THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in New Times Energy Corporation Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for onward transmission to the purchaser or transferee.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities in the Company.

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

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NEW TIMES ENERGY CORPORATION LIMITED *

(incorporated in Bermuda with limited liability)

(Stock code: 00166)

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF FORTUNE EASE HOLDINGS LIMITED AND NOTICE OF SPECIAL GENERAL MEETING

Financial advisor to the Company

A notice convening the special general meeting of the Company to be held at Board Room, Dynasty Club, 7/F South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong on Friday, 16 July 2010 at 10:30 a.m. are set out on pages 518 to 519 of this circular.

Whether or not you are able to attend the special general meeting, you are requested to complete and return the accompanying form of proxy, in accordance with the instructions printed thereon and deposit the same as soon as possible and in any event not later than 48 hours before the time of the special general meeting or any adjournment thereof with the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Hong Kong. Completion and return of the form of proxy will not preclude you from attending and voting at the special general meeting or any adjournment thereof should you so wish.

* For identification purpose only

24 June 2010

		Page
Definitions . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Appendix I –	Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . .	49
Appendix IIA –	Accountants’ Report of the Target Group . . . . . . . . . . . . . . . . . .	204
Appendix IIB –	Accountants’ Report of Hongwen Gold . . . . . . . . . . . . . . . . . . . .	238
Appendix III –	Unaudited pro forma financial information of the
	Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	270
Appendix IV –	Management discussion and analysis of the financial
	position of the Group and the Target Group . . . . . . . . . . . . . .	283
Appendix V –	Property valuation report of the Enlarged Group. . . . . . . . . . . .	303
Appendix VI –	Technical report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	326
Appendix VII –	Valuation report of Qinglong Manzu Autonomous County
	Hongwen Gold Company Limited. . . . . . . . . . . . . . . . . . . . . . .	488
Appendix VIII –	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	511
Notice of Special	General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	518

– i –

DEFINITIONS

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

“Acquisition” the acquisition of the Sale Share and the Shareholder’s Loan by the Purchaser from the Vendor pursuant to the Agreement
“Agreement” the sale and purchase agreement dated 6 February 2010 and its supplemental agreement dated 30 April 2010 entered into between the Purchaser, the Vendor, Hongwen Gold and Mr. Sun in respect of the Acquisition
“Announcement” the announcement of the Company dated 18 February 2010 in respect of, among others, the Acquisition
“associate(s)” has the meaning as ascribed to it in the Listing Rules
“Banbishan Gold Mine” a gold mine which is located in the Banbishan Village, Shuang Zi Town, Qinglong Manzu Autonomous County, Hebei Province, the PRC ( ) and is beneficially
owned by Hongwen Gold
“Board” the board of Directors
“Business Day” any days on which the Stock Exchange is open for the business of dealing in securities
“Champion City” Champion City Investments Limited, a company incorporated in Hong Kong and a direct wholly-owned subsidiary of the Target Company
“Company” New Times Energy Corporation Limited, a company incorporated in Bermuda, the Shares of which are listed on the main board of the Stock Exchange
“Completion” completion of the Acquisition in accordance with the terms and conditions of the Agreement
“Completion Date” the date of Completion, being the date falling the tenth Business Day after all the conditions of the Agreement have been fulfilled or waived
“Consideration” the total consideration in the sum of HK$600 million payable by the Purchaser to the Vendor in respect of the Acquisition under the Agreement

– 1 –

DEFINITIONS

“Consideration Shares” 1,588,235,295 new Shares to be allotted and issued by the Company to the Vendor (or its nominee(s)) as part of the Consideration in accordance with the Agreement
“Director(s)” the director(s) of the Company
“Enlarged Group” the Group immediately after completion of the Acquisition
“Gold Mines” Qingheyan Gold Mine, Sanjia Gold Mine and Banbishan Gold Mine
“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 People’s Republic of China
“Hongwen Gold” (Qinglong Manzu Autonomous County Hongwen Gold Company Limited*), a company incorporated in the PRC
“Independent Third Party (ies)” person(s) or company(ies) who/which is/are not connected with the directors, chief executive or substantial Shareholders (as defined under the Listing Rules) of the Company and its subsidiaries, or any of their respective associates
“JORC Code”
the Australian Code of Reporting of Mineral Resources and Ore Reserves, effective December 2004
“kg”
kilogram, a unit of weight
“km” kilometer, a unit of distance
“Latest Practicable Date”
21 June 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular
“Last Trading Day” 5 February 2010, being the last trading day immediately before the publication of the Announcement
“Listing Rules”

The Rules Governing the Listing of Securities on the Stock Exchange from time to time

– 2 –

DEFINITIONS

“Miaozhangzi Gold Mine” a gold mine located in the Banbishan Village, Shuang Zi Town, Qinglong Manzu Autonomous County, Hebei Province, the PRC ( ) which is under application by Hongwen Gold to consolidate with Banbishan Gold Mine “MOU” the memorandum of understanding dated 8 December 2009 entered into by the Vendor and the Purchaser in relation to the Acquisition “Mr. Sun” (Mr. Sun Jingzu) “oz” ounce, a unit of weight “PRC” the People’s Republic of China, which, for the purpose of this circular, shall exclude Hong Kong, the Macao Special Administrative Region of the PRC and Taiwan “Purchaser” Techno Wealth Limited, a company incorporated in the British Virgin Islands and an indirect wholly-owned subsidiary of the Company “Qingheyan Gold Mine” a gold mine which is located in the Qinglong Town, Qinglong Manzu Autonomous County, Hebei Province, the PRC ( ) and is beneficially owned by Hongwen Gold “RMB” Renminbi, the lawful currency of the PRC “Sale Share” the entire issued capital of the Target Company “Sanjia Gold Mine” a gold mine which is located in Ma Juan Zi Town, Qinglong Manzu Autonomous County, Hebei Province, the PRC ( ) and is beneficially owned by Hongwen Gold “SGE” the Shanghai Gold Exchange “SGM” the special general meeting of the Company to be convened and held at Board Room, Dynasty Club, 7/F South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong on Friday, 16 July 2010 at 10:30 a.m. for the Shareholders to consider and, if thought fit, approve, among other things, the Acquisition “Shareholder(s)” holder(s) of the Shares

– 3 –

DEFINITIONS

“Shareholder’s Loan” a shareholder’s loan due and owing to the Vendor by the Target Company which is interest-free and repayable on demand and as at the Latest Practicable Date is in the sum of HK$31,096,874.93
“Shares” ordinary share(s) of par value of HK$0.10 each in the share capital of the Company
“Shenzhen Zhuo De Sheng” (Shenzhen Zhou De Sheng Trading Company Limited*), a company established in the PRC and is wholly owned by Champion City
“Shenzhen Wan Kai Sheng” (Shenzhen Wan Kai Sheng Trading Company Limited*), a company established in the PRC and is wholly owned by Shenzhen Zhuo De Sheng
“sq. km” square kilometre “sq. m.” square metre
“SRK Consulting” SRK Consulting China Limited, a mining engineering consultant and an Independent Third Party
“Stock Exchange” The Stock Exchange of Hong Kong Limited “Target Company” Fortune Ease Holdings Limited, a company incorporated in the British Virgin Islands and is a wholly-owned subsidiary of the Vendor
“Target Group” the Target Company and its subsidiaries

“Valmin Code” the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports prepared and adopted by the VALMIN Committee, a joint committee of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Mineral Industry Consultants Association, in February 1995 and revised in November 1997 and April 2005. The VALMIN Code incorporates the JORC Code, sets standards for the preparation and commissioning of independent assessment and/or valuation reports on mineral and petroleum assets or mineral and petroleum securities, and applies to all relevant reports under the Australian Corporations Law, including submissions to the Australian Stock Exchange and the Australian Securities and Investments Commission

– 4 –

DEFINITIONS

“Xiang Shui Gou Gold Mine” a gold mine which is located in Xiang Shui Gou Village, the Qinglong Town, Qinglong Manzu Autonomous County, Hebei Province, the PRC ( ) and had already been disposed by Hongwen Gold and is not owned by Hongwen Gold as at the Latest Practicable Date “US$” United States dollars, the lawful currency of the United States of America “Vendor” Dencorn International Limited, a company incorporated in the British Virgin Islands and, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, an Independent Third Party

For identification purpose only

– 5 –

LETTER FROM THE BOARD

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NEW TIMES ENERGY CORPORATION LIMITED *

(incorporated in Bermuda with limited liability)

(Stock code: 00166)

Executive Directors:

Mr. Cheng Kam Chiu, Stewart Mr. Cheng Ming Kit

Non-executive Directors:

Mr. Wong Man Kong, Peter Mr. Chan Chi Yuen

Independent non-executive Directors:

Mr. Fung Chi Kin Mr. Fung Siu To, Clement Mr. Chiu Wai On

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

Head office and Principal place of business in Hong Kong:

Unit 1007-08 10th Floor New World Tower I 18 Queen’s Road Central Hong Kong

24 June 2010

To the Shareholders, and for information only, holder of the Convertible Notes

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF FORTUNE EASE HOLDINGS LIMITED

INTRODUCTION

On 6 February 2010, the Purchaser, the Vendor, Hongwen Gold and Mr. Sun entered into the Agreement, pursuant to which the Purchaser agreed to acquire and the Vendor agreed to dispose of the Sale Share and assign the Shareholder’s Loan to the Purchaser at a total consideration of HK$600 million.

The Consideration for the Acquisition is HK$600 million (subject to adjustment as described herein) and shall be settled as to (i) HK$30 million which was already paid by the Purchaser to the Vendor as part of the Consideration according to the MOU; (ii)

* For identification purpose only

– 6 –

LETTER FROM THE BOARD

approximately HK$30 million which was already paid by the Purchaser by way of cash within two Business Days after the signing of the Agreement; and (iii) the remaining balance of approximately HK$540 million to be paid by the Purchaser by way of allotment and issue of the Consideration Shares on the Completion Date, subject to the adjustment mechanism as described herein.

The purpose of this circular is to provide you with, among others, (i) further details of the Acquisition; (ii) the financial information of the Group; (iii) the financial information of the Target Group; (iv) the technical report as required by Chapter 18 of the Listing Rules prepared by SRK Consulting on the Gold Mines under the guidelines of the Valmin Code which incorporates the JORC Code; and (v) a notice convening the SGM.

THE AGREEMENT

Date

6 February 2010

Parties

Techno Wealth Limited, an indirect wholly-owned subsidiary of the Company as the Purchaser
Dencorn International Limited as the Vendor
Hongwen Gold
Mr. Sun

The Vendor, which is incorporated in the British Virgin Islands and engaged in investment holding, legally and beneficially owns the entire issued share capital of the Target Company as at the Latest Practicable Date. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the Vendor together with its ultimate beneficial owners, are Independent Third Parties.

On 17 August 2009, the Vendor entered into a share transfer agreement with Mr. Sun in respect of the acquisition of the 90% equity interest in Hongwen Gold by the Vendor from Mr. Sun. Save as aforesaid, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor and each of its directors, and ultimate beneficial owners are independent of and not connected with Mr. Sun, who is an Independent Third Party.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor and each of its directors, and ultimate beneficial owners are independent of and not connected with the vendors of the very substantial acquisition of the Company as detailed in the announcement of the Company dated 6 January 2009 and their respective directors and ultimate beneficial owners.

– 7 –

LETTER FROM THE BOARD

Assets to be acquired

The Sale Share, representing the entire issued share capital of the Target Company (which in turn indirectly holds 90% equity interest in Hongwen Gold) and the Shareholder’s Loan.

Consideration

Pursuant to the Agreement, the Consideration for the Acquisition is HK$600 million (subject to adjustment as described herein). The Consideration shall be settled in the following manner:

(i) as to the sum of HK$30 million which was already paid by the Purchaser to the Vendor as part of the Consideration according to the MOU;
(ii) as to the sum of approximately HK$30 million which was already paid by the Purchaser by way of cash within two Business Days after the signing of the Agreement; and
(iii) as to the remaining balance of approximately HK$540 million to be paid by the Purchaser by way of allotment and issue of the Consideration Shares to the Vendor and/or its nominees (as the Vendor may direct) by the Company on the Completion Date, at HK$0.34 per Consideration Share which was determined after arm’s length negotiations between the Purchaser and the Vendor with reference to the prevailing market price of the Shares.

Adjustment to the Consideration

Pursuant to the Agreement, in the event that the amount of liabilities of Hongwen Gold due to external parties as shown on its management account as at the Completion Date exceeds RMB2.0 million, the Purchaser shall notify Mr. Sun in writing and Mr. Sun shall pay to the Purchaser an amount equal to the excess of the actual liabilities of Hongwen Gold as at the Completion Date over RMB2 million within five Business Days from the date of receipt of such written notice. Mr. Sun also agreed to indemnify in favour of the Purchaser and Hongwen Gold in respect of any liabilities of Hongwen Gold (including contingent liabilities) in excess of and over RMB2 million.

In the event that within two years from the Completion Date, the gold resources of the Gold Mines which attains or exceeds the level of inferred resources under JORC Code as confirmed in a written report prepared by the exploration institute approved by the Purchaser exceeds 50 tonnes, the Purchaser shall, within 21 Business Days from the receipt of such written report and subject to the relevant requirements of the Listing Rules, procure the Company to allot and issue 294,117,648 new Shares (the “Additional New Shares”) at HK$0.34 per new Share, which are equivalent to approximately HK$100 million (the “Additional Consideration”), to the Vendor and/or its nominees. It is expected that such written report will be available for review the earliest one year after the Completion Date. The Vendor agreed not to and shall procure

– 8 –

LETTER FROM THE BOARD

its nominees not to transfer or dispose of (or enter into any agreement to transfer or dispose of) Additional New Shares or any of its rights therein by any means within three months after the allotment and issue of such Shares by the Company.

The Consideration and the Additional Consideration have been arrived at after arm’s length negotiations between the Purchaser and the Vendor and was determined with reference to (i) the gold ore resource estimate of up to about 3.9 million tonnes (1.0 million, 0.9 million and 2.0 million tonnes categorized as Indicated, Inferred and Unclassified resource type under the JORC Code, respectively, and with the amount of gold metal of about 21,000 kilograms) in respect of the Gold Mines; (ii) the prevailing market price of gold; and (iii) the future prospect of the gold mining business in the PRC. To the best knowledge of the Directors, as at the Latest Practicable Date, the spot price of gold as quoted on the SGE is about RMB240 per gram. The Consideration represented the acquisition cost of gold of about RMB28.3 per gram (taking into account the Consideration of HK$600 million and 90% interests in the contained gold in the Gold Mines of 20,764.93kg), which represents a significant discount to the market price of gold. The Directors have taken into account the consideration/gold resource ratio of recent comparable transactions in relation to acquisition of gold mines or companies principally engaged in the gold mining business in the PRC undertaken by certain companies listed on the Stock Exchange before the Last Trading Day and also consider that the current market price of gold and the expected ongoing demand of gold in the PRC which support such market price, provide sufficient potential for the development of the Gold Mines in the future.

The Company has also appointed LCH (Asia-Pacific) Surveyors Limited, an independent professional surveyor, to issue the valuation report of Hongwen Gold. Please refer to Appendix VII of this circular for the valuation report of Hongwen Gold.

Conditions precedent

Completion shall be conditional upon the satisfaction (or waiver given by the Purchaser in writing) of a number of conditions precedent summarised below:

(i) the Purchaser being satisfied with the written evidences showing that the Vendor indirectly held 90% shareholding interests in Hongwen Gold;
(ii) the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the Consideration Shares;
(iii) the obtaining of the Shareholders’ approval on the Agreement and the transactions contemplated thereunder at the SGM in accordance with the requirements of the Listing Rules;
(iv) each of the member companies of the Target Group having obtained all necessary operation permits or licences, including but not limited to, approval on the environmental assessment report, sewage permits and other environmental protection related documents, gold mining approval

– 9 –

LETTER FROM THE BOARD

certificates, gold mining licences, safety production permits, land use rights certificates and building ownership certificates and having these permits, licences and certificates changed and renewed for effectiveness;

(v) the memorandum and articles of association of Hongwen Gold being registered with the State Administration for Industry and Commerce of the PRC to the satisfaction of the Purchaser not later than 28 February 2010, including but not limited to, indicating that (1) the 90% shareholding interest in Hongwen Gold being duly owned by the Vendor; and (2) composition of the board of Hongwen Gold (the “Hongwen Board”) to be comprised of seven directors of whom six (including the chairman of the Hongwen Board) shall be appointed by the Vendor through its subsidiary and one shall be appointed by the 10%-shareholder of Hongwen Gold;
(vi) all necessary regulatory approvals, registration and related records in connection with the transactions contemplated under the Agreement having been obtained and continuing in force;
(vii) the Purchaser being satisfied with the results of the due diligence review on the legal, financial and other aspects of the Target Group;
(viii) the Purchaser being satisfied with the written evidences showing the legitimate mining areas covered by the exploration and mining licences held by Hongwen Gold amount to 6.3549 square kilometres before the consolidation of gold mines and 11.853 square kilometres after the consolidation of gold mines;
(ix) all necessary internal approval procedures in respect of the Purchaser, the Vendor, the Target Company and the Company as required under the Agreement having been completed and enforced;
(x) certain key personnel of Hongwen Gold as set out in the Agreement having executed the non-competition undertakings in the form as required under the Agreement;
(xi) there is no material adverse changes on the operation of Hongwen Gold from the date of the Agreement up to the Completion Date;
(xii) the general manager, six directors and chief financial officer of Hongwen Gold nominated by the Purchaser having been appointed and such appointments shall become effective no later than 28 February 2010;
(xiii) the obtaining of PRC, British Virgin Island and Hong Kong legal opinions in such form and substance to the satisfaction of the Purchaser regarding the Agreement and the transactions contemplated thereunder;

– 10 –

LETTER FROM THE BOARD

(xiv) the obtaining of technical reports (in the form and substance to the satisfaction of the Purchaser) from SRK Consulting appointed by the Company providing an independent technical assessment of each of the Gold Mines;
(xv) written evidence to the satisfaction of the Purchaser being provided by the Vendor showing the Shareholder’s Loan amounts to HK$31,096,874.93 as at the date of Agreement and the Completion Date;
(xvi) written evidence to the satisfaction of the Purchaser being provided by the Vendor showing (i) the liabilities of Champion City due to its third party creditor (apart from its shareholder) to be no more than HK$28,350,700 and (ii) the liabilities of Champion City due to the Target Company to be no more than HK$31,087,082.73, as at the date of Agreement and the Completion Date; and
(xvii) the representations, warranties and undertakings provided by the Vendor, Mr. Sun and Hongwen Gold under the Agreement remaining true, accurate and complete in all material respects as at the Completion Date.

