Design Capital Limited — Proxy Solicitation & Information Statement 2015

May 15, 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 or registered institution in securities, a bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in King Stone Energy Group Limited (the ‘‘Company’’), you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer, registered institution in securities 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.

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 AND THE SALE LOANS

A letter from the Board is set out on pages 6 to 21 of this circular.

15 May 2015

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Appendix I — Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Appendix II — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24

– i –

DEFINITIONS

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

• ‘‘associate(s)’’ has the meaning ascribed thereto under 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 Hong Kong 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 the Listing Rules

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

• ‘‘Debt’’ 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 and fine of approximately HK$24.2 million

• ‘‘Deed of Novation’’ the deed of novation entered into among Molto Fortune, the Company and the Purchaser dated 2 April 2015 in respect of the Debt

• ‘‘Deed of Waiver’’ the deed of waiver entered into between Shanxi Hengchuang and Fu’an Leixin dated 2 April 2015 in relation to the waiving of intragroup debts of the Group

• ‘‘Director(s)’’ the director(s) of the Company

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

• ‘‘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 Disposal

• ‘‘Disposal Company’’ or Magic Field International Limited, a company incorporated in the ‘‘Magic Field’’ British Virgin Islands and a direct wholly-owned subsidiary of the Company as at the Latest Practicable Date

– 1 –

DEFINITIONS

• ‘‘Disposal Group’’

Disposal Company and its subsidiaries

• ‘‘Eerduosi Hengtai’’ 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 as at the Latest Practicable Date

• ‘‘Eerduosi Hengtai Eerduosi Hengtai and its subsidiary, Liaoyuan Group’’

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

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

• ‘‘Fu’an Leixin Loan’’ a loan owed by Fu’an Leixin in the amount of RMB60 million (approximately HK$75 million) to Shanxi Hengchuang

• ‘‘Fund Management 聚信泰和能源投資基金管理有限責任公司 (Juxin Taihe Energy Company’’ 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 under 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)

• ‘‘HK$’’ Hong Kong dollar(s), the lawful currency of Hong Kong

• ‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC

• ‘‘independent third third party(ies) not connected to any director, chief executive or party(ies)’’ substantial shareholder of the Company or any of its subsidiaries or an associate of any of them

• ‘‘JORC Code’’ the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, 2012 Edition

• ‘‘Latest Practicable Date’’ 13 May 2015, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular

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DEFINITIONS

• ‘‘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 as at the Latest Practicable Date

• ‘‘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 ‘‘Molto Fortune’’ Molto Fortune Limited, a company established in the British Virgin Islands with limited liability and an independent third party

• ‘‘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 14.07 of the Listing Rules

• ‘‘PRC’’ the People’s Republic of China and for the purpose of this circular, excludes 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 and an independent third party

• ‘‘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 Completion at a cash consideration of RMB100 million

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DEFINITIONS

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

• ‘‘Sale Loans’’ collectively, the Magic Field Loan, Triumph Fund A Loan and Shanxi Hengchuang Loan

• ‘‘Sale Share’’ 1 ordinary share of US$1 in the capital of Magic Field, being the entire issued share capital of Magic Field

• ‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• ‘‘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 whollyowned by the Company as at the Latest Practicable Date

• ‘‘Shanxi Hengchuang a shareholder loan due to the Company from Shanxi Hengchuang Loan’’ 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 a 99%-owned subsidiary of the Company

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

• ‘‘Share Pledge the share pledge agreement dated 2 April 2015 entered into between Agreement’’ 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 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 Latest Practicable Date

• ‘‘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 dollar(s), the lawful currency of the United States of America

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DEFINITIONS

‘‘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

This circular has been printed in English and Chinese. In the event of any inconsistency, the English text of this circular shall prevail over its Chinese text.

For illustration purposes, figures in RMB in this circular have been translated into HK$ at the exchange rate of RMB1.00=HK$1.25. Such conversion shall not be construed as a representation that amounts in RMB were or may have been converted into HK$ using such exchange rate or any other exchange rate or at all.

