Mongolia, the PRC.

Set out below is the resources (including Measured, Indicated and Inferred resources under the JORC Code) and reserves level of No. 1 Coal Mine and No. 2 Coal Mine:

Total resources/reserves as at 18 November 2009 Less: Actual output in 2010 Actual output in 2011 Actual output in 2012 Actual output in 2013 Actual output in 2014 Resources/reserves as at 31 December 2014	Resources (Mt) 203.9 (4.0) (3.6) (2.5) (0.9) (0.2) 192.7	Reserves (Mt) 71.9 (4.0) (3.6) (2.5) (0.9) (0.2) 60.7

Set out below is the resources level of the coal mine held by Liaoyuan:

Resources as at 31 December 2011 Less: Actual output in 2012 Actual output in 2013 Actual output in 2014 Resources as at 31 December 2014	Resources (Mt) 15.8 (0.5) (0.2) (0.1) 15.0

Fund Management Company

The Fund Management Company was jointly set up in the PRC by the Group and CITIC Trust Co. Ltd in 2011 for the purpose of managing energy trust funds which invested in coal mines and clean energy projects in the PRC, which is owned as to 45% by the Group, 45% by CITIC Trust Co. Ltd and 10% by 山西朗乾礦業有限公司 (Shanxi Lang Qian Mineral Company Limited*), both of which are independent third parties.

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The Fund Management Company is accounted for as a joint venture of the Company. The Group had shared a loss of approximately HK$2.6 million for the year ended 31 December 2014. As at 31 December 2014, the share of net assets of the Fund Management Company amounted to approximately HK$10.4 million.

Set out below is the shareholding structure of the Company and the Disposal Group as at the date of this announcement:

==> picture [425 x 298] intentionally omitted <==

Set out below is the shareholding structure of the Remaining Group upon Completion:

==> picture [235 x 115] intentionally omitted <==

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Financial information of the Disposal Group

Set out below is the summary of key financial information of the Disposal Group extracted from the unaudited consolidated management accounts of the Group for each of the two years ended 31 December 2014 and 2013:

	For the year	ended/As at
	31 December
	2013	2014
	(unaudited)	(unaudited)
	HK$’000	HK$’000
Revenue	135,769	27,979
Loss before taxation	(1,444,133)	(1,612,780)
Net loss after taxation	(1,348,355)	(1,581,831)
Net liabilities attributable to owners of
the Company	(438,106)	(1,979,992)

During the year ended 31 December 2014, coal sales volume was approximately 0.3 Mt as compared to approximately 1.2 Mt in the corresponding period in 2013, and the average selling prices of raw coal produced during the year ended 31 December 2014 were approximately RMB81 per ton as compared to approximately RMB92 per ton in the corresponding period in 2013.

INFORMATION OF THE PURCHASER

The Purchaser is a company incorporated in the British Virgin Islands with limited liability and is wholly-owned by Mr. Li Dongfeng. Mr. Li is a private investor in the PRC. The Directors confirm that, to the best of their knowledge, information and belief, after having made all reasonable enquiry, the Purchaser and its ultimate beneficial owner are independent third parties.

REASONS FOR AND THE BENEFITS OF THE DISPOSAL

The Group is principally engaged in the mining and selling of coal and silver, provision of finance leasing in the PRC, oil and gas extraction and production, and research development of heavy oil extraction technology in the United States.

The performance of the coal mining business of the Group has been unsatisfactory and the Group recorded a significant drop in the revenue and incurred more loss in its coal mining business in the two years ended 31 December 2014, which was mainly contributed by the decrease in the total coal production of the Group and the decrease in the selling price of coal due to market factors. In addition, the tightening policy of the local government towards the coal mining industry and the gradual slowdown of the PRC economy have also cooled the coal market. The worsening performance of the coal mining business of the Group continued in 2014 which was demonstrated by the

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further decline in revenue, widening gross loss and negative operating cash flow as compared to the corresponding period in 2013. The Directors consider that the operating environment of the coal mining business in the PRC would remain challenging and do not foresee the Group’s coal mining business could be turned around in the near future.

The Disposal Group, being the coal mining arm of the Group, has been operating at a significant loss for the years ended 31 December 2013 and 2014. Given the slow recovery in the coal mining industry and the loss-making performance of Eerduosi Hengtai Group, it has been the Group’s intention to reallocate its resources with the aim to restructure its asset portfolio in order to increase Shareholders’ value through the Disposal.