The Purchaser may in its sole and absolute discretion at any time before Completion waive any of the above conditions (save and except conditions numbered (ii) and (iii) above) by rendering notice in writing to other parties to the Agreement. If the above conditions have not been satisfied (or as the case may be, waived by the Purchaser) on or before 30 September 2010, or such later date as the Purchaser and the Vendor may agree, the Purchaser shall be entitled to terminate the Agreement by giving written notice (the “Termination Notice”) to the Vendor. The Vendor shall refund the deposit (being the cash portion of the Consideration) in the sum of approximately HK$60 million in full without any interest to the Purchaser within five Business Days from the date of the receipt of the Termination Notice. In such event, the Purchaser shall not be responsible for any loss of the other parties to the Agreement, their shareholders or controllers.

COMPLETION

Completion shall take place on the Completion Date.

CONSIDERATION SHARES AND ADDITIONAL NEW SHARES

The Consideration Shares and Additional New Shares (if any) will be issued at HK$0.34 per Share. The issue price was determined after arm’s length negotiations between the Company and the Vendor, with reference to the prevailing market price of the Shares which represents:

(i) a premium of approximately 15.25% over the closing price of HK$0.295 per Share as quoted on the Stock Exchange on the Latest Practicable Date;

– 11 –

LETTER FROM THE BOARD

(ii) a premium of approximately 6.25% over the closing price of HK$0.32 per Share on the Last Trading Day as quoted on the Stock Exchange;
(iii) a premium of approximately 6.25% over the average closing price per Share of approximately HK$0.32 for the last five trading days up to and including the Last Trading Day;
(iv) a premium of approximately 3.03% over the average closing price per Share of approximately HK$0.33 for the last ten trading days up to and including the Last Trading Day;
(v) the average closing price per Share of approximately HK$0.34 for the last 30 trading days up to and including the Last Trading Day; and
(vi) a discount of approximately 71.19% to the consolidated net assets value attributable to equity holders of the Company per Share of approximately HK$1.18 as at 31 December 2009 (as calculated by the equity attributable to equity holders of the Company of approximately HK$3,431.9 million as at 31 December 2009 and the weighted average number of Shares of 2,897,868,159 as at 31 December 2009, as extracted from the annual report for the year ended 31 December 2009 of the Company).

When allotted and issued, the Consideration Shares will represent approximately:

(i) 19.69% of the existing issued share capital of the Company; and
(ii) 16.45% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.

When allotted and issued, the Consideration Shares and Additional New Shares will aggregately represent approximately:

(i) 23.33% of the existing issued share capital of the Company; and
(ii) 18.92% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares and Additional New Shares.

The Consideration Shares and Additional New Shares (if any) are to be issued by the Company under a specific mandate to be approved by the Shareholders at the SGM. The Consideration Shares and Additional New Shares (if any), when allotted and issued, will rank pari passu in all respects with all the Shares then in issue. The Vendor agreed not to and shall procure its nominees not to transfer and dispose of (or enter into any agreement to transfer or dispose of) the Consideration Shares and Additional New Shares (if any) or any of its rights by any means within three months after the allotment and issue of the Consideration Shares and Additional New Shares (if any) by the Company.

An application will be made to the Stock Exchange by the Company for the listing of, and permission to deal in, the Consideration Shares and Additional New Shares (if any).

– 12 –

LETTER FROM THE BOARD

UNDERTAKING BY THE VENDOR, MR. SUN AND HONGWEN GOLD

Pursuant to the Agreement, the Vendor, Mr. Sun and Hongwen Gold jointly and severally agree and undertake to the Purchaser to procure that, among others, the actual amount of gold produced by the Target Group for the 12-month period commencing from the Completion Date will not be less than 14,000 ounces.

Under the Agreement, the failure of the Target Group to produce 14,000 ounces of gold for the 12-month period commencing from the Completion Date will constitute a breach of the Agreement and the Purchaser shall have the right to claim the Vendor and Mr. Sun for damages resulting from or incidental to such breach.

SHAREHOLDING STRUCTURE OF THE TARGET GROUP

Set out below are the shareholding structures of the Target Group (i) immediately before Completion; and (ii) immediately upon Completion:

(i) Immediately before Completion (ii) Immediately upon Completion

==> picture [319 x 337] intentionally omitted <==

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

Vendor Purchaser
100% 100%
Target Company Target Company
100% 100%
Champion City Champion City
100% 100%
Shenzhen Zhuo De Shenzhen Zhuo De
Sheng Sheng
100% 100%
Shenzhen Wan Kai Shenzhen Wan Kai
Sheng Sheng
90% 90%
Hongwen Gold Hongwen Gold
Gold Mines Gold Mines
----- End of picture text -----

– 13 –

LETTER FROM THE BOARD

EFFECT ON SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is a summary of the shareholding of the Company (i) as at the Latest Practicable Date; (ii) immediately upon Completion and allotment and issue of the Consideration Shares; and (iii) immediately upon Completion and the allotment and issue of the Consideration Shares and Additional New Shares.

Fung Siu To, Clement Note 1 Cheng Ming Kit Note 1 Tse On Kin Note 2 Max Sun Enterprises Limited Note 3 Chow Tai Fook Enterprises Limited Note 4 Vendor Public Shareholders Total	As at the Latest Practicable Date 600,000 0.01% 20,000 0.00% 9,000,000 0.11% 868,605,530 10.77% 29,370,000 0.36% – – 7,160,057,490 88.75% 8,067,653,020 100.00%	Immediately upon Completion and the allotment and issue of the Consideration Shares 600,000 0.01% 20,000 0.00% 9,000,000 0.09% 868,605,530 9.00% 29,370,000 0.30% 1,588,235,295 16.45% 7,160,057,490 74.15% 9,655,888,315 100.00%	Immediately upon Completion and the allotment and issue of the Consideration Shares and Additional New Shares 600,000 0.01% 20,000 0.00% 9,000,000 0.09% 868,605,530 8.73% 29,370,000 0.29% 1,882,352,943 18.92% 7,160,057,490 71.96% 9,950,005,963 100.00%	Immediately upon Completion and the allotment and issue of the Consideration Shares and Additional New Shares 600,000 0.01% 20,000 0.00% 9,000,000 0.09% 868,605,530 8.73% 29,370,000 0.29% 1,882,352,943 18.92% 7,160,057,490 71.96% 9,950,005,963 100.00%
				100.00%

Notes:

Mr. Fung Siu To, Clement is an independent non-executive Director and Mr. Cheng Ming Kit is an executive Director.
Mr. Tse On Kin was an ex-Director and had resigned with effect from 5 November 2009.
Max Sun Enterprises Limited is a company indirectly controlled by Dato’ Dr. Cheng Yu Tung, an uncle of Mr. Cheng Kam Chiu, Stewart, who is an executive Director.
Chow Tai Fook Enterprises Limited is an indirect wholly-owned subsidiary of Cheng Yu Tung Family (Holdings) Limited.
The Acquisition will not result in a change of control of the Company.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The principal activity of the Company is investment holding, and its subsidiaries are mainly engaged in general trading, oil exploration and exploitation, energy and natural resources related business.

As stated in the annual report for the year ended 31 December 2009 of the Company, the Group’s strategy is to focus on the energy and natural resources industry and to further expand its business in the natural resources sector. The Group is proactively seeking investment opportunities with significant growth potential to broaden its revenue base, as well as to diversify its sources of income.

– 14 –

LETTER FROM THE BOARD

The Directors have identified an attractive opportunity to ride on the trend of increase in gold price. Demand for gold has increased significantly in recent years and in 2009, the world gold price increased from around US$870 per oz in early of 2009 to around US$1,259 per oz recently, representing an increase of approximately 44.7%. Also, according to the gold price quoted on the SGE, the closing gold price per gram increased from around RMB190 in early of 2009 to around RMB276 recently, representing an increase of approximately 45.3%. The Directors believe that the economy of the PRC will continue to grow and the gold market in the PRC will continue to follow such upward trend along with the increasing national demand for gold.

Based on the technical report on the Gold Mines issued by SRK Consulting, the Gold Mines have an aggregate gold ore resource estimate of up to about 3.9 million tonnes (1.0 million, 0.9 million and 2.0 million tonnes categorized as Indicated, Inferred and Unclassified resource type under the JORC Code, respectively, and with the amount of gold metal of about 21,000 kilograms). The Directors are of the view that through further exploration work, there will be a possibility of discovering even more potential gold resources in respect of the Gold Mines. The production capacity of the Gold Mines can also be expanded, subject to the approval by the relevant government authorities, to further increase the production and sales volume of the Gold Mines. The Directors are of the opinion that gold, being the scarce precious metal, has very high commercial value. In light of the above, the Directors are of the view that the Acquisition represents a good opportunity to invest in the natural resources sector in the PRC, and enables the Group to diversify the existing business into a new line of business with significant growth potential. The Directors also consider that the Acquisition provides good opportunities for the development of future business of the Group, broadens its revenue base, and maintains a stable income stream for the Group and will mark a significant step to realise the strategy of the Group to further expand its business in the natural resources sector. Meanwhile, the Company will continue to explore further business opportunities with good business potential and growth prospects with an aim to enhancing Shareholders’ return.

Upon Completion, the Target Company will become the subsidiary of the Company and the financial results of the Target Group will be consolidated with those of the Group.

As at the Latest Practicable Date, the Vendor has no intention to appoint any directors to the Board and the Board has no intention to remove any Directors and no Directors has the intention to resign after the Completion.

Taking into account the above factors, the Directors consider that the terms of the Acquisition are fair and reasonable and that the Acquisition is in the interests of the Company and the Shareholders as a whole.

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INFORMATION ON THE TARGET COMPANY, CHAMPION CITY, SHENZHEN ZHUO DE SHENG AND SHENZHEN WAN KAI SHENG

The Target Company is an investment holding company incorporated in the British Virgin Islands on 24 September 2009 and its entire issued share capital of US$1 is wholly owned by the Vendor as at the Latest Practicable Date. The Target Company is principally engaged in investment holding and it has not carried out any business or trading since its incorporation, except that it has acquired the 100% interest in Champion City. As such its net asset value primarily represents its paid-up capital of US$1 and no material items are recorded under its profit and loss statement as at the Latest Practicable Date. As at the Latest Practicable Date, the Target Company has the Shareholder’s Loan, which will be assigned to the Purchaser upon Completion.

Set out below is the audited consolidated financial information of the Target Company under Hong Kong Financial Reporting Standards from 24 September 2009 (date of incorporation) to 31 December 2009.

	Period from
	24 September 2009
	(date of incorporation)
	to 31 December 2009
	HK$’000
Turnover	−
Losses before taxation and extraordinary items	(779)
Profits after taxation and extraordinary items	78,574

Champion City is an investment holding company incorporated in Hong Kong on 30 September 2009 and it has not carried out any business or trading since its incorporation, except that it held the 100% interest in Shenzhen Zhuo De Sheng. As such, its net asset value primarily represents its paid-up capital of HK$1 and no material items are recorded under its profit and loss statement as at the Latest Practicable Date. Champion City is wholly owned by the Target Company. As at the Latest Practicable Date, Champion City has an amount due to an associate of the Vendor of about HK$28.4 million, which amount will be repaid by the Purchaser after the Completion Date.

Shenzhen Zhuo De Sheng was incorporated in the PRC on 25 December 2009. Shenzhen Zhuo De Sheng has not carried out any business or trading since its incorporation, except that it has acquired the 100% interest in Shenzhen Wan Kai Sheng. As such, its net asset value primarily represents its registered capital of HK$17 million and no material items are recorded under its profit and loss statement as at the Latest Practicable Date. Shenzhen Zhuo De Sheng is a foreign investment enterprise wholly owned by Champion City as at the Latest Practicable Date.

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Shenzhen Wan Kai Sheng was incorporated in the PRC on 18 December 2009. Shenzhen Wan Kai Sheng has not carried out any business or trading since its incorporation, except that it has acquired the 90% interest in Hongwen Gold. As such, its net asset value primarily represents its registered capital of RMB10 million and no material items are recorded under its profit and loss statement as at the Latest Practicable Date. Shenzhen Wan Kai Sheng is wholly owned by Shenzhen Zhuo De Sheng as at the Latest Practicable Date.

INFORMATION ON HONGWEN GOLD

Hongwen Gold was incorporated in the PRC on 19 March 2004. Its business scope includes mining, refinery and sale of gold. Hongwen Gold is owned as to 90% by Shenzhen Wan Kai Sheng and as to 10% by the spouse of Mr. Sun as at the Latest Practicable Date.

Hongwen Gold had audited net asset value as at 31 December 2009 of about RMB31.8 million. Set out below is the audited financial information of Hongwen Gold under Hong Kong Financial Reporting Standards for each of the three years ended 31 December 2007, 2008 and 2009.

		For the year ended	For the year ended
			31 December
		2009	2008	2007
		(audited)	(audited)	(audited)
		RMB’000	RMB’000	RMB’000
Turnover		32,628	48,055	44,343
Profits/(Losses)	before taxation and
extraordinary	items	(506)	1,253	(9,809)
Profits/(Losses)	after taxation and
extraordinary	items	(2,483)	1,253	(9,809)

INFORMATION ON THE GOLD MINES

The Gold Mines comprise three gold mines, namely Banbishan Gold Mine, Sanjia Gold Mine and Qingheyan Gold Mine, which are located within the gold mineralisation shear zones in Qinglong Manzu Autonomous County, Hebei Province, the PRC. The Gold Mines currently in aggregate have a total mining area of approximately 6.3549 sq. km. and contains gold ore resources estimates of approximately 3.9 million tonnes (1.0 million, 0.9 million and 2.0 million tonnes categorized as Indicated, Inferred and Unclassified resource type under the JORC Code, respectively, and with the amount of gold metal of about 21,000 kilograms), based on the technical report issued by SRK Consulting. Each of the Gold Mines has already commenced exploitation work with certain mining areas currently with production suspended due to reasons as described below. It is expected that the Gold Mines will process gold ores of about 119,000 tonnes, 339,000 tonnes and 496,000 tonnes in year 2010, 2011 and 2012, respectively.

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The Gold Mines were previously held by (Qinglong Manzu Autonomous County Gold Management Bureau*) (the “Qinglong Gold Management Bureau”). As a result of part of the gold mine restructuring scheme by Qinglong Gold Management Bureau in late 2003, four gold mines (including Sanjia Gold Mine, Banbishan Gold Mine, Qingheyan Gold Mine and Xiang Shui Gou Gold Mine) held by it were being disposed to the founding shareholders of Hongwen Gold (the “Founding Shareholders”). On 19 March 2004, the Founding Shareholders established Hongwen Gold, a privately owned enterprise, for the purpose of holding these four gold mines. Further on 16 April 2009, Hongwen Gold entered into an agreement (the “Disposal Agreement”) with an Independent Third Party to dispose of its mining rights and other assets and liabilities of Xiang Shui Gou Gold Mine. According to the Disposal Agreement, Hongwen Gold disposed of merely the mining rights and other assets and liabilities of Xiang Shui Gou Gold Mine to such Independent Third Party. Xiang Shui Gou Gold Mine did not have any sharing of infrastructures between the Gold Mines and the personnel (including the management) and equipments and/or machineries for the Gold Mines remain in the Target Group and therefore, operation and management of the Gold Mines would not be affected. For the avoidance of doubt, as at the Latest Practicable Date, the Gold Mines (the principal assets of the Target Group) comprise Banbishan Gold Mine, Sanjia Gold Mine and Qingheyan Gold Mine, but do not include Xiang Shui Gou Gold Mine.

Hongwen Gold is required by relevant regulations in the PRC to obtain (the “Gold Mining Approval Certificate”) for gold mining operation in respect of each of the Gold Mines. In September 2009, Hongwen Gold filed an application for the Gold Mining Approval Certificate with (the Qinglong Industrial Bureau), the responsible authority for the relevant approval, which the Gold Mining Approval Certificate was granted to Hongwen Gold in May 2010 by the State Ministry of Industry and Information Technology ( ), with validity period from 24 May 2010 to 24 May 2014.

Hongwen Gold is required by relevant regulations in the PRC to obtain the approval of the (“Environment Assessment Report”) (including the (“Water and Soil Resources Plan”), the “Environmental Impact Report”) and (“Completion Inspection”) of the production facilities for each of the Gold Mines. Hongwen Gold has not yet filed the respective Environmental Impact Report and Completion Inspection for approval. According to the confirmations issued by (the “Qinglong Environmental Bureau”) and (the “Qinglong Water Resources Bureau”), the relevant government authorities did not request Hongwen Gold to file the Environmental Impact Report and the Completion Inspection for approval, in order to facilitate the development of the local enterprise, and since Hongwen Gold has not ever committed any illegality on environmental protection and water and soil preservation, the relevant government authorities will not pursue any legal responsibility on Hongwen Gold for not filing the Environmental Impact Report and Completion Inspection for approval.

The land use rights certificates and building ownership certificates for the parcels of land (with an aggregate area of about 175,953 sq.m., the “Lands”) and the buildings situated thereon (with a gross floor area of 12,339 sq.m., the “Buildings”) on the Gold Mines which were occupied by Hongwen Gold, are registered under the predecessor company of the Gold Mines. According to the sale and purchase agreement between Qinglong Gold Management

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Bureau and the Founding Shareholders, it is stipulated that the purchaser of the Gold Mines should have legal rights to occupy and use the Lands and Buildings. Also, according to the confirmation dated 28 January 2010 jointly issued by (the “Qinglong Land Resources Bureau”) and (the “Qinglong Real Estate Bureau”), Hongwen Gold is in compliance with the relevant PRC laws and regulations to use the Lands and Buildings. According to the PRC legal advisor of the Company, in order to change the names of the titles of the land use rights certificates and building ownership certificates, Hongwen Gold will need to submit the application to the Qinglong Land Resources Bureau and the Qinglong Real Estate Bureau. Hongwen Gold has already applied to relevant government authorities to change the names of the titles of the land use rights certificates and building ownership certificates to Hongwen Gold, which the application is under review by the Qinglong Land Resources Bureau and Qinglong Real Estate Bureau. As advised by the PRC legal advisor of the Company, it is not stipulated in the relevant laws and regulations in the PRC the required time for such change of names of the titles and the Directors and the Vendor were not able to estimate the timing for completing the change. The PRC legal advisor of the Company advised that based on the aforesaid confirmation, there will be no substantive legal impediment for the change of names of the titles of the Lands and Buildings to Hongwen Gold. The PRC legal advisor of the Company also advised that based on the aforesaid confirmation, no illegal production and operation of Hongwen Gold caused by its use of any of the Lands and Buildings is discovered.

