GC Construction Holdings Limited - Proxy Solicitation & Information Statement 2004

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 stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Fushan Holdings Limited, you should at once hand this circular to the purchaser or transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(Stock code: 639)

MAJOR TRANSACTION

Financial adviser to the Company

Partners Capital International Limited

21 June 2004

			Page
Definitions . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			3
Appendix I	–	Financial Information on the Group . . . . . . . . . . . . . . . . . . . . . . . .	11
Appendix II	–	Accountants’ Report of the JV Company . . . . . . . . . . . . . . . . . . . .	32
Appendix III	–	Unaudited pro forma consolidated financial
		information of the enlarged Group . . . . . . . . . . . . . . . . . . . . . . .	44
Appendix IV	–	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50

DEFINITIONS

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

“Acquisition”	the acquisition of the JV Interest by Fushan Energy
	pursuant to the Acquisition Agreement
“Acquisition Agreement”	a conditional agreement dated 27 May 2004 entered
	into between the Vendor and Fushan Energy in respect
	of the Acquisition
“associates”	have the meaning as defined under the Listing Rules
“Board”	the board of Directors
“Company”	Fushan Holdings Limited, a company incorporated in
	Hong Kong with limited liability and the shares of
	which are listed on the Stock Exchange
“Completion”	completion of the Acquisition Agreement
“Consideration”	the consideration for the Acquisition
“Director(s)”	the director(s) of the Company
“Fushan Energy”	Fushan Energy Group Limited, a company
	incorporated in the British Virgin Islands with limited
	liability and wholly owned by the Company
“GDP”	gross domestic product
“Golden Oak”	Golden Oak Development Limited, a company
	incorporated in the British Virgin Islands with limited
	liability and an independent third party not connected
	with the Company, the directors, chief executive,
	substantial shareholders of the Company or its
	subsidiaries or their respective associates
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“JV Company”	山西金山能源有限責任公司(Jinshan Energy Group
	Limited), a sino-foreign equity joint venture
	incorporated in the PRC with limited liability and is
	currently owned by Fushan Energy, the Vendor, and
	Golden Oak as to 45%, 40% and 15% respectively

– 1 –

DEFINITIONS

“JV Interest”	20% of the equity interest of the Vendor in the JV
	Company, which is to be sold to Fushan Energy
	pursuant to the Acquisition Agreement
“Latest Practicable Date”	17 June 2004, being the latest practicable date prior to
	the printing of this circular for ascertaining certain
	information in this circular
“Listing Rules”	Rules Governing the Listing of Securities on the Stock
	Exchange
“Luenshan”	柳林縣聯山煤化有限公司(Liulin Luenshan Coking Co.,
	Ltd), a company established under the laws of the PRC
“Major Shareholder”	Mr. Wong Lik Ping, the chairman and the controlling
	shareholder of the Company holding approximately
	55.78% of the existing issued share capital of the
	Company
“Mr. Xing”	Mr. Xing Li Bin
“PRC”	The People’s Republic of China, for the purpose of
	this circular only, excludes Hong Kong, Taiwan and
	Macau Special Administrative Region
“Risheng”	太原西山日盛煤焦有限公司(Taiyuan Xishan Risheng
	Coal and Coking Co., Ltd.), a company established
	under the laws of the PRC
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	The Securities and Futures Ordinance (Chapter 571 of
	the laws of Hong Kong)
“Shares”	shares in the issued share capital of the Company
“Shareholder(s)”	registered holder(s) of Shares issued for the time being
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“US Dollar”	United States dollar, the lawful currency of the United
	States of America
“Vendor”	山西金業煤焦化集團有限公司(Shanxi Jin Ye Coal and
	Coking Group Co., Limited), a company established
	under the laws of the PRC
“Xishan Coal”	山西焦煤集團有限責任公司(Xishan Coal and Electricity
	(Group) Co., Ltd), a company established under the
	laws of the PRC
“%”	per cent.

For the purpose of this circular, all amounts in RMB are translated into HK$ at an exchange rate of RMB1.0632: HK$1.00.

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LETTER FROM THE BOARD

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(Stock code: 639)

Executive Directors: Mr. Wong Lik Ping Mr. So Kwok Hoo Mr. Li King Luk

Registered Office: 12th Floor, Kwan Chart Tower No. 6 Tonnochy Road Wanchai Hong Kong

Independent Non-Executive Directors: Mr. Kee Wah Sze Mr. Ng Ching Wo

21 June 2004

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

INTRODUCTION

On 1 June 2004, the Board announced that on 27 May 2004, Fushan Energy, a wholly-owned subsidiary of the Company, entered into the Acquisition Agreement with the Vendor pursuant to which Fushan Energy agreed to acquire from the Vendor 20% of the equity interest in the JV Company at a consideration of RMB20 million to be satisfied in cash in an equivalent amount of US Dollar (based on the median exchange rate between RMB and US Dollar as quoted by the People’s Bank of China on the date of Completion).

The Acquisition constitutes a major transaction of the Company under the Listing Rules and must be made conditional on approval by the Shareholders. Pursuant to Rule 14.44 of the Listing Rules, the approval by the Shareholders may be obtained by means of the written approval of the transaction by a Shareholder who holds more than 50% of the voting rights of the Company. Given that (i) no Shareholder is required to abstain from voting if the Company were to convene a general meeting for the approval of the Acquisition; and (ii) a written approval of the Acquisition on the terms and conditions of the Acquisition Agreement and the transaction contemplated thereunder has been given by the Major Shareholder who holds approximately 55.78% of the existing issued share capital of the Company, an extraordinary general meeting of the Shareholders will therefore not be convened for the purpose of approving the Acquisition.

The purpose of this circular is to give you further information on the Acquisition Agreement.

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LETTER FROM THE BOARD

THE ACQUISITION AGREEMENT

Date

27 May 2004

Parties

Vendor : 山西金業煤焦化集團有限公司 (Shanxi Jin Ye Coal and Coking Group Co., Limited), a private company established under the laws of the PRC which is owned by the family of Mr. Zhang Xin Ming, chairman and authorized representative of the Vendor based on the information provided to the Company. The Vendor is primarily engaged in the production of coking coal and, together with its ultimate beneficial owner, are independent third parties not connected with the Company, the directors, chief executive, substantial shareholders of the Company or its subsidiaries or their respective associates.
Purchaser : Fushan Energy Group Limited, a company incorporated in the British Virgin Islands with limited liability and wholly owned by the Company.

The JV Company is currently owned as to 45% by Fushan Energy. Upon Completion, the JV Company will be owned as to 65% by Fushan Energy. Details of the formation of the JV Company are set out in the announcement of the Company dated 16 May 2003 and the circular of the Company dated 2 June 2003.

As stated in the announcement of the Company dated 16 May 2003, the Vendor was introduced to the management of the Group through business connection of the Major Shareholder. The Vendor and Fushan Energy have become joint venture partners since the formation of the JV Company in May 2003.

Assets to be acquired

20% of the equity interest of the Vendor in the JV Company.

Consideration

The Consideration is RMB20 million and is to be satisfied in cash in an equivalent amount of US Dollar (based on the median exchange rate between RMB and US Dollar as quoted by the People’s Bank of China on the date of Completion) by Fushan Energy upon Completion. No deposit has been paid up to the Latest Practicable Date.

The Consideration was determined by the parties to the Acquisition Agreement after arm’s length negotiations and is equal to 20% of the registered capital of the JV Company of RMB100 million.

The Consideration will be funded by the internal resources of the Group.

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LETTER FROM THE BOARD

Conditions

Completion is conditional, amongst other things, on the following conditions:

(1) the requirement as stipulated in Rule 14.44 of the Listing Rules having been complied with by the Company relating to the entering into and the implementation of the Acquisition Agreement;
(2) Golden Oak having confirmed in writing that it will give up its pre-emptive rights to acquire the JV Interest and consent to the Acquisition;
(3) all necessary consents, permits and approvals from the relevant PRC authorities (whether governmental, regulatory or otherwise) as may be required in respect of the Acquisition having been obtained by the parties to the Acquisition Agreement;
(4) the Vendor and the JV Company having passed their respective directors’ resolution approving the Acquisition and the transactions contemplated thereunder;
(5) the Vendor, Fushan Energy and Golden Oak having signed the supplemental sino-foreign equity joint venture agreement and the supplemental articles of association of the JV Company as approved by the relevant PRC authorities; and
(6) all declarations, undertakings and warranties given by the Vendor pursuant to the Acquisition Agreement remain true and accurate upon fulfillment of all the conditions precedent mentioned above.

If the conditions set out above are not fulfilled within four calendar months after the date of signing of the Acquisition Agreement, Fushan Energy will be entitled to terminate the Acquisition Agreement and the parties to the Acquisition Agreement shall not have any obligations and liabilities thereunder save for any antecedent breaches of the terms of the Acquisition Agreement. As at the Latest Practicable Date, all the above conditions have been fulfilled.

Completion

After all the conditions precedents in the Acquisition Agreement as set out above have been satisfied, Completion will take place on the day on which the necessary filing has been made with the relevant registration authority. On 8 June 2004, the certificate of approval in relation to the Acquisition has been granted by the government of Shanxi Province, the PRC and the change in ownership of the JV Company has been registered by the Administration for Industry and Commerce of Shanxi Province, the PRC and Completion took place on the same date.