According to the annual result announcement of the Group for the year ended 31 December 2014, the Group recorded a net liabilities position attributable to owners of the Company of approximately HK$1,509.3 million as at 31 December 2014 primarily due to the vast amount of borrowings associated with the Disposal Group. Meanwhile, the Remaining Group has net current liabilities of HK$233 million as at 31 December 2014 and did not have any overdue bank loans. Subsequent to 31 December 2014, certain creditors have agreed to extend the repayment dates of current liabilities of the Remaining Group of HK$307 million to after 31 December 2015, or not earlier than 31 March 2016. The operation of the Disposal Group as a going concern is very dependent on whether the Disposal Group can defer or extend the repayment of its bank loans and other liabilities which are overdue or fall due in the foreseeable future, and whether the Disposal Group can obtain new financing. All these indicate the existence of a material uncertainty which may cast significant doubt about the ability of the Disposal Group to operate as a going concern in the foreseeable future. Since part of such borrowings through the Disposal Group shall be payable within one year or on demand amounted to approximately HK$1,581.1 million while the cash and cash equivalents of the Group as at 31 December 2014 was approximately HK$156.1 million, the Directors consider that the Disposal will reduce the financial burden from the current liabilities of the Disposal Group to the Group as well as the overall borrowing level of the Group significantly and the liquidity of the Group is expected to be greatly improved. The liquidity issue is expected to be considerably alleviated upon Completion.

The Directors consider that the Disposal on one hand provides an immediate exit to the Group to discard the financial burden of the Disposal Group and improve the financial conditions of the Group, and on the other hand enables the Group to reallocate its resources and restructure its asset portfolio and focus on the development of the Remaining Business, which is in the interests of the Company and the Shareholders as a whole.

The gross proceed from the Disposal is HK$1, which is expected to be applied as the general working capital of the Group.

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The terms of the Disposal Agreement ware determined after arm’s length negotiation between the Company and the Purchaser and on normal commercial terms. Taking into account the above reasons, the Directors are of the view that the terms of the Disposal Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Based on the above and the analysis of the Remaining Businesses as depicted in the following sections, the Directors consider that the Company will continue to be able to fulfill the listing requirements under the Listing Rules.

FINANCIAL EFFECTS OF THE DISPOSAL

Upon Completion, the Disposal Group will cease to be subsidiaries of the Company and their respective profits and losses and assets and liabilities will no longer be consolidated into the consolidated financial statements of the Company.

Based on (i) the Consideration of HK$1; (ii) the unaudited consolidated net liabilities position of the Disposal Group of approximately HK$1,980.0 million as dealt with in the unaudited consolidated management accounts of the Group as at 31 December 2014; (iii) the receivable from the Remaining Group waived by the Disposal Group according to the Deed of Waiver of amounting to HK$75 million; (iv) realisation of exchange reserve of approximately HK$228.2 million; (v) the carrying amount of the Sale Loans amounting to approximately HK$180.2 million as at 31 December 2014; and (vi) the estimated professional fees and other expenses of approximately HK$2 million, it is expected that, upon Completion, for illustration purpose only, a gain on the Disposal of approximately HK$2,101 million will be recongised (subject to audit). Shareholders and potential investors of the Company should note that the actual amount of gain on the Disposal should be calculated on the basis of the relevant figures as at the date of the Completion and therefore would or would not be materially different from the abovementioned.

BUSINESS OF THE GROUP AFTER THE DISPOSAL

Business and prospects of the Remaining Business

Following the Disposal, the Remaining Group will be principally engaged in oil and gas extraction and production, and research and development of heavy oil extraction technology in the United States, mining and selling of silver and provision of finance leasing in the PRC.

Oil and gas extraction and production

Since the fourth quarter of 2013, the Group has been actively developing an upstream oil and gas extraction and production project in North America. Up to the date of this announcement, the Group has secured leases on over 7,000 net acres of land in Texas, the United States, and has invested over US$15 million in the project. The technical report issued by an independent technical expert indicates that the aggregate of the