• for identification purposes only

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LETTER FROM THE BOARD

15 May 2015

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)

Executive Directors:

• Mr. Zhang Wanzhong (Chairman)

• Mr. Zong Hao

• Mr. Xu Zhuliang

• Mr. Benjamin Clark Danielson

Registered office, head office and principal place of business in Hong Kong:

Unit 7603, 76th Floor The Center 99 Queen’s Road Central Hong Kong

Independent Non-executive Directors:

• Mr. Chiu Sui Keung

• Mr. Lu Binghui

• Mr. Lee Ping

• Mr. Liu Shengming

To the Shareholders

Dear Sir or Madam,

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

INTRODUCTION

Reference is made to the announcement of the Company dated 2 April 2015. 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

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LETTER FROM THE BOARD

Company and the Purchaser after taking into account (i) the unaudited consolidated net liabilities position of the Disposal Group attributable to owners of the Company in the amount of approximately HK$1,980.0 million as at 31 December 2014; 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).

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.

As one or more of the applicable percentage ratios in respect of the Disposal 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.

The Directors confirm that, to the best of their knowledge, information and belief after having made all reasonable enquiries, the Purchaser and its ultimate beneficial owner are third parties independent of the Group and its connected persons and no Shareholder has a material interest in the Disposal. As such, no Shareholder is required to abstain from voting for the resolution to approve the Disposal should the Disposal be put forward to the Shareholders for approval at a general meeting. 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.

The purpose of this circular is to provide you with, among other things, (i) further information regarding the Disposal and the Group Reorganisation; (ii) the financial information of the Group; (iii) general information of the Company; and (iv) other information as required by the Listing Rules.

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LETTER FROM THE BOARD

DISPOSAL AGREEMENT

Date:

2 April 2015 (after trading hours)

Parties

Vendor: the Company

Purchaser: Jumbo Talent Group Limited

The Purchaser is an investment holdings 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 in the capital 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 Latest Practicable Date, Magic Field is a directly whollyowned 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.

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LETTER FROM THE BOARD

Consideration

The aggregate 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 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 attributable to owners of the Company in the amount of approximately HK$1,980.0 million as at 31 December 2014; and (ii) the face value of the Sale Loans, which amounted to approximately HK$180.2 million as at 31 December 2014. The Consideration represents an excess of approximately HK$1,980.0 million over the unaudited consolidated net liabilities position of the Disposal Group.

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

Group reorganisation

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) as a prerequisite for the arrangements under the Repurchase Agreement.

In addition, the Company will carry out a debt restructuring, where (i) Shanxi Hengchuang and Fu’an Leixin (holder of the mining and exploration permit of the Group’s silver mine) 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 the Fu’an Leixin Loan; and (ii) pursuant to the Deed of Novation entered into among Molto Fortune, the Company and the Purchaser on 2 April 2015 (after trading hours), the Purchaser agrees to and assumes the liabilities and obligation of the Company under the Debt provided by Molto Fortune (an independent third party) and the Company will have no further rights and obligations against the Debt upon completion of the Deed of Novation. There is no conditions precedent to the Deed of Waiver while the Deed of Novation is solely subject to Completion. The Deed of Waiver, the Deed of Novation and the Disposal are not inter-conditional.

Upon completion of the Group Reorganisation and debt restructuring, (i) the Remaining Group shall retain 30% equity interest in Liaoyuan which shall become an associate of the Company and (ii) the payment obligation under the Fu’an Leixin Loan and the Debt by the Remaining Group will be discharged under the debt restructuring and the liabilities of the Remaining Group shall be reduced by the value of the Fu’an Leixin Loan and the Debt, which in aggregate equal approximately HK$299.2 million.

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LETTER FROM THE BOARD

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 its 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.

Reasons for the Group Reorganisation and Repurchase Agreement

The Group Reorganisation shall be carried out for the purpose of retaining 30% equity interest in Liaoyuan in the Remaining Group for execution of the Repurchase Agreement. The arrangements under the Group Reorganisation and the Repurchase Agreement were agreed between the Company and the Purchaser. The Purchaser intended to acquire the entire interest in Eerduosi Hengtai (including Liaoyuan) at lowest possible value whereas the Company targeted to dispose of the Disposal Group at a considerable amount, and the Company and the Purchaser reached a consensus to the current structure and terms which can allow the Purchaser to defer the payment of the consideration of RMB100 million (approximately HK$125 million) for the equity interests in Liaoyuan in view of the recent downturn in the PRC coal market whilst the Company would still be able to receive a sizeable consideration from the repurchase of the 30% equity interest in Liaoyuan even when the coal market and performance of Liaoyuan remains unsatisfactory in the future. As such, the Directors consider the terms of such arrangements are fair and reasonable and in the interests of the Company and Shareholders as a whole since (i) upon Completion, Liaoyuan shall become an associate of the Company and the Company shall have no further capital or operating commitments to Liaoyuan; (ii) by retaining certain equity interests in Liaoyuan the Company shall be able to enjoy the results from the potential upside of Liaoyuan in future and obtain a sizable cash proceed in the future upon repurchase of the 30% equity interest in Liaoyuan which represents a significant premium over the deficits of Liaoyuan at present; and (iii) the Directors consider there are no other material downsides and financial impact to the Company for retaining the 30% equity interest in Liaoyuan.