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LETTER FROM THE BOARD

THE SUPPLEMENTAL SINO-FOREIGN EQUITY JOINT VENTURE AGREEMENT AND THE SUPPLEMENTAL ARTICLES OF ASSOCIATION

On 27 May 2004, Fushan Energy, the Vendor and Golden Oak also entered into a supplemental sino-foreign equity joint venture agreement and supplemental articles of association to regulate the responsibilities of the shareholders of the JV Company towards the management of the business and corporate affairs of the JV Company. Upon Completion, the board of directors of the JV Company will still comprise five directors, of which three directors are to be appointed by Fushan Energy, one director is to be appointed by the Vendor and one director is to be appointed by Golden Oak.

INFORMATION OF THE JV COMPANY

The JV Company is a sino-foreign equity joint venture incorporated in the PRC on 23 May 2003 upon obtaining its business license on the same day. The operating period of the JV Company is from 23 May 2003 to 23 November 2023. The JV Company was established for the production and sale of coking coal and side products. Its principal assets comprise its investment in two non wholly-owned subsidiaries, namely Risheng and Luenshan. Pursuant to the supplemental joint venture agreement dated 27 May 2004 entered into amongst Fushan Energy, the Vendor and Golden Oak, the registered capital and the total investment amount of the JV Company were RMB100 million and RMB114.03 million respectively. The registered capital of JV Company of RMB100 million has been fully paid by Fushan Energy, the Vendor and Golden Oak respectively in 2003. The difference between the registered capital and the total investment amount of the JV Company (the “Possible Contribution”) amounts to approximately RMB14.03 million. The JV Company is in the course of arranging banking facilities for its future business operation. In the event that the JV Company fails to secure any bank financing and the JV Company is required to invest up to the total investment amount, the shareholders of the JV Company may have to make the Possible Contribution by way of shareholders’ loan in proportion to their respective equity interest in the JV Company. On the basis of 65% equity interest to be held by Fushan Energy upon Completion, the Possible Contribution to be born by Fushan Energy will amount to approximately HK$8.57 million. Other than the above, there is no further capital commitment on the part of Fushan Energy or other shareholders of the JV Company.

On 8 July 2003, Luenshan was jointly established by the JV Company and Mr. Xing with a registered capital of RMB30 million for the purpose of engaging in the production and sale of coking coal. The operating period of Luenshan is from 8 July 2003 to 30 April 2006. It is intended that Luenshan will extend its operating period before expiry. Luenshan is currently owned as to 90% and 10% by the JV Company and Mr. Xing respectively. The registered capital of RMB30 million was contributed by the JV Company and Mr. Xing respectively in proportion to their respective equity interest in Luenshan. Luenshan has not yet commenced operation since its incorporation.

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LETTER FROM THE BOARD

Mr. Xing is an independent third party not connected with the Company, the directors, chief executive, substantial shareholders of the Company or its subsidiaries or their respective associates. Mr. Xing has extensive experience in the coal industry in the PRC. He has been managing the business operation of production of coal products in the PRC and has sound knowledge and technical know-how in the coal industry. With a view to securing a dedicated commitment of Mr. Xing towards the future development of Luenshan, as at the Latest Practicable Date, the management of the JV Company was still in the course of negotiation with Mr. Xing in relation to a possible transfer of 25% equity interest in Luenshan from the JV Company to Mr. Xing. If the transfer of equity interest in Luenshan materializes, the JV Company and Mr. Xing will be interested in 65% and 35% of equity interest of Luenshan respectively. Further announcement will be made by the Company in respect of the equity transfer as and when appropriate.

On 23 December 2003, Risheng was jointly established by the JV Company and Xishan Coal with a registered capital of RMB30 million for the purpose of engaging in the production and sale of coking coal. The operating period of Risheng is from 23 December 2003 to 22 December 2007. It is intended that Risheng will extend its operating period before expiry. Risheng is currently owned as to 70% and 30% by the JV Company and Xishan Coal respectively. The registered capital of RMB30 million was contributed by the JV Company and Xishan Coal respectively in proportion to their respective equity interest in Risheng. Subsequent to the obtaining of its business license on 23 December 2003, Risheng commenced building a coking coal production plant. The estimated maximum annual production capacity of the coking coal production plant is expected to be 600,000 tonnes. The construction of the production plant is scheduled to be completed within 2004 and trial production is expected to begin by the end of 2004 or early 2005.

Xishan Coal is a coal production enterprise based in Shanxi Province, the PRC principally engaged in, inter alia, coal mining and production and sale of coal products. Xishan Coal is a PRC party of Risheng and is not owned by the JV Company. Xishan Coal is an independent third party not connected with the Company, the directors, chief executive, substantial shareholders of the Company or its subsidiaries or their respective associates.

The JV Company is currently owned by Fushan Energy, the Vendor and Golden Oak as to 45%, 40% and 15% respectively. Upon Completion, the interest of Fushan Energy, the Vendor and Golden Oak in the JV Company will be 65%, 20% and 15% respectively and accordingly the JV Company will become a subsidiary of the Company.

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LETTER FROM THE BOARD

The corporate structures of the JV Company before and after the Acquisition are shown as follows:

Before the Acquisition

After the Acquisition

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

The Company The Company
100% 100%
Fushan Energy The Vendor Golden Oak Fushan Energy The Vendor Golden Oak
45% 40% 15% 65% 20% 15%
Xishan Coal The JV Company Mr. Xing Xishan Coal The JV Company Mr. Xing
30% 70% 90% 10% 30% 70% 90% 10%
Risheng Luenshan Risheng Luenshan
----- End of picture text -----

As at 31 December 2003, the audited consolidated net tangible assets of the JV Company were approximately HK$91.3 million. The audited consolidated losses before and after taxation of the JV Company for the period from 23 May 2003 (being the date of incorporation) to 31 December 2003 were both approximately HK$3.1 million. The JV Company has yet to record any turnover and the losses were mainly attributed to the preoperating expenses incurred by the JV Company and its subsidiaries. As at the Latest Practicable Date, the JV Company has not yet commenced operation.

REASON FOR THE ACQUISITION

The Company is principally engaged in acting as an agent in the coal business, sale and marketing of coal products and gold jewellery products. In 2003, the JV Company was duly established by Fushan Energy, the Vendor and Golden Oak for engaging in the production and sale of coking coal and side products. By establishing the JV Company, the Group will be able to diversify its business portfolio into the coal business and mitigate the commercial risk associated with heavy reliance of the Group on the trading of jewellery.

In view that the jewellery trading business operated by the Company was not wellperformed in 2003 and a net loss attributable to the shareholders of the Company of approximately HK$2.81 million was recorded by the Group for the financial year ended 31 December 2003, the Directors intend to accelerate its strategic plan to develop the coal business with an expectation to diversify its business portfolio and broaden its income base. As mentioned in the annual report of the Company for the year ended 31 December 2003, the Directors have been assessing the possibilities of increasing the investment of the Group in the JV Company for the purpose of consolidating the position of the Group in capturing any market growth arising from high oil and commodity prices as a result of global recovery.

According to the statistics published by National Bureau of Statistics of the PRC, the growth in GDP in 2003 was approximately 9.1% whilst the growth in electricity generated in 2003 was approximately 15.5%. As recently announced by National Bureau of Statistics of the PRC, the GDP of the first quarter of 2004 rose by approximately 9.7% whilst the accumulated amount of electricity generated rose by approximately 15.7% when compared

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LETTER FROM THE BOARD

with those in the corresponding period in 2003. Despite the increase in output of electricity, various regions in the PRC are still experiencing a shortage in energy supply. Notwithstanding the cooling measures recently taken by the PRC government to dampen the excessive investment in certain overheating industries including steel, aluminium, cement and property development, it is anticipated that the underlying impact on the energy industry will be minimal given the continuous encouragement by the PRC government to increase energy supply.

According to the statistics announced by National Bureau of Statistics of the PRC, the production volume of coal in the PRC in 2003 amounted to approximately 1.7 billion tonnes, representing an annual growth of approximately 15.0%. For the first quarter of 2004, the accumulated production volume of coal amounted to approximately 335.3 million tonnes, representing an increment of approximately 14.4% when compared with that in the corresponding period in 2003. As coal is one of the major resources for energy production, it is expected that the demand in coal and, as a result, the coal price will be driven up by the robust demand in energy supply in the foreseeable future. The Board considers that the increase in the investment in the JV Company will be in the interest of the Company and the Shareholders as a whole.

Upon Completion, the JV Company will become a subsidiary of the Company. By acquiring a controlling interest in the JV Company, the Company will be able to control the management of the JV Company and enhance its development in the coal business. As the Consideration was determined on the basis of the registered capital of the JV Company, the Board considers that the terms of the Acquisition Agreement are fair and reasonable so far as the interest of the Company and the Shareholders are concerned.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

According to the annual report (the “Annual Report”) of the Company for the year ended 31 December 2003, the audited consolidated turnover of the Group for the year ended 31 December 2003 was approximately HK$1.47 million representing a decrease of approximately 60.6% when compared with that of the preceding financial year. A net loss of approximately HK$2.81 million was recorded for the year ended 31 December 2003. The decrease in turnover of the Group was mainly due to weak performance of its jewellery trading business.