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total proved, probable, and possible (3P) net reserves for natural gas amounted to approximately 67.95 billion cubic feet, the aggregate of the total 3P reserves of natural gas liquids amounted to approximately 1.79 million bbls, and the aggregate of the total 3P reserves of oil amounted to approximately 776 thousand Bbls, as of 1 January 2015. Drilling and fracking of the first well was completed in July 2014 and production has commenced thereafter. During the year ended 31 December 2014, the Group, net to its ownership interests, has produced approximately 2,200 Bbl of oil, and approximately 240 million cubic feet of natural gas (which includes approximately 8,400 Bbl of natural gas liquids). All of which in aggregate generated revenue of approximately HK$9.2 million. The Group entered into sales contracts with (i) a United States oil and gas company listed on the New York Stock Exchange in relation to the sales of crude oil and the relevant contract is automatically renewed for a period of one month unless either party has given a non-renewal notice; and (ii) a sizeable energy conglomerate in Canada for gas gathering, processing and purchase in respect of all gas produced at the relevant well and the relevant contract is valid for one year from the first flow of gas initially and on a month-to-month basis until terminated by the parties to the relevant contract. Given the results of the first well, the Group started drilling a second well in January 2015, and will continue to develop the project as results and commodity prices warrant.

The Group’s oil and gas projects in the United States are led by a team of experienced professionals with significant experience in oil and gas and related industries, as well as specific exploration experience in the area where the Group’s acreage is located, including the drilling of over 50 wells. The Group targets to ultimately lease 12,500 acres which should result in up to 80 new well locations.

The Company has been also engaged in the research and development of HydroFlame technology since the acquisition of the technology in 2013. HydroFlame is a new heavy oil extraction technology that burns a fuel directly inside a rotating stream of water. The HydroFlame technology has yet to be commercialized, but has several new engineering process applications including hot water heaters, compact steam generators, produced water treatment processes and efficient power generation systems. During 2014, the Group completed testing of HydroFlame in Louisiana and Texas, the United States and concluded with a meaningful list of improvements and modifications. The Group will endeavor to develop and commercialize the HydroFlame technology both for oil extraction as well as other applications in the near future.

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Silver mining

The Group possesses mining and exploration permits of two quality silver mines via Fu’an Leixin and Zherong Leixin, both are subsidiaries in the Remaining Group, in Fujian Province, the PRC, namely the West Mine and the East Mine. The mineral resources of the West Mine and the East Mine pursuant to the technical report issued by SRK Consulting China Limited in accordance with the JORC Code are illustrated as follows:

The West Mine The East Mine

Inferred resources (Mt)	1.71	1.73
Indicated resources (Mt)	0.87	6.35
Probable ore reserves (Mt)	0.82	5.95
Ore grade (g/tons)	211.4	128.6
Silver metal (tons)	173	765

The West Mine has a valid mining permit with approved production capacity of 100,000 tpa and a processing plant with daily ore processing capacity of 300 tons per day is already in place. The ore reserve at the West Mine is able to support a mining life of five years at a rate of 198,000 tpa. The West Mine has processed ores of approximately 17,000 tons and produced silver concentrates of approximately 126 tons that were sold to a silver smelter in Shandong Province and generated revenue of approximately HK$1.8 million during the second half of 2014. The Group expects the West Mine to achieve a silver ore processing volume of 100,000 tons in 2015. The Group did not enter into long term contracts with customers but is in the process of negotiation with various customers for possible sales of silver concentrates and/or silver metal.

The East Mine is an advanced development project with an exploration permit valid until October 2015. The designed mining and processing scale of the East Mine is 660,000 tpa. The construction of the East Mine is expected to complete and put into operation in 2016. From 2017, the mining and processing capacity of the East Mine is expected to achieve 660,000 tpa. During 2014, the Group continued to conduct indepth exploration works with increased drilling coverage and density in the East Mine. The Group is in the progress of conducting further testing at the East Mine and preparing the geology reports and it is expected that the mining permits of the East Mine could be obtained by the end of 2015.

The Group’s management team of the West Mine and the East Mine has extensive knowledge in the operation, extraction, exploration and processing of non-ferrous metal mines, and some of which have over 20 years of experience in the mining industry.

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IMPLICATIONS UNDER THE LISTING RULES

As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) in respect of the Disposal calculated exceed 25% but less than 75%, the Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules and is subject to the reporting, announcement and Shareholders’ approval requirements under the Listing Rules.

Since (i) no Shareholder is required to abstain from voting on the resolution to be proposed at the EGM (if necessary) to approve the Disposal Agreement and the transactions contemplated thereunder; and (ii) on 2 April 2015, the Company received written shareholder’s approval, approving the Disposal from Belton Light Limited, being the Shareholder holding 1,885,555,000 Shares, representing approximately 56.4% of the entire issued share capital of the Company, no general meeting is required to be convened for the approval of the Disposal pursuant to Rule 14.44 of the Listing Rules.

A circular containing, among other things, further details of the Disposal Agreement and the transactions contemplated thereunder, is expected to be despatched to the Shareholders on or before 15 May 2015.