Reasons for the debt restructuring

As at the Latest Practicable Date, there were certain intra-group balances between the Disposal Group and the Remaining Group, being the Sale Loans and the Fu’an Leixin Loan. The Fu’an Leixin Loan represents a loan amounted to RMB60 million (approximately HK$75 million) provided by Shanxi Hengchuang to Fu’an Leixin in September 2013 to finance the operations of Fu’an Leixin. In order to eliminate any future intra-group balances between the Disposal Group and the Remaining Group, the Sale Loans would be transferred to the Purchaser pursuant to the Disposal Agreement and the Deed of Waiver was entered into to discharge the Remaining Group’s payment obligation of the Fu’an Leixin Loan.

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LETTER FROM THE BOARD

While the Sale Loans would be transferred to the Purchaser, in exchange, the Purchaser agreed to the terms of the Deed of Novation where the Company’s obligation against the Debt would be transferred to the Purchaser. Given the value of the Debt exceeds the face value of the Sale Loans, the Directors consider the transfer of the Sale Loans and the entering into of the Deed of Novation are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Conditions precedent

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);

• (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 waivable. As at the Latest Practicable Date, none of the conditions has been fulfilled. If all 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.

As at the Latest Practicable Date, the intra-group balances and debts between the Disposal Group and the Remaining Group referred in condition (iii) above comprise the Sale Loans and the Fu’an Leixin Loan. As such, Completion is subject to, among others, the transfer of the Sale Loans to the Purchaser and the release of the Fu’an Leixin Loan pursuant to the Deed of Waiver. Save for the Sale Loans and the Fu’an Leixin Loan there are no other outstanding balances and debts between the Disposal Group and the Remaining Group. The Company has no intention to release any loans owed by the Disposal Group other than the transfer of the Sale Loans to the Purchaser under the Disposal Agreement. Should there be any subsequent release of loans owed by the Disposal Group other than the Sale Loans and the Fu’an Leixin Loan, the Company will adjust the Consideration accordingly and publish announcement(s) to inform the Shareholders in this regard as and when appropriate.

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LETTER FROM THE BOARD

Completion

Completion shall take place at 4:00 p.m. on the second Business Day after all the conditions as mentioned above are 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 Latest Practicable Date, 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 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.

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LETTER FROM THE BOARD

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.

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.

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LETTER FROM THE BOARD

Set out below is the shareholding structure of the Company and the Disposal Group as at the Latest Practicable Date:

==> picture [431 x 320] intentionally omitted <==

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LETTER FROM THE BOARD

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

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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 2013 and 2014:

	For the year ended/	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 an investment holding 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.

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LETTER FROM THE BOARD

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 Disposal 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 Disposal 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 Disposal Group continued in 2014 which was demonstrated by the 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 Disposal 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 report of the Company 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 approximately 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 approximately 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 off-load 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.

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LETTER FROM THE BOARD

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.

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 attributable to owners of the Company of approximately HK$1,980.0 million 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 approximately 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.

Upon Completion, the consolidated total assets and liabilities of the Group are expected to decrease while the net assets of the Group are expected to increase.

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LETTER FROM THE BOARD

BUSINESS OF THE REMAINING GROUP

Business 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, and 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 Latest Practicable Date, 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 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 MMcf 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. In 2015, the Group completed the drilling of a second well in the United States which was also put into production since March 2015. 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.

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 also been 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

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LETTER FROM THE BOARD

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.

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. Due to replacement of engineering team and technical upgrade of certain equipment and facilities, the Group carried out production for two months at the West Mine in 2014 and the West Mine has processed ores of approximately 17,000 tons and produced silver concentrates of approximately 471 tons, of which approximately 126 tons 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 tpa 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 in-depth 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 the Group targets to obtain mining permits of the East Mine 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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LETTER FROM THE BOARD

Historical financial performance and prospects of the Remaining Business

As disclosed in the Company’s annual report for the year ended 31 December 2014, the Remaining Business recorded revenue of approximately HK$11.9 million and segment loss of approximately HK$161.9 million for the year ended 31 December 2014. The significant segment loss is primarily attributable to (i) impairment losses of the Group’s silver mining assets and goodwill totaling approximately HK$62.6 million as assessed by an independent professional valuer due to decrease in silver price and delay in completion of technical upgrades at the West Mine during the year; (ii) one-off costs associated with drilling prior to moving the drilling rig of the first well of the Group’s oil and gas extraction and projection project totaling approximately HK$20.5 million; and (iii) finance costs of certain unsettled payables totaling approximately HK$37.7 million.