There were also certain buildings of Sanjia Gold Mine (gross floor area of about 6,759 sq.m.) and Banbishan Gold Mine (gross floor area of about 5,770 sq.m.) situated on the Lands, which did not have building ownership certificates. According to the PRC legal advisor of the Company, in order to obtain the building ownership certificates, Hongwen Gold will need to submit the application to the Qinglong Real Estate Bureau. In March 2010, Hongwen Gold has filed the application to the relevant government authorities for the building ownership certificates for such buildings, which is under review by the Qinglong Real Estate Bureau. According to the confirmation jointly issued by (the “Qinglong Land Resources Bureau”) and (the “Qinglong Real Estate Bureau”), such buildings were situated on the Lands with respective land use rights certificates, which were not involved in any ownership disputes, and Hongwen Gold’s application for the building ownership certificates has fulfilled relevant statutory requirements. The PRC legal advisor of the Company confirmed that the Qinglong Land Resources Bureau and the Qinglong Real Estate Bureau are the responsible authorities for ownership and title registration of lands and properties in Qinglong County and can confirm whether there are any ownership disputes and on the fulfillment of the statutory requirements. As advised by the PRC legal adviser of the Company, based on the aforesaid confirmation, there will be no substantive legal impediment for obtaining the building ownership certificates. The Lands are currently occupied by mines, ore processing plants and other infrastructures. The Buildings mainly include ore processing plants, office buildings, warehouses, dormitories and structures.

Pursuant to the Agreement, the Vendor and Mr. Sun agreed to provide an indemnity in favour of the Purchaser to cover, among others, any liabilities, loss and penalties in the event of any Hongwen Gold’s violation of the relevant PRC laws and regulations before the Completion Date (including but not limited to its failure to obtain all the necessary

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approvals). The Purchaser shall have the right to claim the Vendor and Mr. Sun for any reasonably foreseeable damage and loss (including but not limited to any fines imposed) arising from or in connection with Hongwen Gold’s failure to obtain the necessary land use rights certificates and building ownership certificates before the Completion Date.

1. Sanjia Gold Mine ( )

Sanjia Gold Mine consists of two areas, in respect of which the Ministry of Land and Resources has granted to Hongwen Gold the respective gold mining licenses: (i) a mining area of about 1.17 sq. km. with approved designed production capacity of 11,000 tonnes per annum from November 2008 to November 2012 (the “ Sanjia Mine A ”); and (ii) a mining area of about 0.21 sq. km with approved designed production capacity of 500 tonnes per annum for the period from May 2009 to May 2011 (the “ Sanjia Mine B ”).

Sanjia Gold Mine is located in Maquanzi Town, Qinglong Manzu Autonomous County, Hebei Province, the PRC ( ) and is about 18 km northeast of Qinglong Town with 2 km drive to access the main road of Qinglong-Qinhuangdo. Based on the technical report issued by SRK Consulting, the Sanjia Gold Mine had a gold ore resource estimate of up to about 670,000 tonnes (360,000 tonnes and 310,000 tonnes categorized as Indicated and Inferred resource type under the JORC Code, respectively, and with the amount of gold metal of about 6,900 kilograms). Sanjia Gold Mine, making use of the underground mining method, produced final products of high grade gold ores and gold concentrates. Major existing infrastructures of Sanjia Gold Mine include paved roads, water supply facility, electricity power supply facility, accommodation for mine workers and workshops and repair facilities.

The relevant safety production permit for Sanjia Mine B expired in June 2009 and Hongwen Gold was required by the relevant government authority to rectify certain infrastructure problems of Sanjia Mine B (including blocked sewage and drainage systems and poor dam drainage system without monitoring equipment) to fulfil the safety requirement in March 2009. The operation of Sanjia Mine B has suspended since the expiration of the safety production permit. According to the PRC legal advisor of the Company, practically, in order to obtain the safety production permit, Hongwen Gold will need to first submit an application to (the “Qinhuangdao Safety Production Monitoring Bureau”) for completion inspection on the rectification of the infrastructure. After such approval of the completion inspection, Hongwen Gold will need to submit an application to the Safety Production Monitoring Bureau of Hebei province for the renewal of the safety production permit. Hongwen Gold has completed the rectification with the relevant cost of about RMB550,000 and has applied to request for the completion inspection on the rectification of the infrastructure in August 2009 and the Qinhuangdao Safety Production Monitoring Bureau is currently in the process of reviewing and approving the application. It is expected that Sanjia Mine B will resume the operation once the renewed safety production permit is granted. As advised by the PRC legal advisor of the Company, it is not stipulated in the relevant laws and regulations the required time for the approval process and the Directors and the Vendor were not able to estimate the timing for completing the approval. The PRC legal advisor is of the view that subject to the

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rectification of the infrastructure problems in Sanjia Mine B, they did not discover any substantive legal impediment for Hongwen Gold to obtain the relevant safety production permit for Sanjia Mine B.

Mining methods

Sanjia Gold Mine is an underground mine and currently, mining is being conducted by decline and underground mining techniques. Combined declined-shaft with blind declines was used to connect different levels of the underground mines of the Sanjia Gold Mine for many years. The mining method adopted at the Sanjia Gold Mine is considered as the narrow-vein mining which mainly used the short-hole shrinkage while the room & pillar, or waste lifting stoping methods will be used occasionally.

The entrance of the decline of the Sanjia Gold Mine is at 367 m level and the main inclined-shaft is built between 367 m and 210 m serving five operation levels using a hoister 1.2 m diameter. Under 210 m level, a blind inclined-shaft is built at level 210 m to serve operations between level 210 m and 95 m using a same 1.2 m diameter hoister. At 95 m level, the third declined-shaft is built to serve level 95 m to 52 m using a smaller hoister of 0.8 m diameter.

There are completed lifting, transportation, ventilation and drainage systems built in the Sanjia Gold Mine. Four 20 m[3] air-pressuring machines are located at the airpressuring machine station on the surface. The transportation tunnel and a steel rail have been constructed for diesel powered locomotive and rail cars.

Mining schedule

Operation at the Sanjia Gold Mine is set as three eight-hour shifts, seven days per week. Sanjia Gold Mine has multiple levels of development, tunnelling, and extracting and there have been no difficulties of arranging the work schedules. The mining stopes are basically small scale and each stope produces around 20 to 60 tonnes per day depending on various conditions of an ore body or a vein.

Ore processing and equipment

Sanjia Gold Mine’s processing plant has a processing capacity of 200 tonnes per day including two production lines with a production capacity of 120 tonnes per day and 80 tonnes per day, respectively. The production line with capacity of 80 tonnes per day has been shut down due to its old equipment and small productivity. The processing procedures of two production lines include four major steps as described below:

Step 1: Crushing. Ore extracted from the underground is crushed to less than 12mm through a closed two stages crushing process, and then is stored in a fine ore bin.

Step 2: Grinding. The ball mill and spiral classifier constitute a closed grinding circuit. The crushed ore is grinded to the pulp with the concentration of 30% and 70% of the pulp is less than 75µm for floatation.

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Step 3: Floatation. The grinded ore pulp flows into one mixing drum by gravity and then enters one group of floatation machines after added with agents and stirred. Through one stage rough floatation, two stages scavenging and three stages of cleaning, gold concentrate and tailing will be produced. The tailing will be pumped to the tailings storage facility, and the gold concentrate will go into the next process of dewatering. Two chemical agents are available, one is collecting agent for metallic sulphide and gold, which is to increase the hydrophobicity of target minerals, the other is foaming agent, by which the dewatered mineral particles float to the pulp surface so as to separate from the gangue mineral.

Step 4: Concentrate Dewatering. The gold concentrate from floatation process will enter one thickener to make its concentration improved to 60%, and then is filtered by one vacuum filter to make its water content reduced to less than 8%, so as to obtain the final concentrate.

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Figure 1: Sanjia Gold Mine Processing Plant Flowsheet

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Set forth below is a summary table showing the major equipments (which are in fine and workable condition) used for each stage of ore processing at Sanjia Gold Mine:

Process	Equipment
Ore Feeding	Chute Feeder
Primary Crushing	Jaw crusher
Fine Crushing	Hammer crusher
	Cone crusher
Screening	Vibrating screen
Grinding	Ball mill
Classification	Spiral classifier
Floatation	Mixing drum
	Floatation machine
Concetrate Dewatering	Thickener
	Vacuum filter

2. Banbishan Gold Mine ( )

Banbishan Gold Mine consists of two areas, in respect of which the Ministry of Land and Resources has granted to Hongwen Gold the respective gold mining licenses: (i) a mining area of about 1.06 sq. km. with approved designed production capacity of 9,000 tonnes per annum for the period from June 2005 to June 2010 (the “Banbishan Mine A”); and (ii) a mining area of about 0.13 sq. km. with approved designed production capacity of 1,000 tonnes per annum for the period from April 2010 to March 2012 (the “Banbishan Mine B”). Major infrastructures of Banbishan Gold Mine include paved roads, water supply facility, electricity power supply facility, accommodation for mine workers and workshops and repair facilities.

The relevant safety production permit for Banbishan Mine B expired in June 2009 and Hongwen Gold was required by the relevant government authority to rectify certain infrastructure problems of Banbishan Mine B (including poor sewage and drainage systems and poor dam drainage system without monitoring equipment and regular analysis) to fulfil the safety requirement in March 2009. The operation of Banbishan Mine B has suspended since the expiration of the safety production permit. According to the PRC legal advisor of the Company, practically, in order to obtain the safety production permit, Hongwen Gold will need to first submit an application to (the “Qinhuangdao Safety Production Monitoring Bureau”) for completion inspection on the rectification of the infrastructure. After such approval of the completion inspection, Hongwen Gold will need to submit an application to the Safety Production Monitoring Bureau of Hebei province for the renewal of the safety production permit. Hongwen Gold has completed the rectification with the relevant cost of about RMB250,000 and has applied to request for the completion inspection on the rectification of the infrastructure in August 2009 and the Qinhuangdao Safety Production Monitoring Bureau is currently in the process of reviewing and approving the application. As advised by the PRC legal advisor of the Company, it is not stipulated in

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the relevant laws and regulations the required time for the approval process and the Directors and the Vendor were not able to estimate the timing for completing the approval. The PRC legal advisor is of the view that subject to the rectification of the infrastructure problems, they did not discover any substantive legal impediment for Hongwen Gold to obtain the relevant safety production permit for Banbishan Mine B.

Also, Hongwen Gold is currently in the process of applying for the consolidation of Banbishan Mine A, Banbishan Mine B and surrounding gold mines (including Miaozhangzi Gold Mine) to expand the mining area of Banbishan Gold Mine to about 6.69 sq. km. Based on the technical report issued by SRK Consulting, Miaozhangzi Gold Mine had a gold ore resource estimate of up to about 516,000 tonnes (103,000 tonnes, 41,000 tonnes and 372,000 tonnes categorized as Indicated, Inferred and Unclassified resource type under the JORC Code, respectively, and with the amount of gold metal of about 2,600 kilograms). According to the confirmation by Ministry of Land and Resources in January 2010, Hongwen Gold has properly filed all the necessary documents and fulfilled the requirement for the expansion of mining area for the gold mining license of Banbishan Gold Mine. It is expected that Banbishan Mine B will resume the operation once the abovementioned renewed safety production permit is granted. As advised by the PRC legal advisor of the Company, it is not stipulated in the relevant laws and regulations the required time for the approval process for such expansion of the mining area and the Directors and the Vendor were not able to estimate the timing for completing the approval.

Qingheyan Gold Mine consists of two areas, in respect of which the Ministry of Land and Resources has granted to Hongwen Gold the respective gold mining licenses: (i) a mining area of about 1.78 sq. km. with designed production capacity of 12,000 tonnes per annum for the period from July 2007 to August 2010 (the “Qingheyan Mine A”); and (ii) a mining area of about 2.0 sq. km. with approved designed production capacity of 5,000 tonnes per annum from September 2008 to July 2012 (the “Qingheyan Mine B”). Major infrastructures of Qingheyan Gold Mine include paved roads, water supply facility, electricity power supply facility, accommodation for mine workers and workshops and repair facilities.

Qingheyan Gold Mine is located in the Qinglong Town, Qinglong Manzu Autonomous County, Hebei Province, the PRC ( ). Based on the technical report issued by SRK Consulting, Qingheyan Gold Mine had a gold ore resource estimate of up to about 586,000 tonnes (121,000 tonnes and 465,000 tonnes categorized as Inferred and Unclassified resource type under the JORC Code, respectively, and with the amount of gold metal of about 2,800 kilograms).

As advised by the Vendor, the Qingheyan Gold Mine has ceased operation since early 2007 due to insufficient working capital available for operation. The Directors intend to resume the operation of Qingheyan Gold Mine upon Completion with the Group’s internal fund resources. It is estimated that the cost for resuming the operation of the Qingheyan Gold Mine will be about HK$3.4 million.

The parcels of land (with an area of about 3,780 sq.m., the “Qingheyan Lands”) of Qingheyan Gold Mine and the buildings situated thereon (gross floor area of about 1,421 sq.m., the “Qingheyan Buildings”) did not have land use rights certificates and building ownership certificates, respectively. The Qingheyan Lands are currently occupied by mines

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and infrastructures. The Qingheyan Buildings mainly include warehouses, plant rooms, dormitonies and structures. In March 2010, Hongwen Gold has filed the application to the relevant government authorities for the land use rights certificates and building ownership certificates. According to the confirmation issued by (the “Qinglong Land Resources Bureau”), the planning of the Qingheyan Lands was designated for mining purpose, and Hongwen Gold’s application for the land use rights certificates has fulfilled the relevant statutory requirements. There were not any ownership disputes regarding the Qingheyan Lands and Hongwen Gold should not bear any legal responsibilities for occupying and using the Qingheyan Lands. Also, according to the confirmation jointly issued by (the “Qinglong Land Resources Bureau”) and (the “Qinglong Real Estate Bureau”), Qingheyan Buildings were not involved in any ownership disputes, and subject to the obtaining of the land use rights certificates of Qingheyan Lands, there should be no legal obstacles to apply for the respective building ownership certificates. Hongwen Gold should not bear any legal responsibilities for occupying and using the Qingheyan Buildings. The PRC legal advisor of the Company confirmed that the Qinglong Land Resources Bureau and the Qinglong Real Estate Bureau are the responsible authorities for ownership and title registration of lands and properties in Qinglong County and can confirm whether there are any ownership disputes and on the fulfillment of the statutory requirements. As advised by the PRC legal adviser of the Company, based on the aforesaid confirmations, there will be no substantive legal impediment for obtaining the land use rights certificates for the Qingheyan Lands and, subject to the obtaining of the relevant land use rights certificates, and filing of the appropriate statutory application; there will be no substantive legal impediment for obtaining the building ownership certificates for Qingheyan Buildings.

Mining method

Both open-pit and underground mining methods can be applied to Qingheyan Gold Mine. The underground mining method used is a kind of modified short-hole shrinkage.

The open-pit mining was occurred above 357 m level. Under 357 m, a truck-ramp was constructed to access the ore bodies, and there were three operation levels (257 m, 280 m and 357 m) developed for mining.

Mining schedule

Prior to the suspension of operation at Qingheyan Gold Mine, operation at such mine was set as three eight-hour shifts, seven days per week. The mining stopes are basically small scale and each stope produces around 20 to 60 tonnes per day depending on various conditions of an ore body or a vein.

Ore processing and equipment

Qingheyan Gold Mine produces low-grade oxidized ore. Normally, heap-leaching facilities are used for processing ore of lower grade. Qingheyan Gold Mine’s heap leaching plant includes heap leaching yard, stockpile, leaching solution spraying system, solution pool system, active carbon adsorption equipment, gold-bearing carbon stripping-electrowinning device and gold slime smelting equipment. Production procedures include preparation of

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heap leaching yard, ore crushing, ore stacking, spraying and leaching, active carbon absorption, gold-bearing carbon stripping-elecrowinning and gold slime smelting. Qingheyan Gold Mine has currently suspended operation since early 2007 due to insufficient working capital available for operation.

Gold resources estimate

The following table which was extracted from the technical report issued by SRK Consulting as contained in Appendix V to this circular provides information on the gold resources estimate of the Gold Mines and the Miaozhangzi Gold Mine prepared under the guidelines of the Valmin Code.

Mine Resource type (Note) Sanjia Gold Mine 122b (Indicated) 333 (Inferred) Banbishan Gold Mine 122b (Indicated) 333 (Inferred) 334 (Unclassified) Qingheyan Gold Mine 333 (Inferred) 334 (Unclassified) Total for Gold Mines 122b (Indicated) 333 (Inferred) 334 (Unclassified) Miaozhangzi Gold Mine 122b (Indicated) 333 (Inferred) 334 (Unclassified)	Resource tonnage Average grade (t) Au (g/t) 358,251 11.36 312,345 9.16	Contained Metal Au (kg) 4,070.99 2,862.43
	670,596 10.34 596,257 1.91 507,792 5.02 1,524,289 4.80 2,628,338 4.19 120,733 4.86 465,525 4.81 586,258 4.82 954,508 5.46 940,870 6.34 1,989,814 4.80	6,933.42 1,138.85 2,549.29 7,319.76
		11,007.90 586.62 2,236.99
		2,823.61 5,209.84 5,998.34 9,556.75
	3,885,192 5.34	20,764.93

	102,952 6.21 41,033 2.46 372,210 4.92	638.92 101.08 1,832.93
	516,195 4.98	2,572.93

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Note: According to SRK Consulting, resource type of 122b under Chinese standards can refer to Indicated resource under JORC Code and 133 is similar to Inferred resource under JORC Code, white 334 is unclassified under the JORC Code.

Revenue model and major customers

Most of the revenue of Hongwen Gold was derived from the sale of products including gold concentrates and coarse gold to Independent Third Parties. Currently, major customers of Hongwen Gold are engaged in the business of gold refinery/smelting, which are mainly located in Hebei, Liaoning, Henan and Shandong Province.