As mentioned in the Annual Report, the economic environment of the PRC becomes more visible and predictable as a result of continued formulation of investment and other policies. The consumption of electricity in the PRC has been increasing rapidly due to high economic growth which in turn will also drive up the demand of coal, being one of the key energy resources. Besides the PRC, the global consumption of coal is expected to increase in the wake of the worldwide economic growth. As the coal industry is considered to be less susceptible to economic uncertainties when compared with other consumer industries, the Directors believe that the engagement in the coal business will facilitate the Group in defining long-term investment strategies as well as securing stable recurring income. Taking advantage of the dynamic market condition in the PRC and the improvement of global economic climate, the Directors will focus on the coal business.

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LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Based on the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group as set out in section 1 of Appendix III to this circular, the unaudited pro forma adjusted consolidated net tangible assets of the Group prior to the Acquisition were approximately HK$99.675 million, representing approximately HK$0.0479 per Share (on the basis of 2,080,800,000 Shares in issue as at the Latest Practicable Date) and the unaudited pro forma adjusted consolidated net tangible assets of the enlarged Group after the Acquisition were approximately HK$98.472 million, representing approximately HK$0.0473 per Share (on the basis of 2,080,800,000 Shares in issue as at the Latest Practicable Date).

GENERAL

ADDITIONAL INFORMATION

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

By Order of the Board SO KWOK HOO Executive Director

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

1. SUMMARY OF AUDITED FINANCIAL STATEMENTS

Set out below is a summary of the audited consolidated income statements of the Group for the three years ended 31 December 2003 and the audited consolidated balance sheets of the Group as at 31 December 2003, 31 December 2002 and 31 December 2001, which are extracted from the annual reports of the Company for the three years ended 31 December 2003.

Consolidated Income Statement

Turnover Cost of sales Gross profit Other revenue Administrative expenses Other operating expenses Operating loss Finance costs Gain arising on debt restructuring Gain arising on de-consolidation of a subsidiary Share of losses of associates (Loss)/Profit before taxation Taxation (Loss)/Profit attributable to shareholders Basic (loss)/profit per share	For the year ended 31 2003 2002 HK$’000 HK$’000 1,470 3,732 – – 1,470 3,732 3,931 1,351 (6,905) (8,454) – (1,973) (1,504) (5,344) – – – – – – (1,301) – (2,805) (5,344) – – (2,805) (5,344) (0.13 cents) (0.27 cents)	December 2001 HK$’000 2,545 (1,222) 1,323 503 (8,741) (2,628) (9,543) (7,161) 41,052 24,009 – 48,357 – 48,357 4.73 cents

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Balance Sheet

ASSETS AND LIABILITIES Non-current assets Property, plant and equipment Interest in associates Current assets Inventories Trade receivables Prepayments, deposits and other receivables Cash at banks and in hand Current liabilities Other payables Net current assets Total assets less current liabilities Net assets CAPITAL AND RESERVES Share capital Reserves Shareholders’ funds	2003 HK$’000 8,412 41,079 49,491 – 826 93 53,833 54,752 4,461 50,291 99,782 99,782 208,080 (108,298) 99,782	As at 31 December 2002 2001 HK$’000 HK$’000 6,153 7,916 – – 6,153 7,916 – – – 239 20,393 156 79,535 36,923 99,928 37,318 3,376 2,885 96,552 34,433 102,705 42,349 102,705 42,349 208,080 173,080 (105,375) (130,731) 102,705 42,349

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

2. AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003

Set out below is the audited financial statements of the Group for the year ended 31 December 2003, which are extracted from the annual report of the Company for the year ended 31 December 2003.

Consolidated Income Statement

For the year ended 31 December 2003

Notes Turnover 3 Cost of sales 4 Gross profit Other revenue 3 Administrative expenses Other operating expenses Operating loss 4 Finance costs Share of losses of associates Loss before taxation Income tax 5 Loss attributable to shareholders 6, 18 Basic loss per share 7	2003 HK$’000 1,470 – 1,470 3,931 (6,905) – (1,504) – (1,301) (2,805) – (2,805) (0.13 cents)	2002 HK$’000 3,732 – 3,732 1,351 (8,454) (1,973) (5,344) – – (5,344) – (5,344) (0.27 cents)

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Balance Sheet

As at 31 December 2003 Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 9 Interest in associates 11 Current assets Inventories 12 Trade receivables 13 Prepayments, deposits and other receivables 14 Cash at banks and in hand Current liabilities Other payables Net current assets Total assets less current liabilities Net assets CAPITAL AND RESERVES Share capital 16 Reserves 18 Shareholders’ funds	2003 HK$’000 8,412 41,079 49,491 – 826 93 53,833 54,752 4,461 50,291 99,782 99,782 208,080 (108,298) 99,782	2002 HK$’000 6,153 – 6,153 – – 20,393 79,535 99,928 3,376 96,552 102,705 102,705 208,080 (105,375) 102,705

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Balance Sheet

As at 31 December 2003

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 9 Interest in subsidiaries 10 Interest in an associate 11 Current assets Trade receivables 13 Prepayments, deposits and other receivables Cash at banks and in hand Current liabilities Other payables Net current assets Total assets less current liabilities Net assets CAPITAL AND RESERVES Share capital 16 Reserves 18 Shareholders’ funds	2003 HK$’000 411 52,549 – 52,960 596 34 43,727 44,357 4,457 39,900 92,860 92,860 208,080 (115,220) 92,860	2002 HK$’000 621 20,010 – 20,631 – 113 79,534 79,647 3,374 76,273 96,904 96,904 208,080 (111,176) 96,904

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Cash Flow Statement

For the year ended 31 December 2003

Cash flows from operating activities Loss before taxation Adjustments for: Depreciation and amortisation Impairment loss on land and buildings Share of losses of associates Reversal of impairment loss on land and buildings Provision for doubtful debts Interest income Operating loss before changes in working capital (Increase)/Decrease in trade receivables Decrease/(Increase) in prepayments, deposits and other receivables Increase in other payables Net cash generated from/(used in) operating activities Cash flows from investing activities Payment for purchase of property, plant and equipment Capital investment in an associate Interest received Net cash (used in)/generated from investing activities Cash flows from financing activities Issues of shares Net cash generated from financing activities Net (decrease)/increase in cash at banks and in hand Cash at banks and in hand at 1 January Cash at banks and in hand at 31 December	2003 HK$’000 (2,805) 471 – 1,301 (2,691) – (1,240) (4,964) (826) 20,300 1,085 15,595 (39) (42,498) 1,240 (41,297) – – (25,702) 79,535 53,833	2002 HK$’000 (5,344) 591 1,900 – – 74 (1,345) (4,124) 239 (20,311) 491 (23,705) (728) – 1,345 617 65,700 65,700 42,612 36,923 79,535

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Statement of Changes in Equity

For the year ended 31 December 2003

Share capital HK$’000 At 1 January 2002 173,080 Issues of shares 35,000 Loss for the year – At 31 December 2002 and at 1 January 2003 208,080 Share of reserve movements of associates – Loss for the year – At 31 December 2003 208,080	Share Accumulated premium losses HK$’000 HK$’000 368,469 (499,200) 30,700 – – (5,344) 399,169 (504,544) – – – (2,805) 399,169 (507,349)	Other reserves HK$’000 – – – – (118) – (118)	Total HK$’000 42,349 65,700 (5,344) 102,705 (118) (2,805) 99,782

Notes to the Financial Statements

For the year ended 31 December 2003

1. GENERAL INFORMATION

The Company is an investment holding company and is also engaged in acting as an agent in the coal business, sales and marketing of coal products. The Group’s principal activities consist of sales and marketing of coal products and gold jewellery products.

2. PRINCIPAL ACCOUNTING POLICIES

(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (which includes all applicable Statements of Standard Accounting Practice (“SSAPs”) and Interpretations) issued by the Hong Kong Society of Accountants (“HKSA”), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group is set out below.

In the current year, the Group has adopted, for the first time, SSAP 12 (Revised) “Income Taxes”, issued by the HKSA, which is effective for financial statements relating to accounting periods commencing on or after 1 January 2003.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

SSAP 12 (Revised) – Income taxes

In prior years, deferred tax liabilities were provided for using liability method in respect of the taxation effect arising from all material timing differences between the accounting and tax treatment of income and expenditure, which are expected with reasonably probability to crystallize in the foreseeable future. Deferred tax assets were not recognized unless their realization was assured beyond reasonable doubt. With effect from 1 January 2003, in order to comply with the revised SSAP 12, the Group adopted a new accounting policy for deferred tax. Under the revised SSAP 12, deferred tax liabilities are provided in full on all taxable temporary differences while deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences can be utilized. Although the new accounting policy has been applied retrospectively, it has not had any material effect on the financial results of the Group for the current or prior accounting periods. Accordingly, no prior period adjustment has been required but certain comparative figures for 2002 have been restated to conform with the current year’s presentation.

(b) Basis of preparation

The financial statements are prepared under the historical cost convention.

(c) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year.

The consolidated financial statements also include the Group’s share of post-acquisition results and reserves of its associates.

All significant inter-company transactions and balances within the Group are eliminated on consolidation.

(d) Subsidiaries

Subsidiaries are those enterprises in which the Company controls more than half of the voting power, or holds more than half of the issued share capital, or controls the composition of the board of directors.

Subsidiaries are carried at cost less impairment losses.

(e) Associates

An associate is an enterprise in which the Group has significant influence and which is neither a subsidiary nor a joint venture of the Group.