Since the beginning of 2015, the Group started drilling a second well at the Group’s oil and gas extraction and production facility which was completed in March 2015 and production of which commenced immediately thereafter. The Company expects that, based on the actual production volume of the Group’s oil and gas project from January to April 2015, the production volume for the full year shall be significantly increased given the commencement of production of the second well. Up to 30 April 2015, the Groups two wells in aggregate, net to its ownership interests, produced approximately 1,651 Bbl of oil and approximately 192 MMcf of natural gas (which includes approximately 9,114 Bbl of natural gas liquids), as compared to the 2014 production volume of approximately 2,200 Bbl of oil and approximately 240 MMcf of natural gas (which includes approximately 8,400 Bbl of natural gas liquids). Meanwhile, the Group’s West Mine processed ores of approximately 9,431 tons and produced silver concentrates of approximately 249 tons, as compared to the 2014 ore processing volume of approximately 17,000 tons and silver concentrates production volume of approximately 471 tons.

Having considered (i) the encouraging oil and gas yield rate at the Group’s wells in the United States; (ii) according to the United States Department of Energy, the oil price recently managed to turnaround and showed signs of recovering from the low levels of approximately US$44 in January 2015 to approximately US$59 in May 2015; and (iii) the production of the West Mine is expected to be restored to a higher level following the completion of technical upgrades to the jaw and cone crushers at the processing plant of the West Mine, the Directors consider the Remaining Business is sustainable despite the segment loss recorded for the year ended 31 December 2014.

Looking forward, the Company will closely monitor the commodity prices and will accordingly adjust its exploration plans, production schedules and marketing strategies in respond to the latest market conditions. As discussed in the paragraph headed ‘‘Business of the Remaining Business’’ above, the Group expects to further develop the oil and gas extraction and production project in the United States, including the drilling of additional wells in the area should the project continue to demonstrate satisfactory outputs and returns and while the oil and gas prices warrant. On the other hand, the Group has been carrying out mine exploration at the East Mine and once the geology testing at the East Mine completes in August 2015 and the results are ready for submission to the relevant authorities in October 2015, the Group would be qualified to apply for the mining

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LETTER FROM THE BOARD

permits of the East Mine. In general the mining permits would normally be issued in two months and the Company targets to obtain the mining permits of the East Mine by the end of 2015. The Company will continue to apply technical upgrades to the West Mine to improve its processing efficiency and production capacity.

IMPLICATIONS UNDER THE LISTING RULES

As one or more of the applicable percentage ratios in respect of the Disposal 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.

The Directors confirm that, to the best of their knowledge, information and belief after having made all reasonable enquiries, the Purchaser and its ultimate beneficial owner are third parties independent of the Group and its connected persons and no Shareholder has a material interest in the Disposal. As such, no Shareholder is required to abstain from voting for the resolution to approve the Disposal should the Disposal be put forward to the Shareholders for approval at a general meeting. 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.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information contained in the appendices to this circular.

Yours faithfully, By order of the Board King Stone Energy Group Limited Zong Hao Executive Director

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCIAL AND TRADING PROSPECTS

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.

The year of 2014 has been full of ups and downs. Prices of coal, metals, oil and gas were all in a downward trend. It is anticipated that commodity prices will continue to fluctuate in 2015. On the other hand, the oil and gas business in the United States and silver mining business of the Company have respectively started to operate and deliver economic contributions to the Group since second half of 2014. The Company will overcome the adverse price environment by technically adjusting its exploration plans, production schedules and marketing strategies. It is believed that the above businesses will provide stable revenue and cash flow to the Group in 2015.

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.

Meanwhile, the West Mine has processed ores of approximately 17,000 tons and produced silver concentrates of approximately 471 tons, of which approximately 126 tons 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. Besides, 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.