Selling price of the products of the Gold Mines is normally determined with reference to the prevailing market price quoted on the SGE and a discount factor subject to the grading of the products. For the years ended 31 December 2007, 2008 and 2009, Hongwen Gold had sold gold of about 9,355oz, 8,963oz and 6,449oz respectively.

The Group expected that gold refinery/smelters will remain as the major customers for the Enlarged Group’s gold mining business in the future.

TRANSPORTATION

The Gold Mines are generally located in the administrated area of Qinglong Manzu Autonomous County, northeast of Hebei Province, north of the Peoples Republic of China.

Accesses to the Gold Mines are via paved roads. The Gold Mines are close to Qinglong county town; the distances between the mine sites and county town are about 50 km, 20 km and 15 km, respectively for Qingheyan Gold Mine, Banbishan Gold Mine and Sanjia Gold Mine. There are railways passed by the nearby areas, and provide access to the county from neighbouring cities/counties. In addition, Qinglong County is administrated by Qinhuangdao city, which is an important port city in Bohai sea area, about 130 km to the southeast of Qinglong.

The Gold Mines are located at approximately 200km east of Beijing. Driving from Beijing International Airport to Qinglong County can be passed by Beijing-Shengyang Highway then provincial-class roads to Qinglong Town. Sealed roads are close to Sanjia Gold Mine, Banbishan Gold Mine and Qingheyan Gold Mine. It is about 120 km from Qinglong to Qinghuangdao City connected by high class sealed roads.

Sanjia Gold Mine:

Sanjia Gold Mine is located about 18 km northeast of Qinglong Town, driving 2 km to access the main road of Qinglong-Qinhuangdao.

Banbishan Gold Mine:

Banbishan Gold Mine is about 20 km away southeast of Qinglong Town, east to Qinglong River. Sealed road connected to main road of Qinglong-Qinhuangdao. It is about 90 km from Qinhuangdao Railway Station.

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Qingheyan Gold Mine:

Qingheyan Gold Mine is about 50 km from Qinglong Town. Mainly sealed roads are accessing to the mine site. It is about 14 km north to Luotun Railway Station of Da-Qin Railway.

MANAGEMENT EXPERTISE

Mr. Cheng Ming Kit, an executive Director, possessed over 10 years experience in the gold mining industry where he gained the relevant experience from his previous positions in a mining company previously listed on the Toronto Stock Exchange Venture Board with mining and exploration operations in the PRC and Grand T G Gold Holdings Limited (stock code: 8299), a company listed on the Stock Exchange.

The Company appoints/intends to appoint the following experts with relevant experience in gold mining and production business to the management team for managing the gold mining business of the Enlarged Group:

Chief Operating Officer (Mining)

The Company has appointed Dr. Zhao Baolong (“Dr. Zhao”) as the chief operating officer of the Company. Dr. Zhao is a mining professional and an environmentalist, and a member of Australian Institute of Mining and Metallurgy (AusIMM). He has over 20 years of experience in the mining industry and relevant mining project financing in China, Hong Kong and Australia, which includes teaching and researching in the mining engineering fields, mineral/mining property valuation and project financing, mine designs and mine development, mining operations and management. He has been working for the positions of executive director, chief operating officer, chief mining engineer and principle consultant for several Chinese and international mining companies and mining consulting firms over the years. Dr. Zhao completed his doctoral study at the University of New South Wales, Australia. He also has qualifications of Bachelor of Engineering (BE) in mining (Baotou Insititute of Mining Technology), Master of Science (MSc) in mining (Beijing University of Science and Technology), Master of Science (Tech) [MSc(Tech)] in environmental technology and management (University of Waikato, New Zealand). Dr. Zhao was employed as the Principal Consultant – Mining Investment in a consultancy firm, which provides consultancy service to the Vendor for the transactions contemplated in the Agreement. Dr. Zhao resigned his capacity as at 28 February 2010 and joined the Company as the Chief Operating Officer (Mining). Dr. Zhao is independent of and not connected with the Vendor and its shareholders.

Chief Geologist (China)

The Company intends to appoint Mr. Liu Yuecheng (“Mr. Liu”) as the chief geologist (China) of the Company. Mr. Liu is graduated from Kunming Institute of Geology in 1984. He started its professional job in Jinchilin Gold Mine of Shandong Province and worked for eight years and became a mine manager. In 1993, he worked as the general manager of Wufeng Gold Mine in Jiling Province for three years. From 1996 to 2010, he had worked as the chief geologist, mine manager for Shijing Gold Mine in Jiling Province, Naozhi Gold

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Mine, Huzhu Copper Mine, Antu Shengxiandong Iron Ore Mine, Dcheng Gold Mine of Liaoning Province. Mr Liu has extensive knowledge and experiences in regional geological settling and mineralization, especially in gold mineralization deposit targeting both in theory and in practices. He will supervise the Company’s ongoing exploration programs including general geological surveying, exploration planning and resource modeling, high potential targeting, as well as ongoing geological works. Mr. Liu is independent of and not connected with the Vendor and its shareholders.

Metallurgical Consultant

The Company intends to appoint Mr. Zhu Guangmin (“Mr. Zhu”) as the metallurgical consultant of the Company. Mr. Zhu has over 40 years of experience in both finding mineral deposits and mineral processing and metallurgy. Trained in 1976 in Jinan of Shandong Province in metallurgy, Mr. Zhu has been concentrating to using advanced mineral processing and metallurgical technologies to treat refractory gold minerals. He has done numerous refractory gold mineral processing projects in China including the recent successful case of treating high As hard-leaching gold ores from Greak in Penglai Smelting Plant of Shandong Province. Mr. Zhu is independent of and not connected with the Vendor and its shareholders.

It is expected that upon Completion, the Group can leverage on the expertise of its management to run the gold mining business.

BUSINESS PLAN AND STRATEGY

According to the development plan of Hongwen Gold, it aims at increasing and expanding the mining and processing capacity of the Gold Mines by a three-stage development.

Stage 1 : to renovate the current mining and processing capacities of Sanjia Gold Mine, Banbishan Gold Mine and Qingheyan Gold Mine of 200 tonnes per day, 200 tonnes per day and 50,000 tonnes per annum heap-leaching, respectively in 2010;

Stage 2 : to increase the mining and processing capacities of Sanjia Gold Mine, and Banbishan Gold Mine to 350 tonnes per day and 500 tonnes per day, respectively and build a new 350 tonnes per day concentrator and additional 100,000 tonnes per annum of heap-leaching capacity treatment at Qingheyan Gold Mine in 2011;

Stage 3 : to further increase the mining and processing capacities of Sanjia Gold Mine, Banbishan Gold Mine and Qingheyan Gold Mine to 500 tonnes per day, 1,000 tonnes per day and 500 tonnes per day, respectively, with 200,000 tonnes per annum heap-leaching at Qingheyan Gold Mine in 2012.

It is expected that the above development plan would involve the capital expenditure of about RMB50 million.

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Hongwen Gold also plans to invest a total of RMB63.5 million in the period of April 2010 to March 2013 for further exploration work to upgrade the current gold resources to a minable reserve standard. It is expected that the planned drilling will be 38,000 meters with tunnelling of over 40,000 meters.

After the projected consolidations of Banbishan Gold Mine, the total mining area of the Gold Mines will be increased dramatically. Hongwen Gold is also planning to invest for a comprehensive geological investigation and exploration within the permitted area. The target is to identify more gold deposits and to increase the company’s total gold resources and reserves. The expected expenditure of such exploration will be amounted to about RMB100 million.

The abovementioned capital expenditure will be aggregately amounted to about RMB213.5 million, which will be expected to be incurred by Hongwen Gold of RMB30.7 million, RMB79.0 million, RMB84.8 million, RMB19.0 million in year 2010, 2011, 2012 and 2013, respectively. The Company expects to finance the capital expenditure primarily with the internal resources of the Enlarged Group. If necessary, the Company will also consider bank borrowings by Hongwen Gold and equity financing by the Company, including but not limited to placement of new shares, to support the development of the Gold Mines. As at the Latest Practicable Date, no decision has been finalized and no definitive agreement has been entered into this regard.

SAFETY PRODUCTION POLICY

The Target Group has established a safety management and monitoring department at head office, and each of the Gold Mines has a safety management division leading directly by the mine manager. Each of the Gold Mines, including the mine and the plant, has a certain number of workers responsible for the safety of mining, processing plants and tailing dams. Each of the Gold Mines or an operating division has a safety committee and written safety guidelines, handbook, safety signage and personal protective equipments were provided to various working teams. Monthly, quarterly, semi-annually and annually based safety reviews are carried out by the safety officers from the safety management and monitoring department of the Target Group.

Safety signage and personal protective equipment were provided to employees to minimize health and safety risks.

According to the confirmation issued by Safety Production Monitoring Bureau, from date of its incorporation, Hongwen Gold and the Gold Mines have compiled with the relevant rules and regulations regarding safety production and did not ever happen any safety accidents which have caused casualties and property losses.

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ENVIRONMENTAL PROTECTION POLICY

The Target Group has set out an operational Environmental Protection and Management Plan (“EPMP”) to direct and coordinate the management of the project’s environmental risks. The EPMP documents the establishment, resourcing and implementation of the environmental management programs. The site environmental performance is monitored and feedback from this monitoring is then utilized to revise and streamline the implementation of the EPMP.

According to the confirmation issued by the Environmental Protection Bureau of Qinglong County ( ), Hongwen Gold and the Gold Mines of Hongwen Gold did not ever breach the laws and regulations regarding environmental protection from its date of incorporation.

OVERVIEW OF THE GOLD INDUSTRY IN PRC

Prior to 2002, the PRC gold market was closely managed by the PRC government’s centralized purchase and allocation system. All gold reserves, as well as the sale, purchase and price of gold, was controlled by the People’s Bank of China (“PBOC”). Jewelry manufacturing and sales were restricted to state-owned enterprises and foreign companies were prevented from participating in the local gold market. These restrictive practices resulted in limited production and consumption of gold within the PRC.

The PRC gold market has undergone significant reform over the last few years. Following its accession into the World Trade Organization (“WTO”) in December 2001, the PRC government began deregulating the PRC gold market. Key features of deregulation included: (i) the establishment of the SGE to replace the PBOC’s restrictive purchase and allocation system; and (ii) the grant of permission to private domestic and foreign companies to enter the gold jewelry business.

Prior to the establishment of the SGE, trading in gold was regulated by the PBOC. In October 2002, the SGE officially commenced trading. It has the principal responsibility of supervising and coordinating the trade of all gold and other precious metals within the PRC. Prior to the commencement of trade on the SGE, the gold price in the PRC was above historical international levels. However, with the introduction of the SGE and deregulation, supply and demand factors have become increasingly aligned with international markets and the PRC gold price now converges with the global price of gold.

From February 2003, domestic and foreign companies were permitted to participate in the gold jewelry business. Gold jewelry manufacturers, wholesalers and retailers no longer require approvals to enter into the gold jewelry business, as long as the gold they use is not imported. Furthermore, gold can now be in jewelry form or held as an investment by retail investors, being available in passbook accounts (via authorized banks) as bullion and coins. In February 2004, the Commercial Banking Law of China was amended to allow all banks to participate in gold trading.

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The SGE is a platform for trading gold bullion and gold coins. The price of gold traded on the SGE largely converges to the price of gold in international markets. The SGE is the only legal source of value-added tax-free gold. Gold trading on the SGE is at the standard purities of Au9999 and Au9995. The standard weights for gold bullion bars (and coins where relevant) are 50 grams, 100 grams, 1 kilogram, 3 kilograms and 12.5 kilograms, and the unit of quotation is RMB per gram.

The spot gold price (per gram) on the SGE between 1 January 2007 and 31 May 2010 is shown in the graph below:

==> picture [207 x 9] intentionally omitted <==

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SGE Gold Price (per gram) - 1 January 2007 to 31 May 2010
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RMB
300
250
200
150
Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr10
Source: Bloomberg
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Demand for Gold in the PRC

The consumer demand for gold in the PRC in 2009 consisted of jewelry and retail investments demand. Annual gold consumer demand in the PRC in 2009 was 427.5 tonnes, accounting for 17.6% of total global consumer demand for gold.

Consumer Demand in Different Countries (tonnes)[(1)]

2008 Jewelry Investments Total Jewelry India 501.6 211.0 712.6 405.8 PRC 326.7 65.9 392.7 347.1 United States 188.1 78.9 267.0 150.3 Turkey 153.2 57.1 210.3 75.2 Saudi Arabia 108.9 13.5 122.4 82.3 Others 908.2 436.1 1,344.3 686.6 Total 2,186.7 862.5 3,049.3 1,747.3	2009 % change 2008 vs. Investments Total Jewelry Investments 74.2 480.0 (19.1) (64.8) 80.5 427.5 6.2 22.2 112.8 263.0 (20.1) 43.0 31.8 107.0 (50.9) (44.3) 10.9 93.2 (24.4) (19.3) 366.0 1,052.8 (24.4) (16.1) 676.2 2,423.5 (20.1) (21.6)	2009 Total (32.6) 8.9 (1.5) (49.1) (23.9) (21.7)
		(20.5)

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Note:

(1) Consumer demand comprises gold purchased by individuals (jewelry and retail investments).

Source: World Gold Council

Jewelry demand represented approximately 81.2% of the total consumer demand for gold in the PRC in 2009. The recent rapid growth of the PRC economy has driven up the jewelry demand for gold in the domestic market, which increased by 6.2% from 326.7 tonnes in 2008 to 347.1 tonnes in 2009.

Retail investment demand for gold in the PRC increased by 22.2% in from 65.9 tonnes in 2008 to 80.5 tonnes in 2009. Net retail investment responded positively to the environment of high gold prices and concerns over inflationary pressures. Demand for physical gold investment products enjoyed robust momentum, with both commercial banks and bullion houses reporting solid demand.

Supply for Gold in the PRC

The PRC is the world’s largest producer of gold since 2007, according to China Gold Association. The PRC’s gold production in 2009 increased by about 32.0 tonnes to 314.0 tonnes, representing about 11.3% year-on-year growth from 282.0 tonnes in 2008.

According to China Gold Association, the top five gold producing provinces in the PRC in 2009 were Shandong, Henan Jiangxi, Fujian and Yunnan, which together accounted for about 59.5% of the PRC’s gold production in the same year.

COMPETITION LANDSCAPE

With WTO accession and the continued liberalization of the PRC gold sector, investment interest from foreign gold producers has increased. Foreign gold producers are actively seeking entry into the PRC market. As a result, the local market is likely to experience increased competition. Sophisticated international producers commonly have an advantage over PRC gold producers in terms of capital, equipment, expertise, operating efficiencies and corporate management. However, many PRC gold producers have the advantage of being able to sustain lower costs of labor and establish greater control of local gold reserves within the PRC, when compared to their foreign competitors. The increased capitalization from foreign investment and the implementation of the latest gold mining and processing technologies is expected to make PRC gold producers increasingly competitive.

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INDUSTRY BARRIERS

Pursuant to the “Mineral Resources Law of the PRC” and other relevant laws and regulation regarding mineral resources, an enterprise entering the gold mining industry is required to obtain the exploration permit and mining permit issued by the Department of Land and Resources and the approval document for mining gold mines issued by the National Development and Reform Commission.

The current intense market competition, financial capability, mining resources, technology and equipment, and seasoned production management experience are major barriers in entering this industry.

FUTURE OPPORTUNITY

As stated in the technical report issued by SRK Consulting, the Gold Mines contain estimated gold resource of about 3.9 million tonnes with average grade of 5.34 grams per tonne (i.e. gold metal of about 21,000 kilograms). The production capacity of the Gold Mines can also be expanded, subject to the approval by the relevant government authorities, to further increase the production and sales volume of the Gold Mines, which will bring significant rewards for the Company’s investment.

LAWS AND REGULATIONS RELATING TO MINERAL RESOURCES

The “Mineral Resources Law of the PRC” (“Mineral Resources Law”) ( ) was promulgated by the Standing Committee of the NPC on 19 March 1986 and became effective on 1 October 1986. On 29 August 1996, the Standing Committee of the NPC amended the “Mineral Resources Law”. The amended “Mineral Resources Law” became effective on 1 January 1997.

The “Mineral Resources Law” and its implementation rules are as follows:

All mineral resources of the PRC, including such resources on the earth’s surface or underground, are owned by the State. The State ownership of mineral resources shall remain unchanged notwithstanding that the ownership or the right to use the land to which such mineral resources are attached has been granted to a different entity or individual.
The Ministry of Land and Resources of the PRC (“MOLAR”) is responsible for the supervision and administration of the mining and exploration of mineral resources nationwide. The geology and mineral resources departments of the PRC government of the respective provinces, autonomous regions and municipalities are responsible for the supervision and administration of the exploration, development and mining of mineral resources within their respective jurisdictions.
Enterprises engaged in the mining or exploration of mineral resources must obtain mining and exploration permits, as the case may be, which are transferable for consideration only in certain circumstances as provided under PRC laws, subject to approval by relevant administrative authorities. Furthermore, if the mining

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activities involve gold resources, in accordance with the “Provisions on the Administration of Obtaining the Letter of Approval for Mining of Gold Minerals” ( ), promulgated by the National Development and Reform Commission on 17 December 2003 and became effective on 1 January 2004, the Gold Operating Permit ( ) must also be obtained. The maximum validity period of the initial term of a Gold Operating Permit for a gold mine having an ore processing capacity of more than 500 tonnes per day, an ore processing capacity ranging from 100 tonnes per day to 500 tonnes per day and an ore processing capacity of less than 100 tonnes per day shall be 15 years, 10 years and 5 years, respectively.