DEFINITIONS

In this announcement, the following expressions have the meanings set out below unless the context requires otherwise.

‘‘associate(s)’’	has the meaning ascribed thereto under Rule 1.01 of
	the Listing Rules
‘‘Bbl’’	oil barrel, equivalent to approximately 159 liters
‘‘Board’’	the board of Directors
‘‘Business Day’’	any day (other than statutory holiday) on which banks
	in the PRC are open for business
‘‘Company’’	King Stone Energy Group Limited, a company
	incorporated in Hong Kong with limited liability, the
	Shares of which are listed on the Main Board (stock
	code: 663)
‘‘Completion’’	the completion of the Disposal Agreement
‘‘connected person(s)’’	has the meaning ascribed thereto under Rule 1.01 and
	as extended under Rule 14A.11 of the Listing Rules

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• ‘‘Consideration’’

• ‘‘Debt’’

• ‘‘Deed of Novation’’

• ‘‘Deed of Waiver’’

• ‘‘Director(s)’’

• ‘‘Disposal’’

• ‘‘Disposal Agreement’’

• ‘‘Disposal Company’’ or ‘‘Magic Field’’

• ‘‘Disposal Group’’

• ‘‘Eerduosi Hengtai’’

• ‘‘Eerduosi Hengtai Group’’

• ‘‘EGM’’

• the consideration of HK$1 payable in cash by the Purchaser to the Company at Completion

• cash advance by Molto Fortune to the Company with a principal amount of HK$200 million before the entering into of the Deed of Novation together with accrued interest of approximately HK$17.5 million

• the deed of novation entered into between Molto Fortune, the Company and the Purchaser dated 2 April 2015 in respect of the Debt

• the deed of waiver entered into between Shanxi Hengchuang and Fu’an Leixin dated 2 April 2015 in relation to the waiving of intra-group debts of the Group

• the director(s) of the Company

• the transfer of the Sale Share and Sale Loans by the Company to the Purchaser pursuant to the Disposal Agreement

• the sale and purchase agreement dated 2 April 2015 entered into between the Company and the Purchaser in relation to, among other things, the transfer of the Sale Share and the Sale Loans

• Magic Field International Limited, a company incorporated in the British Virgin Islands and a direct wholly-owned subsidiary of the Company

• Disposal Company and its subsidiaries

• 鄂爾多斯市恒泰煤炭有限公司 (Eerduosi Hengtai Coal Company Limited*), a company established in the PRC with limited liability and is a 95%-owned subsidiary of the Company

• Eerduosi Hengtai and its subsidiary Liaoyuan

• the extraordinary general meeting of the Company to be convened, if necessary, to approve the Disposal Agreement and the transactions contemplated thereunder

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• ‘‘Fu’an Leixin’’

• Fu’an Leixin Mining Company Limited, a company established in PRC with limited liability and whollyowned by the Company

• ‘‘Fund Management Company’’

• 聚 信 泰 和 能 源 投 資 基 金 管 理 有 限 責 任 公 司 (Juxin Taihe Energy Investment Fund Management Co. Ltd.*), a limited liability company jointly set up by the Group and CITIC Trust Co. Ltd and managed the energy trust funds which invested in quality mines and clean energy projects in the PRC

• ‘‘Group’’

• the Company and its subsidiaries

• ‘‘Group Reorganisation’’

• the group reorganization of the Group prior to the Completion where Eerduosi Hengtai will sell and Qingrui will acquire 30% equity interest in Liaoyuan at a consideration of RMB1.5 million (approximately HK$1.88 million)

• ‘‘HK$’’

• ‘‘Hong Kong’’

• Hong Kong dollar, the lawful currency of Hong Kong the Hong Kong Special Administrative Region of the PRC

• ‘‘independent third party’’

• third party(ies) not connected to any Director, chief executive orsubstantial shareholder of the Company or any of its subsidiariesor an associate of any of them

• ‘‘Liaoyuan’’

• 內 蒙 古 燎 原 煤 業 有 限 責 任 公 司 (Inner Mongolia Liaoyuan Mining Co., Ltd.*), which is held as to 99% and 1% by Eerduosi Hengtai and Shanxi Puhua respectively

• ‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange

• ‘‘Magic Field Loan’’

• a shareholder loan due to the Company from Magic Field amounted to HK$81,697.2 as at 31 December 2014

• ‘‘Mt’’

• million tons

• ‘‘MMcf’’