Looking ahead, the Company will monitor closely the development of the above businesses and, depending on their performances, continue to devote further capital resources in order to maximize the return of assets. The Company will continue to review and optimize its internal control, organization structure and capital base.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

STATEMENT OF INDEBTEDNESS

Borrowings

At the close of business on 31 March 2015, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group had secured bank and other borrowings of approximately HK$1,639 million, which were secured by certain of the Group’s coal mining rights, property, plant and equity interests of certain subsidiaries and guarantees given by certain independent third parties.

In addition, at the close of business on 31 March 2015, the Group had unsecured loans from third parties of approximately HK$589 million.

Disclaimer

Save as aforesaid and apart from intra-group liabilities, the Group did not have, at the close of business on 31 March 2015, any other outstanding liabilities or any debt securities, or any mortgages, charges, debentures, loan capital, bank overdrafts, loans, liabilities under acceptance (other than normal trade bills) or other similar indebtedness, hire purchase or finance lease obligations or any guarantees or other material contingent liabilities.

WORKING CAPITAL STATEMENT

After taking into account the sale proceeds from the Disposal and the transactions contemplated thereunder including the Deed of Waiver and the Deed of Novation (which shall become unconditional upon Completion), the commitment of the Company’s controlling shareholder to exercise the warrants of the Company or to provide financial support to the Company (whenever required by the Company) and the present financial resources available to the Group (including internally generated revenue, funds and other financing arrangements), the Board considers that, under the basis that the Disposal and the transactions contemplated thereunder had all been completed at the date of this circular, the Group shall have sufficient working capital to meet its present requirement for at least 12 months from the date of this circular in the absence of unforeseen circumstances.

Pursuant to the letter of commitment from the Company’s controlling shareholders Belton Light Limited and Jade Bird Energy Fund II, L.P. (the ‘‘Controlling Shareholders’’) dated 13 May 2015, the Controlling Shareholders undertook to the Company that they will exercise 330,000,000 warrants of the Company at the exercise price of HK$0.35 per Share to provide funding to the Company or provide financial support of not more than HK$115.5 million to the Company if the Company raises the requisition to the Controlling Shareholders to exercise such warrants or provide such financial support. The commitment is not subject to any specific valid period.

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GENERAL INFORMATION

APPENDIX II

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 Group. 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. DISCLOSURE OF INTERESTS

(a) Director’s and chief executive’ s interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, none of the Directors, chief executive and their respective associates had or were deemed to have interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provision of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules.

(b) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO

So far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

			Approximate
			percentage
	No. of		of issued
Name of shareholder	Shares held	Position	share capital
Belton Light Limited	2,215,555,000	Long	66.29%
Jade Bird Energy Fund II, L.P.	2,215,555,000	Long	66.29%
Wang Da Yong	238,460,500	Long	7.14%

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GENERAL INFORMATION

APPENDIX II

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware of any other person who had, or was deemed to have, interests or short positions in the Shares or underlying Shares (including any interests in options in respect of such capital), which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

(c) Director’s interests in competing business, contracts and assets

As at the Latest Practicable Date,

• (a) none of the Directors or their respective associates had any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group;

• (b) there is no contract or arrangement entered into by any member of the Group subsisting at the date of this circular in which any Director is materially interested and which is significant to the business of the Group; and

• (c) none of the Directors had any direct or indirect interest in any assets which had been acquired, disposed of by or leased to, or which were proposed to be acquired, disposed of by or leased to, any member of the Group since 31 December 2014, being the date to which the latest published audited consolidated financial statements of the Group were made up.

3. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group (excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation)).

4. MATERIAL LITIGATIONS

• (a) A writ of summons was served by a bank (the ‘‘Plaintiff’’) against Eerduosi Hengtai, as the borrower, Shanxi Puhua, 山西普大煤業集團有限公司 and 內蒙古蒙發煤炭有限責任 公司 (together the ‘‘Defendants’’) in respect of a loan in the principal amount of RMB300 million (equivalent to approximately HK$375 million) owed by Eerduosi Hengtai to the Plaintiff. On 28 October 2014, judgment was made by Inner Mongolia Municipal Higher People’s Court (內蒙古自治區高級人民法院) that assets of the Defendants of approximately RMB310.4 million (equivalent to approximately HK$388 million) are freezed pending trial.

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GENERAL INFORMATION

APPENDIX II

• (b) On 8 January 2015, the Company issued a writ of summons against Linkwealth Pacific Limited (‘‘Linkwealth’’) demanding for the repayment of a loan in the principal amount of HK$30 million owed by Linkwealth and accrued interest and penalty of approximately HK$10.5 million. As at the Latest Practicable Date, the Company has applied judgment in default of the defence which is subject to the court approval.