The Group uses the equity method of accounting to account for the results of the associates. The Group’s investments in associates are stated at its share of net assets of the associates. The Company’s investments in associates are stated at cost less impairment losses.

An assessment of investments in associates is performed when there is an indication that the asset has been impaired or the impairment losses recognised in prior years no longer exist.

When the Group transacts with its associates, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associates except where unrealised losses provide evidence of an impairment of the asset transferred.

– 18 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(f) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the consolidated income statement as follows:

(i) Commission from coal business

Commission from coal business is recognised when the agreed services are rendered.

(ii) Sale of goods

Revenue is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and title has passed.

(iii) Interest income

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

(g)

Property, plant and equipment

(i) Depreciation and amortisation

Depreciation is provided to write off the depreciable amount of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum:

Leasehold land	2%
Buildings	5%
Leasehold improvements	331/3%
Office equipment	20%
Furniture and fixtures	20%
Motor vehicles	25%

(ii) Measurement bases

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to the working condition and location for its intended use. Subsequent expenditure relating to property, plant and equipment is added to the carrying amount of the assets if it can be demonstrated that such expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets.

(h) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost, calculated on the first-in, first-out basis, comprises materials, direct labour and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value is calculated as the actual or estimated selling price less all further costs of completion and the estimated costs necessary to make the sale.

(i) Income tax

(i) Income tax for the year comprises current and deferred tax. Income tax is recognised in the consolidated income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity.

– 19 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(ii) Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
(iii) Deferred tax assets and liabilities arise from deductible and taxable temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised.

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

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

Current tax balances and deferred tax balances, and movements therein, are presented separately form each other and are not offset.

(j) Foreign currencies

Transactions in foreign currencies are translated into Hong Kong dollars at the rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. Gains and losses arising on exchange are dealt with in the consolidated income statement.

The financial statements of subsidiaries and associates expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Gains and losses arising on exchange are dealt with as movements in reserves.

(k) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the balance sheet date.

Non-accumulating compensated absences are not recognised until the time of

leave.

(ii) Retirement benefits costs

The Group contributes to a defined contribution retirement benefits scheme, which is available to all employees. The assets of the scheme are held separately from those of the Group in an independently administered fund. The contributions are calculated as a percentage of employees’ salaries and are expensed as incurred in the consolidated income statement.

– 20 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(l) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in a particular business (business segment), or conducting business in a particular geographical area (geographical segment), which is subject to risks and rewards that are different from those of other segments.

(m) Impairment

The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the consolidated income statement.

(i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

(ii) Reversals of impairment

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(n) Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decision. Parties are also considered to be related if they are subject to common control or common significant influence.

– 21 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

3. REVENUE, TURNOVER AND SEGMENT INFORMATION

The Group is principally engaged in acting as an agent in the coal business, sales and marketing of coal products and gold jewellery products.

Turnover and other revenue recognised during the year are as follows:

Commission from coal business Sales of gold jewellery products Turnover Bank Interest income Other Interest income Reversal of impairment loss on land and buildings Other income Other revenue Total revenue	2003 HK$’000 853 617 1,470 614 626 2,691 – 3,931 5,401	2002 HK$’000 – 3,732
		3,732 1,122 223 – 6
		1,351
		5,083

An analysis of the Group’s turnover and contribution to operating loss for the year by principal activities and markets is as follows:

Principal activities: Commission from coal business Sale and marketing of gold jewellery products Others Principal markets: Hong Kong China Korea	Turnover 2003 2002 HK$’000 HK$’000 853 – 617 3,732 – – 1,470 3,732 617 2,635 595 1,097 258 – 1,470 3,732	Operating loss 2003 2002 HK$’000 HK$’000 853 – 613 3,726 (2,970) (9,070 (1,504) (5,344 (2,357) (6,441 595 1,097 258 – (1,504) (5,344	Operating loss 2003 2002 HK$’000 HK$’000 853 – 613 3,726 (2,970) (9,070 (1,504) (5,344 (2,357) (6,441 595 1,097 258 – (1,504) (5,344
			(5,344

			(6,441 1,097 –
			(5,344

– 22 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

4. OPERATING LOSS

Operating loss is arrived at after charging:

Cost of inventories sold _Less:_Provision for inventories written back upon disposal Cost of sales Staff costs (including directors’ remuneration and retirement benefits scheme contributions) Retirement benefits scheme contributions Depreciation and amortisation Auditors’ remuneration Provision for doubtful debts (included in other operating expenses) Impairment loss on land and buildings (included in other operating expenses)	2003 HK$’000 5,990 (5,990) – 4,418 75 471 188 – –	2002 HK$’000 15,758 (15,758) – 4,725 76 591 220 74 1,900

5. INCOME TAX

(a) No provision for Hong Kong profits tax has been made in the financial statements in respect of the Company and its subsidiaries for the year (2002: NIL), as the Company and its subsidiaries either have substantial accumulated tax losses brought forward which are available for setting off against current year’s assessable profits or have tax losses for the year.
(b) Reconciliation between actual tax expense and tax of the Group’s loss before taxation at applicable tax rates:

Loss before taxation Notional tax on loss before taxation, calculated at the rates applicable to loss in the countries concerned Tax effect of non-deductible expenses Tax effect of non-taxable revenu Tax effect of unused tax losses not recognized Actual tax expense	HK$’000 (2,805) (267) 44 e (572) 795 –	2003 % 9.5 (1.6) 20.4 (28.3) –	HK$’000 (5,344) (856) 355 (180) 681 –	2002 % 16.0 (6.7) 3.4 (12.7) –

In June 2003, the Hong Kong profits tax rate was increased from 16% to 17.5% with effect from the year of assessment 2003/2004. Hong Kong profits tax is calculated at 17.5% (2002: 16%) on the estimated assessable profit/adjusted loss for the year. Taxation for overseas subsidiaries and associates is charged at the appropriate current rates of taxation ruling in the relevant countries.

– 23 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

6. LOSS ATTRIBUTABLE TO SHAREHOLDERS

The loss for the year is dealt with in the financial statements of the Company to the extent of HK$4,044,000 (2002: HK$3,186,000).

7. LOSS PER SHARE

(a) Basic

The calculation of basic loss per share is based on the Group’s loss attributable to shareholders for the year of HK$2,805,000 (2002: HK$5,344,000) and the weighted average of 2,080,800,000 (2002: 1,951,156,000) ordinary shares in issue during the year.

(b) Diluted

No diluted earnings per share has been presented as the Company did not have any share options outstanding for both 2002 and 2003.

8. DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

The aggregate amounts of emoluments payable to directors of the Company during the year are as follows:

Fees Executive directors Non-executive directors Other emoluments: Basic salaries, housing allowances, other allowances and benefits in kind Retirement benefits scheme contributions	2003 HK$’000 – 120 120 2,418 24 2,562	2002 HK$’000 – 120
		120 2,418 24
		2,562

The emoluments of the Directors fell within the following bands:

Emolument bands HK$Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000	Number of directors 2003 2002 3 3 2 2 5 5	Number of directors 2003 2002 3 3 2 2 5 5
		5

No directors waived any emoluments in respect of the year ended 31 December 2003 (2002: NIL).

– 24 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(b) Five highest paid individuals

The aggregate amounts of the emoluments paid to the five highest paid individuals of the Group whose emoluments have not been disclosed in the directors’ emoluments noted above are as follows:

Basis salaries, housing allowances, other allowances and benefits in kind Retirement benefits scheme contributions	2003 HK$’000 1,246 30 1,276	2002 HK$’000 1,275 24
		1,299

The number of the highest paid individuals whose emoluments have not been disclosed in the directors’ emoluments noted above and fell within the following band is as follows:

Emolument bands	Number of individuals	Number of individuals
	2003	2002
HK$Nil – HK$1,000,000	3	3

9. PROPERTY, PLANT AND EQUIPMENT

Group

Cost At 1 January 2003 Additions At 31 December 2003 Accumulated depreciation/ amortisation and impairment losses At 1 January 2003 Depreciation/ amortisation charge for the year Reversal of impairment loss At 31 December 2003 Net book value At 31 December 2003 At 31 December 2002	Land and Leasehold buildings improvements HK$’000 HK$’000 9,970 696 – – 9,970 696 4,440 135 221 232 (2,691) – 1,970 367 8,000 329 5,530 561	Office equipment HK$’000 236 39 275 193 14 – 207 68 43	Furniture and fixtures HK$’000 91 – 91 72 4 – 76 15 19	Motor vehicles HK$’000 601 – 601 601 – – 601 – –	Total HK$’000 11,594 39
					11,633
					5,441 471 (2,691
					3,221
					8,412

					6,153

The leasehold land and buildings are situated in Hong Kong and held under medium term leases.

– 25 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

As at 31 December 2003, the Directors re-assessed the carrying value of the Group’s land and buildings with reference to the recent favorable changes in the Hong Kong property market conditions and based on an independent professional valuers’ valuation report and concluded that impairment loss to the extent of HK$2,691,000 made in the previous years on the land and buildings held for own use by the Group should be reversed in 2003 (included in other revenue) .