MOLAR and the Geological and Mineral Resources Department of the PRC government of the provinces, autonomous regions and municipalities authorized by MOLAR are responsible for the granting of exploration and mining permits. Generally, holders of exploration permits and mining permits have those rights and obligations as prescribed by laws.
Anyone who exploits mineral resources must pay a resources tax and resources compensation levy in accordance with relevant regulations of the State. In accordance with “Provisional Regulations on Resources Tax of the PRC” ( ), the amount of the resources tax is computed on the basis of the taxable amount. In accordance with “Administrative Rules on the Levy of Mineral Resources Compensation” ( ), the resources compensation levy shall be calculated in accordance with the following formula:

Coefficient Amount of the resources Sales revenue of Compensation = x x of mining compensation levy payable mineral products levy rate recovery rate

Rights and Obligations of Holders of Exploration Permits

The rights exercisable by a holder of an exploration permit include, among other things, the following: (1) to carry out exploration in the designated area and within the prescribed time; (2) to have access to the exploration area and its adjacent areas; (3) to temporarily use the land in accordance with the needs of the exploration project; (4) to have priority in obtaining the mining right of the mineral resources as specified in the exploration permit and the exploration right of other newly discovered minerals within the designated exploration area; (5) upon fulfillment of the prescribed minimum expenditure requirements, to transfer the exploration right to any third party upon government approval; and (6) to sell the mineral products extracted from the surface of the land in the exploration area, except for those mineral products which are required by the State Council to be sold to designated units.

The obligations of a holder of an exploration permit include, among other things, the following: (1) to commence and complete the exploration work within the term of the exploration permit; (2) to carry out the exploration work in accordance with the exploration plan and to ensure no occurrence of unauthorized mining activities; (3) to carry out

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integrated exploration and assessment on the paragenetic and associated mineral resources; and (4) to submit an exploration report regarding the mineral resources to the relevant government authority for approval.

Rights and Obligations of Holders of Mining Permits

The rights exercisable by a holder of a mining permit include, among other things, the following: (1) to engage in mining activities in the designated area and within the term prescribed under the mining permit; (2) to set up ore processing facilities and amenities within the designated area; (3) to engage in exploration and production within the vicinity of the mine as set out in the mining permit; (4) to sell the mineral products, except for those minerals which are required by the State Council to be sold to designated units; and (5) to acquire the land use rights attaching to the mine.

The obligations of a holder of a mining permit include, among other things, the following: (1) to carry out mining activities in the prescribed designated area and within the term of the mining permit; (2) to effectively protect and reasonably extract the mineral resources and to integrate the use of the mineral resources; (3) to pay resources tax and resources compensation levy; (4) to submit to the supervision and management by the relevant government authorities; and (5) to submit a report on the utilization of mineral resources to the relevant government authority.

Renewal of Exploration and Mining Permits

In accordance with the “Administrative Measures on Registration of Mineral Resources Exploitation” ( ), the validity period of a mining permit shall be determined according to the scale of the mine. The maximum validity period of the initial term of a mining permit for a big-scale mine, medium-scale mine and small-scale mine shall be 30 years, 20 years and 10 years, respectively.

In accordance with the “Administrative Measures on Registration of Tenement of Mineral Resources Exploration and Survey” ( ), the maximum validity period of the initial term of exploration permits shall be three years.

However, the State Council issued the ( ) ( ) (State Council Regarding the Reinforcement of the Geological Work (No. 4 document issued by State Council (2006)) which stipulates that the State Council will enforce the monitoring and management of the exploration activities of mineral resources and will prohibit activities of marking without exploration and mining without exploration ( ). In light of the above, when approving the validity period of exploration permits and mining permits, the Department of Land and Resources ( ) of all the provinces in the PRC will act in accordance with their internal guidelines and principles and will normally grant mining permits and explorations permits with a validity period of approximately 3 years and a validity period of approximately 1-2 years respectively.

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In accordance with the relevant provisions stipulated in the “Administrative Measures on Registration of Tenement of Mineral Resources Exploration and Survey” ( ) and the “Administrative Measures on Registration of Mineral Resources Exploitation” ( ), exploration permits and mining permits can be renewed within a prescribed period prior to their expiration, upon compliance with the prescribed extension procedure. Each renewal of exploration permit shall not exceed two years. Where a holder of an exploration permit or a mining permit fails to renew its permit, such exploration or mining permit shall be automatically annulled upon expiration.

Qualifications for initial admission and renewal of exploration and mining permits

The relevant PRC laws and regulations contain certain specific qualifications for the initial issue of exploration and mining permits. In accordance with the “Notice on Regulations regarding the Registration of Exploration and Exploitation of Mineral Resources” ( ) issued by the Department of Land and Resources, the registration authority (that is the Department of Land and Resources) shall focus on the following aspects in the examination of an application for an exploration permit:

whether the exploration areas applied for have already been applied for by other parties;
whether the application form is properly filed, the exhibits are complete and the required materials are correctly supplied;
whether the exploration areas applied for are out of the permitted registered areas and are classified as continuous areas;
whether exploration or mining rights have already been granted in respect of the exploration areas applied for;
in relation to exploration areas where exploration activities were funded by the State, whether the value of the relevant exploration right is properly assessed, whether the assessment result has been confirmed by relevant government authorities and the payment method of consideration for such exploration rights has been ratified by the relevant government authorities;
within the 90 days prior to the making of the application, whether the exploration right of the exploration areas applied for has been revoked; and
within the 6 months prior to the making of the application, whether an exploration license held by the applicant was revoked.

In accordance with the “Notice on Regulations regarding the Registration of Exploration and Exploitation of Mineral Resources” ( ) issued by the Department of Land and Resources, the registration authority (that is the Department of Land and Resources) shall, after receiving the

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application materials for a mining permit and the investigation results of the low-level registration authority, will examine the following aspects in the examination of an application for a mining permit:

whether the range and acreage of the mining area applied for is the same as those of the approved areas by the registered authority;
whether the production quantity of mines will change and whether it complies with the devised mineral reserves;
whether the designed mine life of the mines is reasonable;
whether the integrated exploration, use and recycle of mining resources are reasonable;
whether the applicant of mining rights meets the prescribed qualifications; and
other aspects required for inspection.

The relevant PRC laws and regulations have not set forth any specific standards and qualifications for the renewal of exploration and mining permits. As confirmed by the Department of Land and Resources, it does have a system of standards and qualifications in deciding whether to renew exploration and mining permits, but will not disclose such standards and qualifications to the public.

Documents to be submitted for the application/renewal of mining permits

Pursuant to relevant PRC laws and regulations, the documents to be submitted to the relevant government authorities for the application of mining permit include the following:

application document and the mining area diagram;
qualification document of the applicant;
exploitation plan of mineral resources;
approval documents for establishment of mining enterprise;
environmental impact assessment report for the mining of mineral resources; and
other documents required by the department in charge of geology and mineral resources under the State Council.

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Relevant PRC laws and regulations do not provide which documents shall be submitted to the relevant government authorities for the renewal of mining permit. However, the Department of Land and Resources ( ) publicizes on its official website (http:// www.mlr.gov.cn) the application documents which must be submitted to the Department of Land and Resources for renewal of mining permit, as follows:

an application for the renewal of a mining permit;
the reserved copy and the counterpart copy of the original mining permit;
the opinion of the Department of Land and Resources at the provincial level regarding the mining right holder’s fulfillment of its obligations and documents proving that the mining right holder has fulfilled its obligations under the license;
the documents providing the residual reserves;
an explanation of the exploitation of the mine;
in relation to a mining right that was transferred for consideration the relevant materials regarding the evaluation, confirmation and amount paid for such mining right;
a copy of the business license;
in the case of a foreign-invested enterprise, a copy of the certificate of approval for a foreign invested enterprise; and
pre-renewal compliance record in relation to mineral resource registration and mineral resource register.

COMPLIANCE

As at the Latest Practicable Date, save as disclosed in the section headed “Information on the Gold Mines”, the Company has obtained all licences, permits or certificates necessary to conduct its operation from the relevant governmental bodies in those jurisdictions where the Company operates.

RISK FACTORS FOR THE ACQUISITION

The Directors would like to draw the attention of the Shareholders to the following risk in connection with the Acquisition.

Fluctuation in the price of and demand for gold

The price of gold in the PRC is highly dependent on its price in the international market, which has been very volatile in recent years. The Directors consider that there are many macro economic factors which may influence the price of and demand for gold in the international market, including but not limited to the stability of the international economic

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situations, expectations regarding inflation, interest rates level of investment and speculation in gold, the gold purchasing and selling activities by central banks, other governments agencies and multi-lateral institutions and the fluctuation of the global political and social conditions which are beyond the control of the Company.

The Company has no control over the macro economic factors that may affect the price of and demand for gold. Any changes in the macro economic factors may cause possible declines in the gold market price or the gold demand which will in turn reduce the revenue the Target Group can receive for the gold products and adversely affect its financial condition and results of operations.

The uncertainties of the gold resources and reserves estimates which based on a number of assumptions

The Consideration was determined basing on, among other matters, the gold resource estimate in respects of the Gold Mines. Resources and reserves estimates involve expressions of judgment based on various factors such as knowledge, experience and industry practice, and the accuracy of these estimates may be affected by many factors, including quality of the results of exploration drilling and sampling of the orebodies and analysis of the ore samples, as well as the procedures adopted by and experience of the person making the estimates. In the event that the actural gold resource represents materially less than the mineral resource estimate which the technical report as set out in Appendix VI to this circular, the Group’s future development and financial position will be adversely affected.

Operational risks in relation to environmental protection policy

The exploitation and exploration business is subject to environmental protection law and regulations in the PRC. If the Target Group fails to comply with existing or future environmental laws and regulations, the Group may be required to take remedial measures, which could have a material adverse effect on our business, operations, financial condition and results of operations.

Policy and regulations

The PRC local, provincial and central authorities exercise a substantial degree of control over the gold industry in the PRC. The Company’s gold mining business is subject to a range of PRC laws, regulations, policies, standards and requirements in relation to, among other things, mine exploration, development, production, labor standards, occupational health and safety, waste treatment and environmental protection and operation management. Any changes to these laws, regulations, policies, standards and requirements or to the interpretation or enforcement thereof may increase the Target Group’s operating costs and thus adversely affect the results of operations.

There is no assurance that the Target Group will be able to comply with any new PRC laws, regulations, policies, standards and requirements applicable to the gold mining industry or any changes in existing laws, regulations, policies, standards and requirements economically or at all. Further, any such new PRC laws, regulations, policies, standards and

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requirements or any such change in existing laws, regulations, policies, standards and requirements may also constrain the Target Group’s future expansion plans and adversely affect its profitability.

Permits, licenses and certificates in respects of the Gold Mines

The gold mining licenses held by Hongwen Gold in respect of the Gold Mines may or may not be successfully renewed when the licenses expire in 2010/2011/2012. If any the gold mining licenses is not renewed, the mining operation of Hongwen Gold could be adversely affected and the mining operation will be even forced to suspend. There will be adverse impacts on the business and results of operations to Hongwen Gold, since it cannot continue production and sales, if without valid gold mining licenses.

As indicated in the paragraphs headed “Information on the Gold Mines”, Hongwen Gold is in the process of obtaining the relevant safety production permits and gold mining licenses.

If Hongwen Gold is unable to obtain from the relevant government authorities any of such approvals or to renew any of such approvals upon their expiration, there may be adverse impacts on the business and results of operations.

Land use rights and building ownership certificates

Hongwen Gold is in the process of applying to relevant government authorities to change the names of the titles of the land use rights certificates and building ownership certificates from the predecessor company of the Gold Mines to Hongwen Gold and also applying for certain land use rights certificates and building ownership certificates for the Gold Mines. There can be no assurance that Hongwen Gold is successful to change the names of the titles from the predecessor company and/or obtain the land use rights and building ownership certificates. In the event that the change of names and/or the obtaining of the certificates fail, Hongwen Gold may be required to vacate from the relevant lands and buildings, which will affect the production of Hongwen Gold. The mining operations of Hongwen Gold will need to be suspended until Hongwen Gold can relocate the operation to another suitable lands and buildings.

Changes in PRC tax laws and regulations may adversely affect the Company results of operations.

The Company is subject to, among other things, corporate income tax, resources tax, business tax, city maintenance and construction tax, education surcharge and property tax under PRC laws and regulations. There is no assurance that there will not be any increase in the rates of any of the abovementioned taxes in the future, which will have an adverse impact on the Company’s results of operations.

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Key qualified personnel, key senior management or other personnel for the operations

The Target Group is operated by a team of professionals and certain of the senior management team have extensive experience in the mining industry and worked in other mining companies or institutions in the mining industry prior to joining the Target Group. However, there is no assurance after the Acquisition that the Company could retain the entire management team or guarantee the parties will continue to provide services to the Company or will honour the agreed terms and conditions of their employment contracts. Any loss of key personnel or failure to recruit and retain personnel for the future operations and development may have a material adverse impact on the business.

Significant and continuous capital investment

The Acquisition and (if proceeding further as planned) exploration, exploitation and production activities will require significant and continuous capital investment. The exploitation, exploration and production works however may not be completed as planned or scheduled. The original cost may be exceeded and the intended economic results or commercial viability may not be achieved. Actual capital expenditures for the exploitation and exploration work may significantly exceed the Target Group’s working capital or budgets because of various factors beyond the Target Group’s control, which in turn may affect the Target Group’s financial condition and performance.

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Upon Completion, the Target Company, Champion City, Shenzhen Zhuo De Sheng, Shenzhen Wan Kai Sheng and Hongwen Gold will become subsidiaries of the Company. Accordingly, upon Completion, the financial results of the Target Group will be consolidated in the financial statements of the Group.

Net assets

According to the 2009 annual report of the Company, the consolidated net assets attributable to the equity holders of the Company was about HK$3,431.9 million as at 31 December 2009. As set out in Appendix III to this circular, assuming the Completion had taken place on 31 December 2009, the unaudited pro forma net assets of the Enlarged Group attributable to the equity holders of the Company would have been about HK$4,025.9 million, representing an increase of about 17.3%.

Earnings

As extracted from the 2009 annual report of the Company, the Group recorded consolidated net loss attributable to equity holders of the Company of about HK$31.9 million for the year ended 31 December 2009. After the Completion, the Target Company, Champion City, Shenzhen Zhuo De Sheng, Shenzhen Wan Kai Sheng and Hongwen Gold will become subsidiaries of the Company. Accordingly, upon Completion, the financial results of the Target Group will be consolidated in the financial statements of the Group and the consolidated net loss of the Enlarged Group attributable to the equity holders of the Company amounted to HK$23.9 million.

– 45 –

LETTER FROM THE BOARD

Liquidity

According to the 2009 annual report of the Company, the Group had consolidated net current assets of HK$137.0 million as at 31 December 2009. As set out in Appendix III to this circular, assuming the Completion had taken place on 31 December 2009, the unaudited consolidated net current assets of the Enlarged Group would increase to about HK$143.0 million.

PROPSECTS OF THE GROUP

Going forward, while continuing the existing business of trading of non-ferrous metal and frozen foods, the businesses of oil exploration and exploitation and also other natural resources will be the focus of the Group.

The Group will continue to look for strategic acquisitions which are in line with the Group’s strategy to focus on its business development not only on oil exploration and exploitation but also on businesses in other natural resources such as coal, non-ferrous and precious metal. The Group will also consider whether any asset disposal, asset acquisition, fixed assets redeployment, business rationalization, business divestment and/or business diversification will be appropriate in order to enhance the long-term growth potential of the Group. However, no decision has been finalised and no definitive agreement has been entered into in this regard. The Company will make further announcements, if appropriate, in accordance with the Listing Rules, if and when the Company enters into agreements for the relevant acquisitions/disposals.

The expansion plans of the Group will be principally financed by the internal resources of the Group or other financial sources (such as issue of new Shares or available banking facilities of the Group) as the Directors may think fit.

INFORMATION ON THE COMPANY

The Company is principally engaged in investment holding, and its subsidiaries are mainly engaged in natural resources trading, oil exploration and energy related business. As at the Latest Practicable Date, the authorized share capital of the Company amounted to about HK$20.0 billion and the issued share capital of the Company amounted to about HK$806.8 million. Upon the Completion and the allotment and issue of 1,588,235,295 Consideration Shares, the issued share capital of the Company is expected to be about HK$965.6 million.

For the financial year ended 31 December 2009, the consolidated net loss for the year attributable to equityholders of the Company amounted to about HK$31.9 million and the consolidated net assets attributable to the equity holders of the Company as at 31 December 2009 are about HK$3,431.9 million.

– 46 –

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the Acquisition is more than 100%, the Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules and is therefore subject to the reporting, announcement and Shareholders’ approval requirements under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, the Vendor and its associates do not own or hold any Shares. Since no Shareholders have any material interest in the Acquisition, no Shareholders are required to abstain from voting at the SGM on the resolution to approve the Agreement and the transactions contemplated thereunder.

SGM

A notice of the SGM is set out on pages 518 to 519 of this circular.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you intend to attend the SGM in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible but in any event, not later than 48 hours before the time of the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, neither the Vendor nor any of its associates holds any Shares as at the Latest Practicable Date and no Shareholder has a material interest in the Acquisition, no Shareholder is required to abstain from voting at the SGM on the resolution to approve the Agreement and the transactions contemplated thereunder.

RECOMMENDATION

The Directors are of the opinion that the terms of the Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole and accordingly recommend the Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Acquisition and the Agreement.

– 47 –

LETTER FROM THE BOARD

GENERAL

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief: (a) the information contained in this circular is accurate and complete in all material respects and not misleading; (b) there are no other matters the omission of which would make any statement in this circular misleading; and (c) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

Your faithfully, On behalf of the Board New Times Energy Corporation Limited Cheng Kam Chiu, Stewart Chairman

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

Set out below is a summary of the financial information of the Group for the three years ended 31 December 2007, 2008 and 2009 as extracted from the relevant annual reports and interim report of the Company.