Save as disclosed above, as at the Latest Practicable Date, no member of the Group was engaged in any litigation, arbitration or claims of material importance and, so far as the Directors were aware, no litigation or claim of material importance was pending or threatened by or against any member of the Group.

5. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, have been entered into by members of the Group within two years immediately preceding the Latest Practicable Date which are or may be material:

• (a) the subscription agreement dated 30 April 2013 entered into between the Company as subscriber and Million Grow Investments Limited (‘‘Million Grow’’) as issuer in relation to the subscription for 7,404 new shares of Million Grow at a total consideration of RMB102 million (equivalent to about HK$127.5 million);

• (b) the sale and purchase agreement dated 30 April 2013 entered into between the Company as purchaser and Wide Sky International Limited and Lian Hui Limited (being independent third parties) as vendors in relation to the acquisition of 21,298 shares of Million Grow at a consideration of RMB115 million (equivalent to about HK$143.75 million);

• (c) the call option agreement dated 30 April 2013 entered into between the Company and Wide Sky International Limited and Lian Hui Limited in relation to the acquisition of 28,702 shares of Million Grow at a total consideration of RMB463 million (equivalent to about HK$578.75 million) subject to any downward adjustment by reference to the findings of the competent person’s report in accordance with an agreed formula;

• (d) the disposal agreement dated 6 June 2013 entered into between Magic Field and Brothers Union International Limited in relation to the disposal of the entire issued share capital of Triumph Fund A by Magic Field to Brothers Union International Limited at a consideration of HK$320 million;

• (e) the option agreement dated 6 June 2013 entered into between the Company and Brothers Union International Limited in respect of the acquisition of option by the Company pursuant to which the Company has the right to exchange for the No. 2 Coal Mine for a new mine within three years from the completion of the disposal agreement dated 6 June 2013 (details of which are set out in paragraph (d) above);

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GENERAL INFORMATION

APPENDIX II

• (f) the termination deeds dated 22 August 2013 entered into between the Company, Magic Field and Brothers Union International Limited in respect of the termination of the disposal agreement dated 6 June 2013 (details of which are set out in paragraph (d) above) and the option agreement dated 6 June 2013 (details of which are set out in paragraph (e) above);

• (g) the asset purchase agreement dated 17 September 2013 entered into between Best Treasure Group Limited, a wholly owned subsidiary of the Company, as purchaser, and Dwayne M. Murray, as the vendor, in relation to acquisition of certain assets of HydroFlame Technologies, L.L.C. at a consideration of US$7,875,000 (equivalent to about HK$61.4 million);

• (h) the subscription agreement dated 24 October 2014 entered into between the Company and Belton Light Limited as subscriber in relation to the subscription for 330,000,000 new shares of the Company at a subscription price of HK$0.25 per share and 330,000,000 bonus warrants entitling it to subscribe for up to 330,000,000 bonus warrants Shares at a subscription price of HK$0.35 per share;

• (i) the Disposal Agreement;

• (j) the Deed of Waiver;

• (k) the Deed of Novation;

• (l) the Repurchase Agreement; and

• (m) the Share Pledge Agreement.

6. GENERAL

• (a) The registered office and principal place of business of the Company in Hong Kong is at Unit 7603, 76th Floor, The Center, 99 Queen’s Road Central, Hong Kong.

• (b) The secretary of the Company is Mr. Lee Tao Wai.

• (c) The share registrar of the Company is Tricor Secretaries Limited at Level 25, Three Pacific Place, 1 Queen’s Road East, Hong Kong.

• (d) The English text of this circular shall prevail over their respective Chinese texts for the purpose of interpretation.

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GENERAL INFORMATION

APPENDIX II

7. DOCUMENTS FOR INSPECTION

Copies of the following documents are available for inspection during normal office hours (from 10:00 a.m. to 12:00 p.m. and from 2:30 p.m. to 5:30 p.m.) at the registered office of the Company from the date of this circular and up to and including 29 May 2015:

• (a) the articles of association of the Company;

• (b) the annual reports of the Company for each of the two financial years ended 31 December 2013 and 31 December 2014 respectively;

• (c) the material contracts referred to under the paragraph ‘‘Material contracts’’ in this appendix; and

• (d) this circular and the circular of the Company dated 14 November 2014 in respect of the connected transaction in connection with the subscription of new shares with bonus warrants.

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