Company

Leasehold
improvements
HK$’000
Cost
At 1 January 2003
696
Additions
–
At 31 December 2003
696
Accumulated depreciation/
amortisation
At 1 January 2003
136
Depreciation/amortisation
charge for the year
232
At 31 December 2003
368
Net book value
At 31 December 2003
328
At 31 December 2002
560
10.
INTEREST IN SUBSIDIARIES
Unlisted shares, at cost
_Less:_Provision for impairment losses
Amounts due from subsidiaries
_Less:_Provision for doubtful amounts

Office
Furniture
Motor
equipment
and fixtures
vehicles
Total
HK$’000
HK$’000
HK$’000
HK$’000
227
91
601
1,615
39
–
–
39
266
91
601
1,654
185
72
601
994
13
4
–
249
198
76
601
1,243
68
15
–
411
42
19
–
621
Company
2003
2002
HK$’000
HK$’000
22,256
22,256
(22,256)
(22,256)
–
–
203,873
175,468
(151,324)
(155,458)
52,549
20,010

– 26 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Particulars of the subsidiaries at 31 December 2003 are as follows:

			Particulars of issued
	Place of	Principal activities	share capital/
Name	incorporation	and place of operation	registered capital	Interest held directly
				2003	2002
Full Bright International	New York, U.S.A.	Dormant	US$183,750	100%	100%
Limited
Fu Hui Jewellery &	Hong Kong	Jewellery retailing and	2,000,000	100%	100%
Goldsmith Company		wholesaling in	ordinary shares
Limited		Hong Kong	of HK$1 each
Fu Hui Investments	Hong Kong	Provision of financing	100 ordinary shares	100%	100%
Limited		arrangements in	of HK$1 each
		Hong Kong
Jumbo Hall International	Hong Kong	Property holding in	2 ordinary shares	100%	100%
Limited		Hong Kong	of HK$1 each
Maxease Limited	British Virgin	Dormant	1 ordinary share	100%	100%
	Islands		of US$1 each
Fushan Energy Group	British Virgin	Investment holding	1 ordinary share	100%	–
Limited	Islands	in PRC	of US$1 each
New Honest Limited	British Virgin	Dormant	1 ordinary share	100%	–
	Islands		of US$1 each

11. INTEREST IN ASSOCIATES

Unlisted shares, at cost Share of net assets Amount due from an associate _Less:_Provision for doubtful amount	Group 2003 2002 HK$’000 HK$’000 – – 41,079 – 3,739 3,739 44,818 3,739 (3,739) (3,739) 41,079 –	Company 2003 2002 HK$’000 HK$’000 4 4 – – 3,739 3,739 3,743 3,743 (3,743) (3,743 – –	Company 2003 2002 HK$’000 HK$’000 4 4 – – 3,739 3,739 3,743 3,743 (3,743) (3,743 – –
			3,743 (3,743
			–

– 27 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Particulars of the associates at 31 December 2003 are as follows:

			Particulars of
	Place of	Principal activities	issued share capital/
Name	incorporation	and place of operation	registered capital	Interest	held
				2003	2002
Real Wide Limited	Hong Kong	Dormant	10,000	45% *	45% *
			ordinary shares
			of HK$1 each
Jinshan Energy Group	PRC	Investment holding,	Registered capital	45%	–
Limited		production and sales	of RMB100,000,000
		of coal products
		in the PRC

held by the Company directly

12. INVENTORIES

Raw materials Finished goods _Less:_Provision for inventories	Group 2003 2002 HK$’000 HK$’000 8,166 11,168 3,903 6,891 12,069 18,059 (12,069) (18,059) – –	Group 2003 2002 HK$’000 HK$’000 8,166 11,168 3,903 6,891 12,069 18,059 (12,069) (18,059) – –
		18,059 (18,059)
		–

13. TRADE RECEIVABLES

General credit terms of the Group range from 60 to 90 days. At 31 December 2003, the ageing analysis of the trade receivables (net of specific provision for bad and doubtful debts) was as follows:

				Group		Company
			2003	2002	2003	2002
			HK$’000	HK$’000	HK$’000	HK$’000
Current –	3	months	826	–	596	–

14. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Included in prepayments, deposits and other receivables at 31 December 2002 were two short term loans of HK$10,000,000 each, advanced to two independent third parties for interest income. Both loans bore interest at 6.5% per annum and were repaid during 2003.

15. EMPLOYEE RETIREMENT BENEFITS

The Group operates a Mandatory Provident Fund Scheme (“the MPF scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement scheme administered by independent trustees. Under the MPF scheme, the Group and its employees are each required to make contributions to the scheme at 5% of the employee’s relevant income, subject to a cap of monthly relevant income of HK$20,000.

– 28 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

16. SHARE CAPITAL

Authorised: Ordinary shares of HK$0.10 each At 31 December Issued and fully paid: Ordinary shares of HK$0.10 each At 1 January Increase during the year At 31 December	Number of shares 2003 2002 5,000,000,000 5,000,000,000 2,080,800,000 1,730,800,000 – 350,000,000 2,080,800,000 2,080,800,000	Company 2003 2002 HK$’000 HK$’000 500,000 500,000 208,080 173,080 – 35,000 208,080 208,080	Company 2003 2002 HK$’000 HK$’000 500,000 500,000 208,080 173,080 – 35,000 208,080 208,080

			173,080 35,000
			208,080

17. SHARE OPTION SCHEME

At the last annual general meeting of the Company held on 20 June 2003, the shareholders of the Company approved the adoption of a new share option scheme (the “Scheme”) and to give the Directors the power to implement and administer the Scheme with effect from the date of passing of the resolution. The Scheme is designed to reward and provide incentive to, and strengthen the Group’s business relationship with, the prescribed classes of participants, including eligible employees, directors of any member of the Group, who may contribute to the growth and development of the Group.

The exercise price of options is to be determined by the Directors and is the highest of the closing price of the shares of the Company as stated in the Stock Exchange’s daily quotations sheet on the date of grant, the average closing price of the shares as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant and the nominal value of the share on the date of grant.

During the year ended 31 December 2003, no share options were granted under the Scheme.

18. RESERVES

Group

At 1 January 2002 Issues of shares Loss for the year At 31 December 2002 and 1 January 2003 Share of reserve movements of associates Loss for the year At 31 December 2003	Share Accumulated premium losses HK$’000 HK$’000 368,469 (499,200) 30,700 – – (5,344) 399,169 (504,544) – – – (2,805) 399,169 (507,349)	Other reserves HK$’000 – – – – (118) – (118)	Total HK$’000 (130,731 30,700 (5,344 (105,375 (118 (2,805 (108,298

– 29 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Accumulated losses of HK$507,349,000 (2002: HK$504,544,000) included accumulated losses of HK$1,301,000 (2002: NIL) attributable to associates.

Company

At 1 January 2002 Issues of shares Loss for the year At 31 December 2002 and at 1 January 2003 Loss for the year At 31 December 2003	Share Accumulated premium losses HK$’000 HK$’000 368,469 (507,159) 30,700 – – (3,186) 399,169 (510,345) – (4,044) 399,169 (514,389)	Total HK$’000 (138,690 30,700 (3,186
		(111,176 (4,044
		(115,220

19. DEFERRED TAXATION

As at 31 December 2003, no deferred tax liabilities have been provided as the amount involved was immaterial and no deferred tax assets have been recognized in relation to the deductible temporary differences of HK$7,332,000 (2002: HK$7,835,000) and unused tax losses of HK$167,744,000 (2002: HK$163,206,000) as it is uncertain whether future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized.

The deductible temporary differences and tax losses will not expire under current tax legislation.

20. CAPITAL COMMITMENTS

Capital commitments outstanding at 31 December 2003 not provided for in the financial statements were as follows:

		Group		Company
	2003	2002	2003	2002
	HK$’000	HK$’000	HK$’000	HK$’000
Contracted for	5,960	–	–	–

The above commitment related to the Group’s commitment to fund an associate in the form of shareholder’s loan based on the joint venture agreement.

21. ULTIMATE HOLDING COMPANY

The Directors consider the ultimate holding company as at 31 December 2003 to be China Merit Limited, which is incorporated in the British Virgin Islands.

– 30 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

3. INDEBTEDNESS

As at the close of business on 30 April 2004, being the latest practicable date for the purpose of ascertaining information contained in this indebtedness statement prior to the printing of this circular, the Group had no outstanding borrowings.

Save as aforesaid and apart from intra-group liabilities and normal trade payables, the Group did not have any mortgages, charges, debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities outstanding at the close of business on 30 April 2004.

4. NO MATERIAL CHANGE

The Directors are not aware of any material changes in the financial or trading position or prospects of the Group since 31 December 2003, being the date to which the latest audited consolidated financial statements of the Group were made up.

– 31 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE JV COMPANY

The following is the text of the accountants’ report dated 21 June 2004 from Grant Thornton, Certified Public Accountants, prepared for the purpose of incorporation in this circular, in relation to the JV Company:

Certified Public Accountants Hong Kong Member of Grant Thornton International

==> picture [114 x 34] intentionally omitted <==

21 June 2004

The Directors Fushan Holdings Limited 12th Floor, Kwan Chart Tower 6 Tonnochy Road Wan Chai Hong Kong

Dear Sirs,

Pursuant to a conditional agreement dated 27 May 2004 (the “Acquisition Agreement”) entered into between Fushan Energy Group Limited (“Fushan Energy”), a company incorporated in the British Virgin Islands with limited liability and wholly owned by Fushan Holdings Limited, and Shanxi Jin Ye Coal and Coking Group Co., Limited (“Jin Ye”), a company established under the laws of the People’s Republic of China (“PRC”), Fushan Energy agreed to acquire from Jin Ye 20% equity interest in Jinshan Energy Group Limited (the “Company”) at a consideration of RMB20 million. The Company was established for the production and sale of coking coal and side products and is currently owned as to 45% by Fushan Energy. Upon completion of the Acquisition Agreement, the Company will be owned as to 65% by Fushan Energy. Further details of the Acquisition Agreement are described more fully in the section headed “Letter from the Board” in the circular of Fushan Holdings Limited dated 21 June 2004 (the “Circular”).