For the year ended 31st 2009 2008 HK$’000 HK$’000 9,196 33,020	For the year ended 31st 2009 2008 HK$’000 HK$’000 9,196 33,020	For the year ended 31st 2009 2008 HK$’000 HK$’000 9,196 33,020
(36,001) 27 (35,974) –	(26,973) (154) (27,127) (15,024)	(30,822 –
		(30,822
		(28,915

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL INFORMATION OF THE GROUP

Set out below are the audited financial statements of the Group as extracted from page 30 to 122 of the annual report of the Company for the year ended 31 December 2009.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2009

Note CONTINUING OPERATIONS Turnover 4 & 15(a) Cost of sales Gross profit Other revenue 5(a) Other net income 5(b) Other operating income 5(c) Administrative expenses Other operating expenses Loss from operations Finance costs 6(a) Gain on disposal of subsidiaries 36(b)(iii) Share of losses of a jointly controlled entity 7 Loss before taxation Income tax 8(a) Loss for the year from continuing operations DISCONTINUED OPERATIONS Loss for the year from discontinued operations 9(d) Loss for the year 6	2009 HK$’000 9,196 (9,150)	2008 HK$’000 33,020 (32,010) 1,010 2,977 256 – (24,698) (2,225) (22,680) (1) (22,681) 80 (4,372) (26,973) (154) (27,127) (15,024) (42,151)
	46 2,111 8,055 476 (28,501) (10,819) (28,632) (1,847) (30,479) – (5,522) (36,001) 27 (35,974) –	1,010 2,977 256 – (24,698 (2,225
		(22,680 (1
		(22,681 80 (4,372
		(26,973 (154
		(27,127
		(15,024
	(35,974)

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note Loss for the year attributable to: Owners of the Company Minority interests Loss per share 14 From continuing and discontinued operations – Basic and diluted From continuing operations – Basic and diluted	2009 HK$’000 (31,934) (4,040) (35,974) (1.10 cents) (1.10 cents)	2008 HK$’000 (42,151) – (42,151) (5.40 cents) (3.48 cents)

The notes on pages 37 to 122 form part of these financial statements.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2009

Note Loss for the year Other comprehensive income Exchange difference arising on translation of financial statements of overseas subsidiaries: – Exchange (losses)/gains arising during the year – Reclassification adjustment for the cumulative loss included in profit or loss upon disposal of foreign operations Total comprehensive income for the year (net of tax) Total comprehensive income for the year attributable to: Owners of the Company Minority interests	2009 HK$’000 (35,974) (51) – (36,025)	2008 HK$’000 (42,151) 845 (4,604) (45,910) (45,910) – (45,910)
	(31,968) (4,057)	(45,910 –
	(36,025)

Tax effects relating to each component of other comprehensive income

		2009			2008
		Tax			Tax
	Before-tax	(expense)/	Net-of-tax	Before-tax	(expense)/	Net-of-tax
	amount	benefit	amount	amount	benefit	amount
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Exchange differences on
translation of financial
statements of overseas
subsidiaries
– Exchange (losses)/gains
arising during the year	(51)	–	(51)	845	–	845
– Reclassification
adjustment for the
cumulative loss included
in profit or loss upon
disposal of foreign
operations	–	–	–	(4,604)	–	(4,604)
	(51)	–	(51)	(3,759)	–	(3,759)

The notes on pages 37 to 122 form part of these financial statements.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2009

Note NON-CURRENT ASSETS Exploration and evaluation assets 16 Property, plant and equipment 17(a) Intangible assets 18 Deposit paid for potential investment 20 Interest in a jointly controlled entity 21 CURRENT ASSETS Trade and other receivables 22 Restricted bank deposits Pledged bank deposits 23 Cash and cash equivalents 24 CURRENT LIABILITIES Trade and other payables 25 Bank and other borrowings 28 Obligations under finance leases 29 Current taxation 30(a) Provisions 31 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Obligations under finance leases 29 NET ASSETS CAPITAL AND RESERVES 33(b) Share capital Reserves EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY MINORITY INTERESTS TOTAL EQUITY	2009 HK$’000 3,247,828 1,885 3,246 30,000 9,606	2008 HK$’000 – 2,309 – 54,600 15,128 72,037 91,715 – – 154,085 245,800 6,084 – 12 18 – (6,114) 239,686 311,723 25 311,698 78,197 233,501 311,698 – 311,698
	3,292,565 42,447 9,265 28,355 163,747 243,814 13,736 85,368 12 12 7,713 (106,841) 136,973 3,429,538 13	72,037
		91,715 – –
		154,085 245,800
		6,084 – 12 18 –
		(6,114
		239,686
		311,723 25
	3,429,525
	551,000 2,880,889 3,431,889 (2,364)	78,197 233,501
		311,698 –
	3,429,525

Approved and authorised for issue by the board of directors on 27 April 2010.

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

STATEMENT OF FINANCIAL POSITION

As at 31 December 2009

Note NON-CURRENT ASSETS Property, plant and equipment 17(b) Investment in subsidiaries 19 Deposit paid for potential investment 20 CURRENT ASSETS Prepayments, deposits and other receivables 22 Amounts due from subsidiaries 19 Cash and cash equivalents 24 CURRENT LIABILITIES Other payables 25 Other borrowing 28 Current taxation 30(a) NET CURRENT ASSETS NET ASSETS CAPITAL AND RESERVES 33(a) Share capital Reserves TOTAL EQUITY	2009 HK$’000 809 2,395,092 – 2,395,901 265 1,028,050 94,505 1,122,820 4,513 40,000 12 (44,525)	2008 HK$’000 1,079 – 54,600 55,679 34,597 120,044 128,813 283,454 3,567 – 18 (3,585) 279,869 335,548 78,197 257,351 335,548
	1,078,295	279,869
	3,474,196
	551,000 2,923,196	78,197 257,351
	3,474,196

Approved and authorised for issue by the board of directors on 27 April 2010.

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2009

Share capital HK$’000 77,764 –	Share premium HK$’000 353,001 –	Employee share-based com- pensation reserve HK$’000 11,554 –	Attributable Capital reserve HK$’000 9,585 –	to owners of Exchange fluctuation reserve HK$’000 3,759 (3,759)	the Company Shares to be issued Convertible notes reserve A HK$’000 HK$’000 – – – –	the Company Shares to be issued Convertible notes reserve A HK$’000 HK$’000 – – – –	ccumulated losses HK$’000 (100,655) (42,151)	Total HK$’000 355,008 (45,910)	Minority interests HK$’000 – –	Total equity HK$’000 355,008 (45,910
433 433	3,451 3,451	(1,284) (1,284)	– –	– –	– –	– –	– –	2,600 2,600	– –	2,600
										2,600
78,197	356,452	10,270	9,585	–	–	–	(142,806)	311,698	–	311,698

78,197 – 9,375 – – 463,428 – 472,803	356,452 – 38,437 – – 1,790,449 – 1,828,886	10,270 – – – – – – –	9,585 – – – – – – –	– (34) – – – – – –	– – – 95,625 – – – 95,625	– – – – 2,897,132 (2,142,287) – 754,845	(142,806) (31,934) – – – – – –	311,698 (31,968) 47,812 95,625 2,897,132 111,590 – 3,152,159	– (4,057) – – – – 1,693 1,693	311,698 (36,025
										47,812 95,625 2,897,132 111,590 1,693
										3,153,852
551,000	2,185,338	10,270	9,585	(34)	95,625	754,845	(174,740)	3,431,889	(2,364)	3,429,525

The notes on pages 37 to 122 form part of these financial statements.

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2009

Note OPERATING ACTIVITIES Loss before taxation from continuing and discontinued operations Adjustments for: Depreciation and amortisation Valuation loss on investment properties Finance costs 6(a) Interest income 5(a) Net loss on disposal of property, plant and equipment 6(c) Loss on early settlement of promissory notes 6(c) Waive of interest upon early settlement of promissory notes 5(c) Net fair value gain on financial derivative instruments 5(b) Share of losses of a jointly controlled entity 7 Gain on disposal of subsidiaries 36(b)(iii) Gain on disposal of subsidiaries attributable to discontinued operations 9(d) Foreign exchange gain OPERATING LOSS BEFORE CHANGES IN WORKING CAPITAL Decrease in inventories Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables CASH USED IN OPERATIONS Interest paid Interest received Income tax paid – Hong Kong – PRC Income tax refunded – Hong Kong NET CASH USED IN OPERATING ACTIVITIES INVESTING ACTIVITIES Payment for the purchase of property, plant and equipment Payment for the purchase of exploration and evaluation assets Payment for the deposit for potential investment 20	2009 HK$’000 (36,001) 760 – 1,847 (1,460) – 10,817 (476) (8,055) 5,522 – – 87	2008 HK$’000 (41,997) 1,274 22,224 854 (2,293) 2,224 – – – 4,372 (80) (7,556) 845 (20,133) 19,540 (11,875) 4,494 (7,974) (854) 2,293 (1,643) (136) 970 (7,344) (4,062) – –
	(26,959) – 23,700 (9,228) (12,487) (181) 1,460 – (50) – (11,258)	(20,133 19,540 (11,875 4,494
		(7,974 (854 2,293 (1,643 (136 970
		(7,344
	(168) (620) (30,000)

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note Payment for the investment in a jointly controlled entity Proceeds from disposal of subsidiaries attributable to discontinued operations, net of cash disposed of 36(a)(iv) Proceeds from disposal of subsidiaries 36(b)(iii) Increase in restricted bank deposits Increase in pledged bank deposits 23 Cash acquired upon acquisition of subsidiaries 35(c) NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Loans borrowed Capital element of finance lease rental payments Proceeds from shares issued under share option scheme Proceed from issue of convertible notes, net of transaction cost Repayment of promissory notes 27 NET CASH GENERATED FROM FINANCING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT 1 JANUARY EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT 31 DECEMBER 24 Note: Major non-cash transaction	2009 HK$’000 – – – (9,265) (28,355) 50,253	2008 HK$’000 (19,500) 22,206 1 – – – (1,355) – (11) 2,600 – – 2,589 (6,110) 160,195 – 154,085
	(18,155) 40,000 (12) – 119,387 (120,300) 39,075 9,662 154,085 –	(1,355
		– (11 2,600 – –
		2,589
		(6,110 160,195 –
	163,747

(a) For the disposal of Elegant Pool Limited, the deferred consideration of HK$39,880,000 was recorded under trade and other receivables as at 31 December 2008 (see note 36(a)(ii)).
(b) For the acquisition of Shenzhen Zhilai Trading Company Limited, the deferred consideration of RMB2,550,000 (equivalent to HK$2,892,000) was recorded under trade and other payables as at 31 December 2009 (see note 35(b)).

The notes on pages 37 to 122 form part of these financial statements.

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2009

1. BACKGROUND INFORMATION

The Company is a limited liability company incorporated in Bermuda and its registered office and principal place of business are Clarendon House, 2 Church Street, Hamilton HM11, Bermuda and Room 1007-8, 10/ F, New World Tower 1, 16-18 Queen’s Road Central, Hong Kong respectively. The Company is listed on the main board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). On 2 June 2009, the Company changed its name from “New Times Group Holdings Limited” to “New Times Energy Corporation Limited” to accurately reflect the core business of the Company.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”). A summary of the significant accounting policies adopted by the Group is set out below.

The HKICPA has issued certain amendments and interpretations which are or have become effective for the current accounting period. It has also issued certain new and revised HKFRSs which are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 3 provides information on initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.

(b) Basis of preparation of the financial statements

The consolidated financial statements for the year ended 31 December 2009 comprise the Company and its subsidiaries and the Group’s interest in a jointly controlled entity.

Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the entity. These financial statements are presented in Hong Kong dollars (“HK$”), rounded to the nearest thousand except for per share data. Hong Kong dollar is the Company’s functional and presentation currency.

The measurement basis used in the preparation of the financial statements is the historical cost basis except that derivative financial instruments (see note 2(g)) are carried at their fair value as explained in the accounting policies set out below.

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

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

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Judgements made by management in the application of HKFRSs that have a significant effect on the financial statements and major sources of estimation uncertainty are discussed in note 43.

(c) Subsidiaries and minority interest

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

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

Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the owners of the Company. Minority interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between minority interests and the owners of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

Loans from holders of minority interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated statement of financial position in accordance with notes 2(o), (p) or (q) depending on the nature of the liability.

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

(d) Jointly controlled entities

A jointly controlled entity is an entity which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement establishes that the Group and one or more of the other parties share joint control over the economic activity of the entity.

An investment in a jointly controlled entity is accounted for in the consolidated financial statements under the equity method, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the investee’s net assets and any impairment losses relating to the investment (see note 2(l)(i)). The Group’s share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of comprehensive income.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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

(e) Investment Property

Investment properties are land and/or buildings which are owned or held under a leasehold interest (see note 2(k)) to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use.

Investment properties are stated in the balance sheet at fair value. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment properties is recognised on a straight-line basis over the period of the respective leases.

When the Group holds a property interest under an operating lease to earn rental income and/ or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease, and the same accounting policies are applied to that interest as are applied to other investment properties leased under finance leases. Lease payments are accounted for as described in note 2(k).

Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until construction or development is complete, at which time it is reclassified as investment property at fair value. Any difference between the fair value of the property at that date and its previous carrying amount is recognised in profit or loss.

(f) Other investments in debt and equity securities

The Group’s and the Company’s policies for investments in debt and equity securities, other than investments in subsidiaries and a jointly controlled entity, are as follows:

Investments in debt and equity securities are initially carried at fair value, which is their transaction price unless fair value can be more reliably estimated using valuation techniques whose variables include only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. These investments are subsequently accounted for as follows, depending on their classification:

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

Dated debt securities that the Group have the positive ability and intention to hold to maturity are classified as held-to-maturity securities. Held-to-maturity securities are carried in the statement of financial position at cost less impairment losses (see note 2(l)).

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Investments in equity securities that do not have a listed market price in an active market and whose fair value cannot be reliably measured are recognised in the statement of financial position at cost less impairment losses (see note 2(l)(i)).

Investments in securities which do not fall into any of the above categories are classified as available-for-sale securities. At the end of each reporting period the fair value is remeasured, with any resultant gain or loss being recognised in other comprehensive income and accumulated separately in equity in the fair value reserve, except foreign exchange gains and losses resulting from changes in the amortised cost of monetary items such as debt securities which are recognised directly in profit or loss. Dividend income from these investments is recognised in profit or loss in accordance with the policy set out in note 2(v)(ii) and, where these investments are interest– bearing, interest calculated using the effective interest method is recognised in profit or loss in accordance with the policy set out in note 2(v)(iii). When these investments are derecognised or impaired (see note 2(l)), the cumulative gain or loss is reclassified from equity to profit or loss.

Investments are recognised/derecognised on the date the Group and/or the Company commits to purchase/sell the investments or when they expire.

(g) Derivative financial instruments

Derivative financial instruments are recognised initially at fair value. At the end of each reporting period the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss, except where the derivatives qualify for cash flow hedge accounting or hedge the net investment in a foreign operation, in which case recognition of any resultant gain or loss depends on the nature of the item being hedged.

(h) Exploration and evaluation assets

Exploration and evaluation assets are recognised at cost on initial recognition. Subsequent to initial recognition, exploration and evaluation assets are carried at cost less any accumulated impairment losses (see note 2(l)(iii)).

Exploration and evaluation assets include the cost of exploration rights and the expenditures incurred in the search for natural resources as well as the determination of the technical feasibility and commercial viability of extracting those resources.

When the technical feasibility and commercial viability of extracting natural resources become demonstrable, previously recognised exploration and evaluation assets are reclassified as either intangible assets or property, plant and equipment. These assets are assessed for impairment, and any impairment loss recognised, before reclassification.

(i) Property, plant and equipment

Property, plant and equipment are carried in the statement of financial position at cost less accumulated depreciation and impairment losses (see note 2(l)(ii)).

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

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

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

Furniture, fixtures and office equipment 20% – 33% Motor vehicles 20% – 33%

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

(j) Intangible assets (other than goodwill)

Intangible assets with finite useful lives acquired by the Group are carried in the statement of financial position at cost less accumulated amortisation and impairment losses (see note 2(l)(ii)). Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over its remaining licence period of 28 months. Both the period and method of amortisation are reviewed annually.

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

(k) Leased assets

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

(i) Classification of assets leased to the Group

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

(ii) Assets acquired under finance leases

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

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(iii) Operating lease charges

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

The cost of acquiring land held under an operating lease is amortised on a straight– line basis over the period of the lease term except where the property is classified as an investment property or is held for development for sale.

(l) Impairment of assets

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

Investments in debt and equity securities (other than investments in subsidiaries) (see note 2(l)(ii)) and other current and non-current receivables that are carried at cost or amortised cost or are classified as available-for-sale securities are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

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

For investment in a jointly controlled entity recognised using the equity method (see note 2(d)), the impairment loss is measured by comparing the recoverable amount of the investment as a whole with its carrying amount in accordance with note 2(l)(ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with note 2(l)(ii).
For unlisted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities carried at cost are not reversed.
For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of

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discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

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

–

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

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

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

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

(ii) Impairment of other assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment;
intangible assets; and
investments in subsidiaries (except for those classified as held for sale).

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

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Calculation of recoverable amount

The recoverable amount of an asset is the higher of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e., a cash-generating unit).

Recognition of impairment losses

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

Reversals of impairment losses

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

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

(iii) Impairment of exploration and evaluation assets

The carrying amount of the exploration and evaluation assets is reviewed annually and adjusted for impairment in accordance with HKAS 36 Impairment of Assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, such as:

the period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed.
substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned.
exploration for and evaluation of natural resources in the specific area have not led to the discovery of commercially viable quantities of natural resources and the entity has decided to discontinue such activities in the specific area.
sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation assets is unlikely to be recovered in full from successful development or by sale.

An impairment loss is recognised in the consolidated income statement whenever the carrying amount of an asset exceeds its recoverable amount.

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(iv) Interim financial reporting and impairment

Under the Listing Rules, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition and reversal criteria as it would at the end of the financial year (see note 2(l)(i), (ii) and (iii)).

Impairment losses recognised in an interim period in respect of goodwill, available-for– sale equity securities and unquoted equity securities carried at cost are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates. Consequently, if the fair value of an available-for-sale equity security increases in the remainder of the annual period, or in any other period subsequently, the increase is recognised in other comprehensive income and not profit or loss.

(m) Inventories

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

Costs is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

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

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

(n) Trade and other receivables

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

(o) Convertible notes

(i) Convertible notes that contain an equity component

Convertible notes that can be converted to equity share capital at the option of the holder, where the number of shares that would be issued on conversion and the value of the consideration that would be received at that time do not vary, are accounted for as compound financial instruments which contain both a liability component and an equity component.

At initial recognition the liability component of the convertible notes is measured as the present value of the future interest and principal payments, discounted at the market rate of interest applicable at the time of initial recognition to similar liabilities that do not have a conversion option. Any excess of proceeds over the amount initially recognised as the liability component is recognised as the equity component. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds.

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The liability component is subsequently carried at amortised cost. The interest expense recognised in profit or loss on the liability component is calculated using the effective interest method. The equity component is recognised in the capital reserve until either the note is converted or redeemed.

If the note is converted, the capital reserve, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If the note is redeemed, the capital reserve is released directly to retained profits.