• million cubic feet, equivalent to approximately 28,000 cubic meters

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• ‘‘Molto Fortune’’

• Molto Fortune Limited, a company established in the British Virgin Islands with limited liability

• ‘‘No. 1 Coal Mine’’

• the operating coal mine located in Dongshen Coalfield of Inner Mongolia, the PRC, currently held by Eerduosi Hengtai

• ‘‘No. 2 Coal Mine’’ the coal mine located in Dongshen Coalfield of Inner Mongolia, the PRC, with mining license currently held by Eerduosi Hengtai

• ‘‘percentage ratios’’ has the meaning ascribed thereto under Rule 14.04(9) of the Listing Rules

• ‘‘PRC’’ the People’s Republic of China and for the purpose of this announcement, exclude Hong Kong, Taiwan and the Macau Special Administration Region of the PRC

• ‘‘Purchaser’’

• Jumbo Talent Group Limited, a company established in the British Virgin Islands with limited liability

• ‘‘Qingrui’’

• 北京青瑞融資租賃有限公司 (Beijing Qingrui Finance Leasing Co., Ltd.*), a company established in the PRC with limited liability and wholly-owned by the Company

• ‘‘Remaining Business’’ the businesses of the Group excluding those conducted by the Disposal Group

• ‘‘Remaining Group’’ companies within the Group other than the Disposal Group

• ‘‘Repurchase Agreement’’

• the repurchase agreement entered into between Qingrui and Eerduosi Hengtai dated 2 April 2015 pursuant to which Eerduosi Hengtai agreed to repurchase the 30% equity interest in Liaoyuan held by Qingrui during the period of 10 years from the date of the Completion at a cash consideration of RMB100 million

• ‘‘RMB’’

• Renminbi, the lawful currency in the PRC

• ‘‘Sale Loans’’

• collectively, the Magic Field Loan, Triumph Fund A Loan and Shanxi Hengchuang Loan

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• ‘‘Sale Share’’

• 1 ordinary share of US$1 of Magic Field, being the entire issued share capital of Magic Field

• ‘‘Shanxi Hengchuang’’

• 山西恒創實業有限公司 (Shanxi Hengchuang Industrial Co., Ltd.*), a company established in the PRC with limited liability and wholly-owned by the Company

• ‘‘Shanxi Hengchuang Loan’’

• a shareholder loan due to the Company from Shanxi Hengchuang amounted to HK$180.0 million as at 31 December 2014

• ‘‘Shanxi Puhua’’

• 山西普華德勤冶金科技有限公司 (Shanxi Puhua Deqin Mining Technology Company Limited*), a company established in the PRC with limited liability and is a 99%-owned subsidiary of the Company

• ‘‘Share(s)’’ the ordinary share(s) in the share capital of the Company

• ‘‘Share Pledge Agreement’’

• The share pledge agreement dated 2 April entered into between Eerduosi Hengtai and Qingrui in relation to the pledge of 69% equity interest in Liaoyuan by Eerduosi Hengtai to Qingrui

• ‘‘Shareholder(s)’’ holder(s) of the Share(s)

• ‘‘Stock Exchange’’

• The Stock Exchange of Hong Kong Limited

• ‘‘substantial shareholder’’

• has the meaning ascribed thereto under Rule 1.01 of the Listing Rules

• ‘‘tpa’’

• tons per annum

• ‘‘Triumph Fund A’’

• Triumph Fund A Limited, a company incorporated in the Cayman Islands and a wholly-owned subsidiary of the Company as at the date of this announcement

• ‘‘Triumph Fund A Loan’’

• a shareholder loan due to the Company from Triumph Fund A amounted to HK$77,011.0 as at 31 December 2014

• ‘‘US$’’

• the United States dollars, the lawful currency of the United States of America

– 17 –

‘‘Zherong Leixin’’

Zherong County Leixin Mining Company Limited, a company established in PRC with limited liability and is owned as to 84.4% by the Company

‘‘%’’

per cent

By order of the Board KING STONE ENERGY GROUP LIMITED Xu Zhendong Chairman

Hong Kong, 2 April 2015

As at the date of this announcement, the executive Directors are Mr. Xu Zhendong, Mr. Zhang Wanzhong, Mr. Zong Hao, Mr. Xu Zhuliang and Mr. Benjamin Clark Danielson, and the independent non-executive Directors are Mr. Chiu Sui Keung, Mr. Lu Binghui, Mr. Lee Ping and Mr. Liu Shengming.

• for identification purposes only

– 18 –