We set out below our report on the financial information (the “Financial Information”) relating to the Company and its subsidiaries (collectively referred to as the “Group”) for the period from 23 May 2003 (the date of its incorporation) to 31 December 2003 (the “Relevant Period”) for inclusion in the Circular.

As at the date of this report, the Company has the following subsidiaries:

			Percentage of
			fully paid
		Fully paid	registered capital
	Date and place of	registered	held directly by
Name	incorporation	capital	the Company	Principal activities
柳林縣聯山煤化	8 July 2003,	RMB30,000,000	90%	Production and sale of
有限公司	the PRC			coking coal
(Liulin Luenshan
Coking Co., Ltd.)
太原西山日盛煤焦	23 December 2003,	RMB30,000,000	70%	Production and sale of
有限公司	the PRC			coking coal
(Taiyuan Xishan Risheng
Coal and Coking
Co., Ltd.)

– 32 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE JV COMPANY

The statutory financial statements of the Company for the Relevant Period were prepared in accordance with the relevant accounting principles and financial regulations applicable to sino-foreign equity joint ventures registered in the PRC and were audited by 山西信彤會計師事務所有限公司 , certified public accountants registered in the PRC. No audited financial statements have been prepared for the Company’s subsidiaries since their respective dates of incorporation as they were newly incorporated and were not required to prepare audited financial statements for the period from their respective dates of incorporation to 31 December 2003.

For the purpose of this report, we have, however, carried out our own independent audit of the consolidated financial statements of the Group for the Relevant Period, prepared in accordance with accounting principles generally accepted in Hong Kong, in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants.

We have also examined the audited financial statements or, where appropriate, the management accounts (the “Underlying Financial Statements”) of the Company and its subsidiaries for the Relevant Period or since their respective dates of incorporation in accordance with the Auditing Guideline “Prospectuses and the reporting accountant” issued by the Hong Kong Society of Accountants.

The consolidated balance sheet of the Group as at 31 December 2003 and the consolidated results and cash flows of the Group for the Relevant Period have been prepared from the Underlying Financial Statements.

The Underlying Financial Statements are the responsibility of the directors of those companies comprising the Group. The directors of Fushan Holdings Limited are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2003, and of the results and cash flows of the Group for the Relevant Period.

– 33 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE JV COMPANY

Consolidated income statement

For the period from 23 May 2003 to 31 December 2003

Notes Turnover 3 Other revenue – Interest income Administrative expenses Loss before taxation 4 Taxation 5 Loss after taxation Minority interests Loss for the period	RMB – 144,843 (3,436,955) (3,292,112) – (3,292,112) 210,263 (3,081,849)

– 34 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE JV COMPANY

Consolidated balance sheet

As at 31 December 2003
Notes
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
7
Current assets
Prepayments, deposits and other receivables
Cash at banks and in hand
Current liabilities
Accruals and other payables
Net current assets
Total assets less current liabilities
Minority interests
Net assets
CAPITAL AND RESERVES
Capital
9
Reserves
10

RMB
13,506,511
12,199,491
83,228,960
95,428,451
97,328
95,331,123
108,837,634
11,789,737
97,047,897
100,000,000
(2,952,103)
97,047,897

– 35 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE JV COMPANY

Balance sheet

As at 31 December 2003

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 7 Interest in subsidiaries 8 Current assets Prepayments, deposits and other receivables Cash at banks and in hand Current liabilities Accruals and other payables Net current assets Net assets CAPITAL AND RESERVES Capital 9 Reserves 10	RMB 12,142,469 47,530,104 59,672,573 3,551,076 34,679,733 38,230,809 65,392 38,165,417 97,837,990 100,000,000 (2,162,010) 97,837,990

– 36 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE JV COMPANY

Consolidated cash flow statement

For the period from 23 May 2003 to 31 December 2003

Cash flows from operating activities
Loss before taxation
Adjustments for:
Depreciation and amortisation on property,
plant and equipment
Interest income
Operating loss before changes in working capital
Increase in prepayments, deposits and other receivables
Increase in accruals and other payables
Cash used in operations
Interest received
Net cash used in operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Capital contributions from investors
Capital contributions from minority interests
Net cash generated from financing activities
Cash at banks and in hand at 31 December 2003

RMB
(3,292,112)
621,506
(144,843)
(2,815,449)
(12,199,491)
97,328
(14,917,612)
144,843
(14,772,769)
(14,128,017)
(14,128,017)
100,129,746
12,000,000
112,129,746
83,228,960

– 37 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE JV COMPANY

Consolidated statement of changes in equity

For the period from 23 May 2003 to 31 December 2003

Capital contributions Loss for the period Balance at 31 December 2003	Capital RMB 100,000,000 – 100,000,000	Capital Accumulated reserve loss RMB RMB 129,746 – – (3,081,849) 129,746 (3,081,849)	Total RMB 100,129,746 (3,081,849) 97,047,897

Notes to the financial information:

1. BASIS OF PRESENTATION

The Financial Information has been prepared in accordance with accounting principles generally accepted in Hong Kong and conforms with the disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited as applicable to Accountants’ Report included in Listing Documents, and on the historical cost convention.

2. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. All material intercompany transactions and balances within the Group are eliminated on consolidation.

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

Minority interests represent the interests of outside investors in the operating results and net assets of the subsidiaries.

(b) Property, plant and equipment

(i) Depreciation

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

Land and buildings	2-5%
Office equipment	20%
Motor vehicles	25%

(ii) Measurement bases

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable cost of bringing the asset to the working condition and location for its intended use. Subsequent expenditure relating to property, plant and equipment is added to the carrying amount of the assets if it can be demonstrated that such expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets.

– 38 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE JV COMPANY

When assets are sold or retired, any gain or loss resulting from their disposal, being the difference between the net disposal proceeds and the carrying amount of the assets, is included in the consolidated income statement.

(c) Construction in progress

Construction in progress represents assets under construction and is stated at cost. Cost includes construction costs plus interest charges arising from borrowings used to finance these assets during the construction period. Capitalisation of these costs ceases and the asset concerned is transferred to property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.

No depreciation is provided on construction in progress until the relevant assets are ready for

use.

(d) Land use rights

Land use rights are stated at cost less accumulated amortisation and impairment losses and are amortised over a period of 20 years, taking into account the estimated residual value, using the straight line method.

(e) Impairment

The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. All impairment losses are recognised in the consolidated income statement.

(i) Calculation of recoverable amount

(ii) Reversals of impairment

An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the effect of that specific event.

In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

(f) Foreign currencies

Transactions in foreign currencies are translated at the rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates of exchange ruling at that date. Exchange differences arising in these cases are dealt with in the consolidated income statement.

– 39 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE JV COMPANY

(g) Subsidiaries

Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies so as to obtain benefits from its activities.

Subsidiaries are carried in the Company’s balance sheet at cost less impairment losses.

(h) Recognition of revenue

Sales of goods are recognised when the goods are delivered and title has passed.

Interest income is recognised on a time proportion basis.

(i) Operating lease

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Annual rentals applicable to such operating leases are charged to the consolidated income statement on a straight line basis over the lease terms except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Contingent rentals are charged to the consolidated income statement in the accounting period in which they are incurred.

(j) Employee benefits

According to the relevant rules and regulations in the PRC, the Company’s subsidiaries operating in the PRC are required to participate in the state-sponsored retirement plan (the “PRC RB Plan”) operated by the respective local municipal governments in the PRC. These PRC subsidiaries are required to contribute a certain percentage of the basic salaries of their employees, at 8% to 20%, to the PRC RB Plan. The PRC RB Plan is responsible for the entire pension obligations payable to the retired employees and the Group has no further obligations for the actual pension payments or other post-retirement benefits beyond the annual contributions. Contributions under the PRC RB Plan are charged to the consolidated income statement as they become payable in accordance with the rules of the PRC RB Plan.

3. TURNOVER

The Group has not commenced active business operations and did not derive any turnover during the period.

4. LOSS BEFORE TAXATION

	RMB
Loss before taxation is arrived at after charging:
Auditors’ remuneration	7,000
Depreciation and amortisation on property, plant and equipment	621,506
Exchange loss	78,450
Operating lease charges in respect of office premises	160,840
Staff costs (including contributions to the PRC RB Plan)	620,932

5. TAXATION

No provision for PRC enterprise income tax has been provided in the financial statements as the Group did not derive any assessable income for the period.

There was no material unprovided deferred tax as at the balance sheet date.

– 40 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE JV COMPANY

6. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

	RMB
Fees	NIL
Other emoluments	52,164

(b) Employees’ emoluments

The five highest paid individuals for the Relevant Period did not include any of the directors of the Company. The total emoluments of the five highest paid individuals were as follows:

Salaries and other benefits The emoluments paid to the individuals fell within the following band: Number of Nil to RMB1,000,000	RMB 105,170

	individuals 5

During the period, no emoluments were paid by the Group to any of the directors of the Company as a discretionary bonus or an inducement to join or upon joining the Group or as compensation for loss of office.