Convertible notes which do not contain an equity component are accounted for as follows:

At initial recognition the derivative component of the convertible notes is measured at fair value and presented as part of derivative financial instruments (see note 2(g)). Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the liability component. Transaction costs that relate to the issue of the convertible note are allocated to the liability and derivative components in proportion to the allocation of proceeds. The portion of the transaction costs relating to the liability component is recognised initially as part of the liability. The portion relating to the derivative component is recognised immediately in profit or loss.

The derivative component is subsequently remeasured in accordance with note 2(g). The liability component is subsequently carried at amortised cost. The interest expense recognised in profit or loss on the liability component is calculated using the effective interest method.

If the note is converted, the carrying amounts of the derivative and liability components are transferred to share capital and share premium as consideration for the shares issued. If the note is redeemed, any difference between the amount paid and the carrying amounts of both components is recognised in profit or loss.

(p) Interest-bearing borrowings

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

(q) Trade and other payables

Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in accordance with 2(u)(i), trade and other payables are subsequently carried at amortised cost unless the effect of discounting would be immaterial, in which case they are carried at cost.

(r) Cash and cash equivalents

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

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(s) Employee benefits

(i) Short-term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are carried at their present values.

(ii) Share-based payments

The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in an employee share-based compensation reserve within equity. The fair value is measured at grant date using the Black-Scholes-Option Pricing Model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the options, the total estimated fair value of the options is spread over the vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options that is expected to vest is reviewed. Any resulting adjustment to the cumulative fair value recognised in prior years is charged/ credited to the profit or loss for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the employee share-based compensation reserve. On vesting date, the amount recognised as an expenses is adjusted to reflect the actual number of options that vest (with a corresponding adjustment to the employee share-based compensation reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s shares. The equity amount is recognised in the employee share– based compensation reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to accumulated losses).

(iii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(t) Income tax

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

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

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

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existing taxable temporary differences, provide that those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

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

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

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

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

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

in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
the same taxable entity; or
different taxable entities which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realize the current tax assets and settle the current tax liabilities on a net basis or realize and settle simultaneously.

(u) Financial guarantees issued, provisions and contingent liabilities

(i) Financial guarantees issued

Financial guarantees are contracts that require the issuer (i.e., the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

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Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income.

The amount of the guarantee initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognised in accordance with note 2(u)(ii) if and when (i) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in respect of that guarantee, that is, the amount initially recognised, less accumulated amortisation.

(ii) Other provisions and contingent liabilities

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

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

(v) Revenue recognition

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

(i) Sale of goods

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

(ii) Dividends

Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established. Dividend income from listed investments is recognised when the share price of the investments goes ex-dividend.

(iii) Interest income

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

(iv) Service income

Service income is recognised when services are rendered.

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(w) Translation of foreign currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or loss, except those arising from foreign currency borrowings used to hedge a net investment in a foreign operation which are recognised in other comprehensive income.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non– monetary assets and liabilities denominated in foreign currencies that are carried at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items, including goodwill on consolidation of foreign operations acquired on or after 1 January 2005, are translated into Hong Kong dollars at the foreign exchange rates ruling at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange fluctuation reserve. Goodwill on consolidation of a foreign operation acquired before 1 January 2005 is translated at the foreign exchange rate that applied at the date of acquisition of the foreign operation.

On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognised.

(x) Borrowing costs

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

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

(y) Discontinued operations

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. It also occurs when the operation is abandoned.

Where an operation is classified as discontinued, a single amount is presented on the face of the income statement, which comprises:

the post-tax profit or loss of the discontinued operation; and
the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal of the assets or disposal group(s) constituting the discontinued operation.

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(z) Related parties

For the purposes of these financial statements, a party is considered to be related to the Group

if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;
(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals; or
(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

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

(aa) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s chief operating decision maker for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

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

3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Group has adopted the following new and revised Standards, Amendments and Interpretations (“new and revised HKFRSs”) that are first effective for the current accounting period.

HKAS 1 (Revised 2007)	Presentation of Financial Statements
HKAS 23 (Revised 2007)	Borrowing Costs
HKFRS 1 & HKAS 27 (Amendments)	Cost of an Investment in a Subsidiary, Jointly Controlled
	Entity or Associate
HKFRS 2 (Amendment)	Vesting Conditions and Cancellations
HKFRS 7 (Amendment)	Improving Disclosures about Financial Instruments
HKFRS 8	Operating Segments
HKFRSs (Amendments)	Improvements to HKFRSs issued in 2008, except for the
	amendment to HKFRS 5 which is effective for annual
	periods beginning on or after 1 July 2009
HKFRSs (Amendments)	Improvements to HKFRSs issued in 2009 in relation to
	the amendment to paragraph 80 of HKAS 39

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HKAS 32 & 1 (Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation HK(IFRIC)-Int 9 & HKAS 39 Embedded Derivatives (Amendments) HK(IFRIC)-Int 13 Customer Loyalty Programmes HK(IFRIC)-Int 15 Agreements for the Construction of Real Estate HK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation HK(IFRIC)-Int 18 Transfers of Assets from Customers

Except as described below, the adoption of the new and revised HKFRSs has had no material effect on the consolidated financial statements of the Group for the current or prior accounting periods.

HKFRS 8 requires segment disclosure to be based on the way that the Group’s chief operating decision maker regards and manages the Group, with the amounts reported for each reportable segment being the measures reported to the Group’s chief operating decision maker for the purposes of assessing segment performance and making decisions about operating matters. This contrasts with the presentation of segment information in prior years which was based on a disaggregation of the Group’s financial statements into segments based on related products and services and on geographical areas. The adoption of HKFRS 8 has resulted in the presentation of segment information in a manner that is more consistent with internal reporting provided to the Group’s chief operating decision maker, and has resulted in additional reportable segments being identified and presented (see note 15). Corresponding amounts have been provided on a basis consistent with the revised segment information.
As a result of the adoption of HKAS 1 (revised 2007), details of changes in equity during the period arising from transactions with owners in their capacity as such have been presented separately from all other income and expenses in a revised consolidated statement of changes in equity. All other items of income and expense are presented in the consolidated income statement, if they are recognized as part of profit or loss for the period, or otherwise in a new primary statement, the consolidated statement of comprehensive income. Corresponding amounts have been restated to conform to the new presentation. This change in presentation has no effect on reported profit or loss, total income and expense or net assets for any period presented.
The “Improvements to HKFRSs (2008)” comprise a number of amendments to a range of HKFRSs. Of these, the following amendment has resulted in changes to the Group’s accounting policies:
As a result of amendments to HKAS 28, Investments in associates, impairment losses recognised in respect of the jointly controlled entity carried under the equity method are no longer allocated to the goodwill inherent in that carrying amount. As a result, when there has been a favourable change in the estimates used to determine the recoverable amount, the impairment loss will be reversed. Previously, the Group allocated impairment losses to goodwill and, in accordance with the accounting policy for goodwill, did not consider the loss to be reversible. In accordance with the transitional provisions in the amendment, this new policy will be applied prospectively to any impairment losses that arise in the current or future periods and previous periods have not been restated.
The amendments to HKAS 27 have removed the requirement that dividends out of pre-acquisition profits should be recognised as a reduction in the carrying amount of the investment in the investee, rather than as income. As a result, as from 1 January 2009, all dividends receivable from subsidiaries and jointly controlled entity, whether out of pre– or post-acquisition profits, will be recognised in the Company’s profit or loss and the carrying amount of the investment in the investee will not be reduced unless that carrying amount is assessed to be impaired as a result of the investee declaring the dividend. In such cases, in addition to recognizing dividend income in profit or loss, the Company would recognise an

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APPENDIX I

impairment loss. In accordance with the transitional provisions in the amendment, this new policy will be applied prospectively to any dividends receivable in the current or future periods and previous periods have not been restated.

4. TURNOVER

The principal activities of the Group are general trading and exploration of natural resources. In last year, the Group’s property investment and development operation and provision of financial services operation were discontinued.

Turnover represents the sales value of goods supplied to customers. The amount of each significant category of revenue recognised in turnover during the year, for both continuing and discontinued operations, is as follows:

Continuing operations Trading of non-ferrous metals Trading of frozen food Discontinued operations (note 9(d))	2009 HK$’000 – 9,196	2008 HK$’000 26,046 6,974
	9,196 –	33,020 –
	9,196	33,020

5. OTHER REVENUE, NET INCOME AND OPERATING INCOME

(a) Other revenue Bank interest income Other interest income Total interest income from financial assets not at fair value through profit or loss Commission income Sundry income	Continuing operations 2009 2008 HK$’000 HK$’000 176 1,945 1,284 348	Continuing operations 2009 2008 HK$’000 HK$’000 176 1,945 1,284 348	Discontinued operations 2009 2008 HK$’000 HK$’000 – – – –	Discontinued operations 2009 2008 HK$’000 HK$’000 – – – –	Consolidated 2009 2008 HK$’000 HK$’000 176 1,945 1,284 348	Consolidated 2009 2008 HK$’000 HK$’000 176 1,945 1,284 348
	1,460 – 651	2,293 684 –	– – –	– – –	1,460 – 651	2,293 684 –
	2,111	2,977	–	–	2,111	2,977

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Continuing operations 2009 2008 HK$’000 HK$’000 (b) Other net income Net realised gain on trading securities – 194 Net foreign exchange gain – 62 Net fair value gain on financial derivative instruments (note 26(b)) 8,055 – 8,055 256 (c) Other operating income Interest waived upon early settlement of promissory notes (note 27) 476 – LOSS FOR THE YEAR Loss for the year is arrived at after charging: Continuing operations 2009 2008 HK$’000 HK$’000 (a) Finance costs Interest on bank and other borrowings wholly repayable within five years 180 – Interest on amount due to a securities dealer – – Effective interest expenses on: – promissory notes (note 27) 1,408 – – convertible notes (note 26(b)) 258 – Finance charges on obligations under finance leases 1 1 Total interest expenses on financial liabilities not at fair value through profit or loss 1,847 1	Discontinued operations 2009 2008 HK$’000 HK$’000 – – – 2,453 – – – 2,453 – – Discontinued operations 2009 2008 HK$’000 HK$’000 – 700 – 153 – – – – – – – 853	Consolidated 2009 2008 HK$’000 HK$’000 – 194 – 2,515 8,055 – 8,055 2,709 476 – Consolidated 2009 2008 HK$’000 HK$’000 180 700 – 153 1,408 – 258 – 1 1 1,847 854	Consolidated 2009 2008 HK$’000 HK$’000 – 194 – 2,515 8,055 – 8,055 2,709 476 – Consolidated 2009 2008 HK$’000 HK$’000 180 700 – 153 1,408 – 258 – 1 1 1,847 854
			854

6. LOSS FOR THE YEAR

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Staff costs (including directors’ emoluments) Salaries, allowances and benefits in kind Retirement scheme contributions (c) Other items Cost of inventories Amortisation of intangible assets Depreciation for property, plant and equipment Valuation loss on investment properties Net foreign exchange loss Net loss on disposal of property, plant and equipment Minimum lease payments under operating leases on leasehold land and buildings Loss on early settlement of promissory notes (note 27) Auditor’s remuneration	Continuing operations 2009 2008 HK$’000 HK$’000 4,776 8,039 151 79 4,927 8,118 9,150 32,010 120 – 640 1,268 – – 139 – – 2,224 1,575 4,758 10,817 – 862 500	Discontinued operations 2009 2008 HK$’000 HK$’000 – 147 – – – 147 – – – – – 6 – 22,224 – – – – – – – – – 80	Consolidated 2009 2008 HK$’000 HK$’000 4,776 8,186 151 79 4,927 8,265 9,150 32,010 120 – 640 1,274 – 22,224 139 – – 2,224 1,575 4,758 10,817 – 862 580	Consolidated 2009 2008 HK$’000 HK$’000 4,776 8,186 151 79 4,927 8,265 9,150 32,010 120 – 640 1,274 – 22,224 139 – – 2,224 1,575 4,758 10,817 – 862 580
				8,265

				32,010 – 1,274 22,224 – 2,224 4,758 – 580

7. SHARE OF LOSSES OF A JOINTLY CONTROLLED ENTITY

Share of losses of a jointly controlled entity before taxation Share of jointly controlled entity’s taxation	2009 HK$’000 (5,522) – (5,522)	2008 HK$’000 (4,372) –
		(4,372)

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APPENDIX I

8. INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT

(a) Income tax in the consolidated income statement represents:

Current tax – Hong Kong Profits Tax – PRC Enterprise Income Tax Over-provision in respect of prior periods – Argentina Corporate Tax Deferred income tax	Continuing operations 2009 2008 HK$’000 HK$’000 – – 44 154	Continuing operations 2009 2008 HK$’000 HK$’000 – – 44 154	Discontinued operations 2009 2008 HK$’000 HK$’000 – – – –	Discontinued operations 2009 2008 HK$’000 HK$’000 – – – –	Consolidated 2009 2008 HK$’000 HK$’000 – – 44 154	Consolidated 2009 2008 HK$’000 HK$’000 – – 44 154
	44 (71) –	154 – –	– – –	– – –	44 (71) –	154 – –
	(27)	154	–	–	(27)	154

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 and reduced corporate profits tax rate from 17.5% to 16.5% which is effective from the year of assessment 2008/09. No provision for Hong Kong Profits Tax has been made as the Group did not generate any assessable profit arising in Hong Kong during the current and prior years.

PRC and Argentina subsidiaries of the Group are subject to PRC Enterprise Income Tax and Argentina Corporate Tax at 25% and 35% respectively.

Provision for Foreign Enterprise Income Tax in the People’s Republic of China (“PRC”) has been calculated based on total operating expenses of the PRC representative office of the Company in accordance with the provisions of the Circular of the State Administration of Taxation Concerning the Related Matters about Reinforcing the Collection and Administration of Taxes on Permanent Establishments of Foreign Enterprises (Guo Shui Fa [1996] No.165) and the Circular of the State Administration of Taxation Concerning the Related Matters about the Tax Administration of the Permanent Establishments of Foreign Enterprises (Guo Shui Fa [2003] No.28) issued by the State Administration of Taxation of the PRC on 13 September 1996 and 12 March 2003 respectively.

Taxation arising in other jurisdictions are calculated at the rates prevailing in the relevant jurisdictions.

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APPENDIX I

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

Loss before taxation Continuing operations Discontinued operations Notional tax on loss before taxation, calculated at the rates applicable to losses in the tax jurisdictions concerned Tax effect of non-taxable income Tax effect of non-deductible expenses Tax effect of unused tax losses not recognised Tax effect of deductible temporary differences not recognised Tax effect of PRC income tax on representative office Over-provision of Argentina Corporate Tax in prior periods Actual tax expense	2009 HK$’000 (36,001) – (36,001)	2008 HK$’000 (26,973) (15,024) (41,997) 3,730 (8,274) 3,622 857 65 154 – 154
	(6,935) (1,438) 7,502 168 703 44 (71)	3,730 (8,274 3,622 857 65 154 –
	(27)

9. DISCONTINUED OPERATIONS

(a) Smart Wave Limited

On 21 April 2008, the Company entered into a conditional sale and purchase agreement with an independent third party, Rich Fast Holdings Limited (“Rich Fast”), for the disposal of the entire interest in the issued share capital together with shareholders’ loan of Smart Wave Limited for an aggregate consideration of HK$12,250,000 (the “Smart Wave Disposal”). Smart Wave Limited holds through a wholly-owned subsidiary, Weiqiu Industrial (Shenzhen) Company Limited (“Weiqiu”), the completed property held for sale located in Shenzhen, PRC, which constitutes the Group’s property investment and development operation.

Upon signing of the agreement, the Company received a deposit of HK$2,000,000 from Rich Fast. The remaining consideration was received on 30 June 2008.

The Smart Wave Disposal constituted, under the Listing Rules, a major disposal, the details of which were set out in the circular issued by the Company on 29 May 2008. The Smart Wave Disposal had been approved in the special general meeting of the shareholders held on 16 June 2008 and became effective on 30 June 2008.

The profit for the year 2008 from the discontinued operation of Smart Wave Limited is analysed as follows:

Loss from operation of Smart Wave Limited for the period Gain on disposal of Smart Wave Limited (note 36(a)(i))	2008 HK$’000 (2,782) 4,800 2,018

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The results of Smart Wave Limited for the period from 1 January 2008 to 30 June 2008, which have been included in the consolidated income statement, were as follows:

Other net income Administrative expenses Other operating expenses Loss from operations Finance costs Loss before taxation Income tax Loss for the period	Period ended 30 June 2008 HK$’000 (139) (581) (1,362) (2,082) (700) (2,782) – (2,782)

No tax charge or credit arose on the disposal of Smart Wave Limited.

In the year 2008, Smart Wave Limited used HK$269,000 of the Group’s net operating cashflows, paid HK$Nil in respect of investing activities and received HK$Nil in respect of financing activities.

The carrying amounts of the assets and liabilities of Smart Wave Limited at the date of disposal are disclosed in note 36(a)(i).

(b) Elegant Pool Limited

On 24 December 2008, the Group entered into a sale and purchase agreement with an independent third party, Flame High Limited (“Flame High”), for the disposal of the entire interest in the issued share capital together with shareholder’s loan of Elegant Pool Limited for an aggregate consideration of HK$49,880,000 (“Elegant Pool Disposal”). Elegant Pool Limited holds investment properties located in Beijing, which constitutes the Group’s property investment and development operation.

Upon signing of the agreement, the Group received a deposit of HK$10,000,000 from Flame High. The balance of the consideration was payable by Flame High within the nine months from 24 December 2008 with interest at 5% per annum.

The Elegant Pool Disposal was completed on 24 December 2008.

The loss for the year 2008 from the discontinued operation of Elegant Pool Limited is analysed as follows:

Loss from operation of Elegant Pool Limited for the period Gain on disposal of Elegant Pool Limited (note 36(a)(ii))	2008 HK$’000 (19,637) 1,232 (18,405)

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The results of Elegant Pool Limited for the period from 1 January 2008 to 24 December 2008, which have been included in the consolidated income statement, were as follows:

Other net income Valuation loss on investment properties Administrative expenses Loss from operations Finance costs Loss before taxation Income tax Loss for the period	Period ended 24 December 2008 HK$’000 2,592 (22,224) (5) (19,637) – (19,637) – (19,637)

No tax charge or credit arose on the disposal of Elegant Pool Limited.

In the year 2008, Elegant Pool Limited contributed HK$Nil to the Group’s net operating cashflow, and paid HK$Nil in respect of investing activities and financial activities respectively.