7. PROPERTY, PLANT AND EQUIPMENT

Group

Cost Additions At 31 December 2003 Accumulated depreciation and amortisation Charge for the period At 31 December 2003 Net book value At 31 December 2003	Land and buildings RMB 7,102,469 7,102,469 94,204 94,204 7,008,265	Office equipment RMB 26,149 26,149 479 479 25,670	Motor Construction vehicles in progress RMB RMB 5,645,407 1,353,992 5,645,407 1,353,992 526,823 – 526,823 – 5,118,584 1,353,992	Total RMB 14,128,017
				14,128,017
				621,506
				621,506
				13,506,511

– 41 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE JV COMPANY

Company

Cost Additions At 31 December 2003 Accumulated depreciation and amortisation Charge for the period At 31 December 2003 Net book value At 31 December 2003	Land and buildings RMB 7,102,469 7,102,469 94,204 94,204 7,008,265	Office equipment RMB 16,099 16,099 479 479 15,620	Motor vehicles RMB 5,645,407 5,645,407 526,823 526,823 5,118,584	Total RMB 12,763,975
				12,763,975
				621,506
				621,506
				12,142,469

At 31 December 2003, the cost of the Group’s and the Company’s land and buildings include an amount of RMB257,495 which represents cost of the Company’s land use rights and the related accumulated amortisation amounts to RMB4,364.

8. INTEREST IN SUBSIDIARIES

Unlisted investments, at cost Amounts due from subsidiaries Amounts due to subsidiaries CAPITAL Fully paid registered capital	RMB 48,000,000 5,530,104 (6,000,000
	47,530,104

	RMB 100,000,000

9. CAPITAL

10. Reserves

Capital reserve Accumulated loss	Group RMB 129,746 (3,081,849) (2,952,103)	Company RMB 129,746 (2,291,756
		(2,162,010

Capital reserve represents the excess of the total amount contributed by the investors over the registered capital of the Company.

– 42 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE JV COMPANY

11. CONTINGENT LIABILITIES

At 31 December 2003, the Group and the Company had no contingent liabilities.

12. COMMITMENTS

(a) Capital commitments outstanding at 31 December 2003 not provided for in the financial statements were as follows:

Group RMB Contracted for 2,702,300

The Company did not have any capital commitments at the balance sheet date.

(b) At 31 December 2003, the total future minimum lease payments under non-cancellable operating leases in respect of land and buildings are payable as follows:

Within one year In the second to fifth years After five years	Group RMB 323,496 787,330 7,316,625
	8,427,451

The Company did not have any outstanding operating lease commitments at the balance sheet date.

13. SUBSEQUENT EVENTS

Subsequent to the balance sheet date, the Group has entered into several contracts in relation to the acquisition and construction of certain plants and machineries with an aggregate amount of RMB91,188,000.

14. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company and its subsidiaries in respect of any period subsequent to 31 December 2003.

Yours faithfully, Grant Thornton

Certified Public Accountants

Hong Kong

– 43 –

APPENDIX III

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following statement has been prepared for the purpose of providing information about the impact of the Acquisition by illustrating how the Acquisition might have affected the financial information presented in this circular, had the Acquisition been undertaken at the date reported and for illustrative purposes only and because of its nature, it may not give a true picture of the financial position of the enlarged Group.

The following unaudited pro forma statement of adjusted consolidated net tangible assets of the enlarged Group after the Acquisition is based on the audited consolidated net assets of the Group as at 31 December 2003, the audited accounts of the JV Company as at 31 December 2003 as extracted from the accountants’ report of the JV Company which are set out in Appendix II to this circular and adjusted to take into account the net effect of the Acquisition:

						Unaudited	Unaudited
						pro forma	pro forma
						adjusted	adjusted	Adjusted
Audited		Adjusted	Inclusion of	Cash		consolidated	consolidated	consolidated
consolidated	consolidated net		net tangible	consideration	Estimated cash	net tangible	net tangible	net tangible
net assets		tangible assets	assets to be	to be paid by	expenses in	assets of	assets	assets
of the Group		of the Group	acquired	the Group	connection	the enlarged	per Share	per Share
as at 31	Exclusion of	prior to the	under the	under the	with the	Group after	after the	prior to the
December 2003	intangible assets	Acquisition	Acquisition	Acquisition	Acquisition	the Acquisition	Acquisition	Acquisition
	(Note 1)		(Note 2)	(Note 3)			(Note 4)	(Note 4)
HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
99,782	(107 )	99,675	18,208	(18,811 )	(600 )	98,472	HK$0.0473	HK$0.0479

Notes:

1. It represented the share of land use rights of the JV Company by the Group attributable to the Group’s 45% equity interest in the JV Company as at 31 December 2003 before the Acquisition.

2. The net tangible assets to be acquired represented 20% interest of the net tangible assets of the JV company as at 31 December 2003 attributable to the Group under the Acquisition.

3. Pursuant to the Acquisition Agreement, a consideration of RMB20 million to be satisfied in cash in an equivalent amount of US Dollar by the Group.

4. It is based on 2,080,800,000 Shares in issue as at the Latest Practicable Date.

– 44 –

APPENDIX III UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED ASSETS & LIABILITIES OF THE GROUP AS AT 31 DECEMBER 2003 AS ENLARGED AFTER THE ACQUISITION

Set out below is a summary of the unaudited pro forma statement of adjusted assets and liabilities of the Group as enlarged after the Acquisition, based on the audited consolidated accounts of the Group as at 31 December 2003 and the audited accounts of the JV Company as at 31 December 2003 as extracted from the accountants’ report of the JV Company set out in Appendix II to this circular, adjusted as detailed below.

Net-current assets Property, plant and equipment Interest in associates Current assets Trade receivables Prepayments, deposit and other receivables Cash at banks and in hand Current liabilities Other payables and accrued charges Net current assets Total assets less current liabilities Less: Minority interests Net assets	The Group HK$’000 8,412 41,079 49,491 826 93 53,833 54,752 4,461 50,291 99,782 – 99,782	Unaudited pro forma adjusted The balances of the JV Company Adjustments enlarged Group HK$’000 HK$’000 HK$’000 12,704 21,116 – (41,079)1 – 12,704 21,116 – 826 11,474 11,567 78,282 132,115 89,756 144,508 92 18,8112 23,964 6003 89,664 120,544 102,368 141,660 (11,089) (31,948)4 (43,037) 91,279 98,623

– 45 –

APPENDIX III

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes:

It represents the exclusion of the share of 45% net assets of the JV Company by the Company as at 31 December 2003 as the Company has 45% equity interest in the JV Company before the Acquisition.
It represents consideration of RMB20 million to be paid by the Group under the Acquisition.
It represents the estimated expenses in connection with the Acquisition.
It represents 35% minority interest of the JV Company.

3. COMFORT LETTERS

(a) Letter on unaudited pro forma statement of adjusted consolidated net tangible assets of the enlarged Group before and after the Acquisition

Set out below is the letter from Grant Thorton, the reporting accountants of the Company in respect of the unaudited pro forma statement of adjusted consolidated net tangible assets of the enlarged Group prior to and after the Acquisition as set out in Appendix III to this circular.

Certified Public Accountants Hong Kong Member of Grant Thornton International

==> picture [115 x 34] intentionally omitted <==

21 June 2004

The Directors Fushan Holdings Limited

Dear Sirs,

We report on the unaudited pro forma statement of adjusted consolidated net tangible assets (“Adjusted NTA”) set out in section 1 of Appendix III to the circular dated 21 June 2004 (the “Circular”) in connection with the proposed acquisition by Fushan Energy Group Limited, a wholly-owned subsidiary of Fushan Holdings Limited (the “Company”), of 20% of the equity interest of Shanxi Jin Ye Coal and Coking Group Co., Limited in Jinshan Energy Group Limited, which has been prepared, for illustrative purposes only, to provide information about how the proposed acquisition might have affected the financial information presented.

RESPONSIBILITIES

It is the responsibility solely of the directors of the Company to prepare the Adjusted NTA in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

– 46 –

APPENDIX III

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE ENLARGED GROUP

It is our responsibility to form an opinion, as required by the Listing Rules, on the Adjusted NTA and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Adjusted NTA beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practice Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted net tangible assets with the source documents, considering the evidence supporting the adjustments and discussing the Adjusted NTA with the directors of the Company.

Because the above work does not constitute an audit or review made in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, we do not express any such assurance on the Adjusted NTA.

The Adjusted NTA has been prepared in accordance with the basis set out in section 1 of Appendix III to the Circular for illustrative purposes only and, because of its nature, it may not give an indicative financial position and results of the Company and its subsidiaries (the “Group”) as at 31 December 2003 or at any future date.

OPINION

In our opinion:

(a) the Adjusted NTA has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Adjusted NTA as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully, Grant Thornton

Certified Public Accountants Hong Kong

– 47 –

APPENDIX III

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE ENLARGED GROUP

(b) Letter on unaudited pro forma statement of adjusted assets and liabilities of the enlarged Group

Set out below is the letter from Grant Thorton, the reporting accountants of the Company in respect of the unaudited pro forma statement of adjusted assets and liabilities of the enlarged Group after the Acquisition as set out in this Appendix III to this circular.

Certified Public Accountants Hong Kong Member of Grant Thornton International

==> picture [115 x 34] intentionally omitted <==

21 June 2004

The Directors Fushan Holdings Limited

Dear Sirs,

We report on the unaudited pro forma statement of adjusted assets and liabilities (the “Pro Forma Financial Information”) set out in section 2 of Appendix III to the circular dated 21 June 2004 (the “Circular”) in connection with the proposed acquisition by Fushan Energy Group Limited, a wholly-owned subsidiary of Fushan Holdings Limited (the “Company”), of 20% of the equity interest of Shanxi Jin Ye Coal and Coking Group Co., Limited in Jinshan Energy Group Limited, which has been prepared, for illustrative purposes only, to provide information about how the proposed acquisition might have affected the financial information presented.

RESPONSIBILITIES

It is the responsibility solely of the directors of the Company to prepare the Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by the Listing Rules, on the Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION

– 48 –

APPENDIX III

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE ENLARGED GROUP

any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the directors of the Company.

The Pro Forma Financial Information has been prepared in accordance with the basis set out in section 2 of Appendix III to the Circular for illustrative purposes only and, because of its nature, it may not give an indicative financial position and results of the Company and its subsidiaries (the “Group”) as at 31 December 2003 or at any future date.

OPINION

In our opinion:

(a) the Pro Forma Financial Information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Pro Forma Financial Information as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully, Grant Thornton Certified Public Accountants Hong Kong

4. WORKING CAPITAL

After taking into account the available facilities and internal resources of the Group as enlarged after the Acquisition, the Directors are of the opinion that the Group as enlarged after the Acquisition has sufficient working capital for its present requirement.

– 49 –

APPENDIX IV

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors jointly and severally accept responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable inquiries and that to the best of their knowledge and belief there are no other facts the omission of which would made any statement therein misleading.

2. DISCLOSURE OF INTERESTS

Interests of Directors in the Company

As at the Latest Practicable Date, the interests of the Directors in the share capital of the Company 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 which they were taken or deemed to have under such provisions of the SFO), or were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

Long Position in the Shares

			Percentage of
Name	Capacity	Number of Shares	shareholding
The Major Shareholder	Interest of	1,070,000,000	51.42%
	controlled corporation	(Note)
The Major Shareholder	Beneficial Owner	90,750,000	4.36%

Note: The 1,070,000,000 Shares are held by China Merit Limited, the entire issued share capital of which is held by the Major Shareholder.

Directors’ interests in associated corporation

	Name of
	Associated		Number of	Percentage of
Name	Corporation	Capacity	shares	shareholding
The Major Shareholder	China Merit	Beneficial Owner	100 ordinary	100%
	Limited		shares

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or any chief executive of the Company had an interest or short position in any shares, underlying shares or debentures of the Company or any associated

– 50 –

APPENDIX IV

GENERAL INFORMATION

corporation (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he was taken or deemed to have under such provisions of the SFO) or which was required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by any members of the Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Group and none of the Directors has any direct or indirect interest in any assets which has been, since 31 December 2003 (being the date of which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or which was proposed to be acquired or disposed of by or leased to any member of the Group.

Interests of substantial Shareholders in the Company

So far as is known to the Directors, as at the Latest Practicable Date, the persons other than a director or chief executive of the Company who has an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or recorded in the register kept by the Company pursuant to Section 336 of the SFO, who is expected, directly or indirectly, to be interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or had any options in respect of such capital, were as follows:

			Percentage of
Name of Shareholder	Capacity	Number of Shares	shareholding
China Merit Limited	Beneficial Owner	1,070,000,000	51.42%
(Note)

Note: The Major Shareholder is the beneficial owner of the entire issued share capital of China Merit Limited.

Save as disclosed above, the Directors and the chief executive of the Company were not aware that there was any person (other than a Director or chief executive of the Company) who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group or had any options in respect of such capital.

– 51 –

APPENDIX IV

GENERAL INFORMATION

Interests in other members of the Group

As at the Latest Practicable Date, so far as is known to the Directors, there was no person (other than a Director or chief executive of the Company) who was, directly or indirectly, interested in 5% or more of the nominal value of the share capital carrying rights to vote in all circumstances at general meetings of any subsidiary of the Company.

3. INTERESTS IN OTHER COMPETING BUSINESS

Each of the Directors has confirmed that he and their respective associates (as defined under the Listing Rules) do not have any interests in a business apart from the Group’s business which directly competes with and will have material adverse impact on the Group.

4. SERVICE CONTRACTS

There is no existing or proposed service contract between any of the Directors and the Company or any of its members which is not terminable within one year without payment of compensation (other than statutory compensation) and no service contract has been entered into or amended within six months before 21 June 2004, being the date of this circular.

5. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

6. CONSENT

Grant Thornton has given and has not withdrawn its written consent to the issue of this circular with copies of its accountants’ report of the JV Company and letters and the reference to its name included herein in the form and context in which it is included.

7. QUALIFICATION OF EXPERT

The qualification of the expert who has given opinion in this circular is as follows:

Name Qualification Grant Thornton Certified Public Accountants

As at the Latest Practicable Date, Grant Thornton is not beneficially interested in the share capital of any member of the Group, nor has any right to subscribe or to nominate persons to subscribe for securities in any member of the Group, nor did it have any interest, either direct or indirect, in any assets of the Group which have been, since 31

– 52 –

APPENDIX IV

GENERAL INFORMATION

December 2003 (being the date to which the latest published audited consolidated accounts of the Group were made up), acquired or disposed of by or leased to, or are proposed to be acquired or disposed of by or leased to, any member of the Group.

8. MATERIAL CONTRACTS

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

(a) a joint venture agreement dated 14 May 2003 entered into between Fushan Energy, the Vendor and Golden Oak in relation to the formation of the JV Company;
(b) the Acquisition Agreement; and
(c) the supplemental sino-foreign equity joint venture agreement and the supplemental articles of association dated 27 May 2004 entered into between Fushan Energy, the Vendor and Golden Oak.

9. GENERAL

(a) The secretary and qualified accountant of the Company is Ms. Lam Lin Chu, HKSA.
(b) The registered office of the Company is situated at 12th Floor, Kwan Chart Tower, No. 6 Tonnochy Road, Wanchai, Hong Kong.
(c) The Hong Kong share registrar of the Company is Tengis Limited, Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the registered office of the Company at 12th Floor, Kwan Chart Tower, 6 Tonnochy Road, Wanchai, Hong Kong during normal business hours up to and including 5 July 2004:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for the two years ended 31 December, 2003;
(c) the unaudited pro forma consolidated financial information of the enlarged Group, the text of which is set out Appendix III to this circular;
(d) the comfort letters from Grant Thornton, the text of which are set out in Appendix III to this circular;
(e) the accountants’ report of the JV Company, the text of which is set out in Appendix II to this circular;
(f)
the written statement of adjustments for the JV Company;
(g) the material contracts referred to in the paragraph headed “Material contracts” in this Appendix; and
(h) the written consent referred to in the paragraph headed “Consent” in this Appendix.

– 53 –

AI assistant

GC Construction Holdings Limited — Proxy Solicitation & Information Statement 2004

49955_rns_2004-06-21_85c3436b-f9a1-4e9a-9478-04a014060a38.pdf

MAJOR TRANSACTION

Financial adviser to the Company

CONTENTS

DEFINITIONS

DEFINITIONS

MAJOR TRANSACTION

INTRODUCTION

THE ACQUISITION AGREEMENT

Date

Parties

Assets to be acquired

Consideration

Conditions

Completion

THE SUPPLEMENTAL SINO-FOREIGN EQUITY JOINT VENTURE AGREEMENT AND THE SUPPLEMENTAL ARTICLES OF ASSOCIATION

INFORMATION OF THE JV COMPANY

Before the Acquisition

After the Acquisition

REASON FOR THE ACQUISITION

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

GENERAL

ADDITIONAL INFORMATION

1. SUMMARY OF AUDITED FINANCIAL STATEMENTS

Consolidated Income Statement

Consolidated Balance Sheet

2. AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003

Consolidated Income Statement

Consolidated Balance Sheet

Balance Sheet

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

Notes to the Financial Statements

1. GENERAL INFORMATION

2. PRINCIPAL ACCOUNTING POLICIES

(a) Statement of compliance

(b) Basis of preparation

(c) Basis of consolidation

(d) Subsidiaries

(e) Associates

(f) Revenue recognition

(i) Commission from coal business

(g)

Property, plant and equipment

(h) Inventories

(i) Income tax

(j) Foreign currencies

(k) Employee benefits

(l) Segment reporting

(m) Impairment

(n) Related parties

3. REVENUE, TURNOVER AND SEGMENT INFORMATION

4. OPERATING LOSS

5. INCOME TAX

6. LOSS ATTRIBUTABLE TO SHAREHOLDERS

7. LOSS PER SHARE

(a) Basic

(b) Diluted

8. DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

(b) Five highest paid individuals

9. PROPERTY, PLANT AND EQUIPMENT

Group

Company

11. INTEREST IN ASSOCIATES

12.

INVENTORIES

13. TRADE RECEIVABLES

14. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

15. EMPLOYEE RETIREMENT BENEFITS

16. SHARE CAPITAL

17. SHARE OPTION SCHEME

18. RESERVES

Group

Company

19. DEFERRED TAXATION

20. CAPITAL COMMITMENTS

GC Construction Holdings Limited Proxy Solicitation & Information Statement 2004