The carrying amounts of the assets and liabilities of Elegant Pool Limited at the date of disposal are disclosed in note 36(a)(ii).

(c) New Times Finance Limited and Jefta Holdings Limited

On 1 December 2008, the Company disposed of the entire interest in the issued share capital together with shareholder’s loan of New Times Holdings Limited (“NTHL”) to an independent third party for an aggregate consideration of HK$500 (“NTHL Disposal”). NTHL was an investment holding company and its principal investments were in two wholly-owned subsidiaries, New Times Finance Limited and Jefta Holdings Limited, which were engaged in the provision of financial services.

The NTHL Disposal was completed on 1 December 2008.

The profit for the year 2008 from the discontinued operation of provision of financial services is analysed as follows:

Loss of financial services operation for the period Gain on disposal of financial services operation (note 36(a)(iii))	2008 HK$’000 (161) 1,524 1,363

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The results of the financial services operation for the period from 1 January 2008 to 1 December 2008, which have been included in the consolidated income statement, were as follows:

Administrative expenses Loss from operations Finance costs Loss before taxation Income tax Loss for the period	Period ended 1 December 2008 HK$’000 (8) (8) (153) (161) – (161)

No charge or credit arose on loss on the discontinuance of the financial services operation.

In the year 2008, New Times Finance Limited and Jefta Holdings Limited used HK$134,000 of the Group’s net operating cashflow, and paid HK$Nil in respect of investing activities and financing activities respectively.

The carrying amounts of the assets and liabilities of New Times Finance Limited and Jefta Holdings

Limited at the date of disposal are disclosed in note 36(a)(iii).

(d) Summary of the discontinued operations

The loss for the prior year from the discontinued operations are summarised as follows:

Loss of discontinued operations for the year Gain on disposal of discontinued operations (note 36(a)(iv))	2008 HK$’000 (22,580) 7,556 (15,024)

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The results of the discontinued operations from 1 January 2008 to the respective dates of discontinued operation, which had been included in the consolidated income statement, were summarised as follows:

Other net income Valuation loss on investment properties Administrative expenses Other operating expenses Loss from operations Finance costs Loss before taxation Income tax Loss for the year	2008 HK$’000 2,453 (22,224) (594) (1,362)
	(21,727) (853)
	(22,580) –
	(22,580)

10. DIRECTORS’ EMOLUMENTS

Directors’ emoluments disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as follows:

Note Chairman Mr. Cheng Kam Chiu, Stewart (i) Executive directors Mr. Li Guoping (iv) Mr. Cheng Chi Him (iv) Mr. Cheng Ming Kit, Tommy (ii) Non-executive directors Mr. Chan Chi Yuen Mr. Wong Man Kong, Peter Mr. Pei Cheng Ming, Michael (iv) Mr. Tse On Kin (iv) Independent non-executive directors Mr. Fung Chi Kin Mr. Chiu Wai On Mr. Fung Siu To, Clement	Directors’ fees HK$’000 100 – – 20 100 100 97 51 100 100 100 768	Year ended 31 December 2009 Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions HK$’000 HK$’000 HK$’000 – – – – – – – – – – – – – – – – – – – – – 400 – 4 – – – – – – – – – 400 – 4	Total HK$’000 100 – – 20 100 100 97 455 100 100 100
			1,172

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note Chairman Mr. Tse On Kin (iv) Executive directors Mr. Wu Jian Feng (iii) Mr. Zhang Cheng Jie (iii) Mr. Li Guoping (iv) Mr. Cheng Kam Chiu, Stewart (i) Mr. Cheng Chi Him (i) & (iv) Non-executive directors Mr. Chan Chi Yuen Mr. Chan Chung Yin, Victor (iii) Mr. Tsang Kwong Fook, Andrew (iii) Mr. Wong Man Kong, Peter (i) Mr. Pei Cheng Ming, Michael (i) & (iv) Independent non-executive directors Mr. Fung Chi Kin Mr. Qian Zhi Hui (iii) Mr. Chiu Wai On Mr. Fung Siu To, Clement (i)	Directors’ fees HK$’000 – 6 6 – – – 100 10 67 90 90 100 45 100 7 621	Year ended 31 December 2008 Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions HK$’000 HK$’000 HK$’000 1,420 79 12 – – – – – – 1,800 – 12 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 3,220 79 24	Total HK$’000 1,511 6 6 1,812 – – 100 10 67 90 90 100 45 100 7
			3,944

Note:

(i) Appointed during the year ended 31 December 2008.
(ii) Appointed during the year ended 31 December 2009.
(iii) Resigned during the year ended 31 December 2008.
(iv) Resigned during the year ended 31 December 2009.

As at 31 December 2009, none of the directors held any share options under the Company’s share option scheme. The details of the share options are disclosed under the paragraph “share option scheme” in the report of the directors and note 32.

No emoluments or incentive payments were paid to any of the directors as an inducement to join or upon joining the Group or as compensation for loss of office during the year.

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APPENDIX I

11. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments in the Group, nil (2008: two) were directors of the Company whose emoluments are included in the disclosures in note 10 above. The emoluments of the remaining five (2008: three) individuals were as follows:

Salaries, allowances and benefits in kind Retirement scheme contributions	2009 HK$’000 2,322 40 2,362	2008 HK$’000 1,998 24 2,022

Analysis of the emoluments of the remaining five (2008: three) individuals with the highest emoluments by the number of individuals and remuneration range is as follows:

	Number of	individuals
	2009	2008
Band
Nil – HK$1,000,000	5	3

No emoluments or incentive payments were paid to any of the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office during the year.

12. LOSS ATTRIBUTABLE TO OWNERS OF THE COMPANY

The consolidated loss attributable to owners of the Company includes a loss of HK$13,511,000 (2008: loss of HK$31,464,000) which has been dealt with in the financial statements of the Company.

13. DIVIDENDS

No dividend was paid or proposed during the year 2009, nor has any dividend been proposed since the end of the reporting period (2008: HK$ Nil).

14. LOSS PER SHARE

(a) Basic loss per share

(i) From continuing and discontinued operations

The calculation of basic loss per share is based on the loss attributable to owners of the Company of HK$31,934,000 (2008: loss of HK$42,151,000) and the weighted average number of 2,897,868,159 ordinary shares (2008: 780,110,626 ordinary shares) in issue during the year calculated as follows:

Weighted average number of ordinary shares

Issued ordinary shares at 1 January (note 33(b)(i)) Effect of issue of consideration shares (note 35(a)) Effect of shares issued upon conversion of convertible notes (note 33(b)(ii)) Effect of share options exercised (note 33(b)(iii)) Weighted average number of ordinary shares at 31 December	2009 781,971,030 62,157,534 2,053,739,595 – 2,897,868,159	2008 777,638,030 – – 2,472,596
		780,110,626

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) From continuing operations

The calculation of basic loss per share from continuing operations attributable to owners of the Company is based on the loss for the year from continuing operation of HK$31,934,000 (2008: loss of HK$27,127,000) and the weighted average number of 2,897,868,159 ordinary shares (2008: 780,110,626 ordinary shares) in issue during the year.

(iii) From discontinued operations

The calculation of basic loss per share from discontinued operations attributable to owners of the Company is based on the loss for the year from discontinued operations of HK$Nil (2008: loss of HK$15,024,000) and the weighted average number of 2,897,868,159 ordinary shares (2008: 780,110,626 ordinary shares) in issue during the year.

(b) Diluted loss per share

Diluted loss per share for both years ended 31 December 2008 and 2009 were the same as the basic loss per share as the potential ordinary shares outstanding during the years had an anti– dilutive effect on the basic loss per share for the years.

15. SEGMENT INFORMATION

The Group manages its businesses by divisions which are organized by a mixture of both business lines (products and services) and geography. On first-time adoption of HKFRS 8 and in a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment, the Group has identified the following reportable segments. No operating segments have been aggregated to form the following reportable segments.

Continuing operations:

General trading This segment includes trading of non-ferrous metal and frozen foods. Currently, the Group’s general trading activities are carried out in Hong Kong. Exploration of natural resources This segment is engaged in the exploration of natural resources in Argentine Republic (“Argentina”). The activities carried out in Argentina are through a non-wholly owned subsidiary.

(a) Segment results, assets and liabilities

In accordance with HKFRS 8, segment information disclosed in the annual financial report has been prepared in a manner consistent with the information used by the Group’s chief operating decision maker for the purposes of assessing segment performance and allocating resources between segments. In this regard, the Group’s chief operating decision maker monitors the results, assets and liabilities attributable to each reportable segment on the following basis:

Segment assets include all non-current assets and current assets with the exception of interest in a jointly controlled entity and certain assets unallocated to an individual reportable segment. Segment liabilities include non-current liabilities and current liabilities with the exception of current taxation and certain liabilities unallocated to an individual reportable segment.

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The measure used for reporting segment profit/(loss) is “profit/(loss) from operations”. In addition to receiving segment information concerning profit/(loss) from operations, the chief operating decision maker is provided with segment information concerning revenue, interest income, interest expenses, depreciation and additions to non-current segment assets used by the segments in their operations.

Information regarding the Group’s reportable segments as provided to the Group’s chief operating decision maker for the purposes of resource allocation and assessment of segment performance for the year is set out below:

For the year ended 31 December Revenue from external customers Reportable segment revenue Reportable segment loss Depreciation and amortisation Interest income Interest expenses As at 31 December Reportable segment assets Additions in non-current segment assets during the year Reportable segment liabilities	General 2009 HK$’000 9,196 9,196 (312) 121 (393) 181 80,963 3,425 (54,203)	trading 2008 HK$’000 33,020 33,020 (3,011) 498 (1,827) – 43,739 7 (2,554)	Exploration of natural resources 2009 2008 HK$’000 HK$’000 – – – – (12,269) – – – – – – – 3,302,904 – 3,248,137 – (8,218) –	Total 2009 2008 HK$’000 HK$’000 9,196 33,020 9,196 33,020 (12,581) (3,011) 94 498 (393) (1,827) 181 – 3,383,867 43,739 3,251,562 7 (62,421) (2,554)

– 86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Reconciliation of reportable segment revenues, profit or loss, assets and liabilities

Revenue Reportable segment revenue Consolidated turnover Loss Reportable segment loss Unallocated operating income and expenses Finance costs Share of post-tax loss of a jointly controlled entity Loss on early settlement of promissory notes Net fair value gain on financial derivative instruments Consolidated loss before taxation from continuing operations Assets Reportable segment assets Interest in a jointly controlled entity Cash and cash equivalents Deposit paid on potential investment Unallocated corporate assets Consolidated total assets Liabilities Reportable segment liabilities Current taxation Other borrowing Unallocated corporate liabilities Consolidated total liabilities	Year ended 31 December 2009 2008 HK$’000 HK$’000 9,196 33,020 9,196 33,020 (12,581) (3,011) (13,289) (19,589) (1,847) (1) (5,522) (4,372) (10,817) – 8,055 – (36,001) (26,973) As at 31 December 2009 2008 HK$’000 HK$’000 3,383,867 43,739 9,606 15,128 110,525 128,813 30,000 54,600 2,381 75,557 3,536,379 317,837 (62,421) (2,554) (12) (18) (40,000) – (4,421) (3,567) (106,854) (6,139)	Year ended 31 December 2009 2008 HK$’000 HK$’000 9,196 33,020 9,196 33,020 (12,581) (3,011) (13,289) (19,589) (1,847) (1) (5,522) (4,372) (10,817) – 8,055 – (36,001) (26,973) As at 31 December 2009 2008 HK$’000 HK$’000 3,383,867 43,739 9,606 15,128 110,525 128,813 30,000 54,600 2,381 75,557 3,536,379 317,837 (62,421) (2,554) (12) (18) (40,000) – (4,421) (3,567) (106,854) (6,139)
	(62,421) (12) (40,000) (4,421)	(2,554 (18 – (3,567
	(106,854)

(c) Geographical information

The Group’s operations are located in Hong Kong (country of domicile), Mainland China and Argentina.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

All of the Group’s revenue from continuing operations from external customers are generated in Hong Kong. Information about its non-current assets by geographical location of the assets is detailed below:

Hong Kong (country of domicile) Mainland China Argentina	Non Current assets 2009 2008 HK$’000 HK$’000 41,297 72,037 3,302 – 3,247,966 – 3,292,565 72,037	Non Current assets 2009 2008 HK$’000 HK$’000 41,297 72,037 3,302 – 3,247,966 – 3,292,565 72,037
		72,037

(d) Information about major customers

Revenue from sales of goods to customers in Hong Kong representing more than 10% of the Group’s total revenue is shown as follows:

		Year ended 31 December	Year ended 31 December
		2009	2008
		HK$’000	HK$’000
Customer	A1	–	26,046
Customer	B2	9,196	4,108

1 Revenue from trading of non-ferrous metals
2 Revenue from trading of frozen funds

16. EXPLORATION AND EVALUATION ASSETS

The Group

At 1 January 2008 and 2009 Exchange adjustments Arising on acquisition of subsidiaries (note 35(c)) Additions At 31 December 2009	Exploration rights HK$’000 – (38) 3,217,023 – 3,216,985	Exploratory drilling HK$’000 – – – 21,530 21,530	Others HK$’000 – (122) 359 9,076 9,313	Total HK$’000 – (160) 3,217,382 30,606
				3,247,828

Notes:

(a) The directors of the Company define the Tartagal Concession and Morillo Concession (collectively the “Concessions”) as the concessions of the exploration permits and potential exploitation permits for oil and developments of hydrocarbons in the province of Salta in northern Argentina covering a total surface area of approximately 7,065 and 3,518 square kilometers respectively. The Tartagal Concession was granted under the Provincial Government Decree No3391/2006 dated 29 December 2006; and the Morillo Concession was granted under the Provincial Government Decree No3388/2006 dated 29 December 2006 to JHP International Petroleum Engineering Limited (“JHP”) and Maxipetrol – Petroleros de Occidente S.A. (“Maxipetrol” (formerly known as “Oxipetrol – Petroleros de Occidente S.A.”)) respectively

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(collectively the “Consortium”). The exploration permits granted are valid for an initial period of four years starting from 29 December 2006 and additional extensions up to an aggregate of nine years may be obtained. The holder for an exploration permit has the right to obtain an exploitation permit.

On 9 March 2009, an Union of Temporary Enterprise (“UTE”) agreement was executed by High Luck Group Limited (“High Luck”), an indirect wholly-owned subsidiary of the Company and the Consortium whereunder the Consortium agreed to distribute the interest in the Concessions as to 60% by High Luck, as to 10% by JHP and as to 30% by Maxipetrol. An UTE was set up to take up the interests distributed and to ultimately be the title owner of the concession of exploration permits to the Concessions. The UTE was registered in the Public Register of Commerce in April 2009, in which High Luck became one of the cooperators of the UTE.

The UTE is managed by an Executive Committee (“Committee”), which composes of ten committee members. High Luck is entitled to appoint up to six members in the Committee. High Luck also acts as the UTE’s representative that carries out the duties in regard to all legal acts, contracts and other operations related to the purpose of the UTE and pursuant to Section 379 of Law 19,550 on Business Companies. In the opinion of the directors of the Company, High Luck has the power to govern the financial and operating policies of the UTE so as to obtain benefits from its activities and is classified as a subsidiary of the Company.

(b) As for the fair value of the interest in the Concessions acquired, since the valuation was based on prospective resources which indicate exploration opportunities and development potentials only in the event of a petroleum discovery is made, the range of reasonable fair value estimates is so large that the directors of the Company are of the opinion that its fair value cannot be measured reliably. As a result, the directors of the Company are of the opinion that the fair value of the consideration paid for the acquisition of the Concessions was taken to be the fair value of the Group’s interest in the Concessions which are determined in accordance with HKFRS 2 “Share-based Payments” and HKAS 39 “Financial Instruments: Recognition and Measurement”.
(c) As at the end of the reporting period, according to the accounting policy set out in note 2(l)(iii), the management of the Group determines that there is no impairment of exploration and evaluation assets.
(d) Pursuant to the legal opinion obtained dated 30 April 2009, the exploration permits are subject to the Bidding Terms and the legal regime established by the Federal Hydrocarbons Law no17,319, as amended and supplemented, as established in the Bid.

According to the aforementioned applicable Argentine law, holders of exploration permits and exploitation concessions are subject to certain obligations, in addition to those expressly imposed in the permits granted by the Province of Salta, including: (i) undertaking all necessary works to discover or extract hydrocarbons utilizing appropriate techniques; (ii) making the investments specified in the concession documents; (iii) avoiding damage to oil & gas fields and wasting of hydrocarbons; (iv) adopting adequate measures to avoid accidents and damage to agricultural activities, the fishing industry and communications networks; (v) paying royalties to the province in which the production occurs; and (vi) complying with all applicable federal, provincial and municipal laws and regulations.

Exploration permits and exploitation concessions may be terminated by the Province upon the occurrence of certain events (generally, as a consequence of lack of fulfilment of obligations assumed under the permit or concession, as the case may be). In particular, section 9.18 of the Bidding Terms establishes that the lack of fulfilment of obligations assumed by the permit holder under the Bid will authorize the authority to apply the sanctions contained in section 80 of Hydrocarbons Federal Law no17,319 (revocation of permits and concessions). Section 80 of Hydrocarbons Federal Law prescribes that the authority must serve notice to the permit holder

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

or concessionaire requesting it to cure the default within a term that must be fixed by the authority in the notice before revoking the permit or concession as a sanction for the lack of fulfilment of the assumed obligation.

Under Hydrocarbons Federal Law and the Bidding Terms, there is no particular provision that establishes the term that the authority has to give the permit holder or the concessionaire to rectify its default situation before being sanctioned with the revocation of the permit or concession.

Under general principles of law, the term that the authority has to provide to the permit holder or concessionaire has to be reasonable for the permit holder or concessionaire to be able to rectify its default.

The exploration permits to the Concessions will expire on 29 December 2010. On 22 April 2010, the Group submitted an application to the Secretary of Energy of Province of Salta, Argentina for an extension of the exploration permits. The application is in process and no approval was granted up to the date of this report.

Pursuant to another legal opinion obtained in April 2010 as regards the extension of the initial 4-year exploration period, given the existence of reasons arising from natural causes and third parties, duly justified and documented, and essentially beyond the control of the management of the Group, which directly influence, delay and in many cases prevents compliance in a timely manner of the work involved, and extension of primitive term will be obtained to complete the work plan submitted to the Department of Energy, which covers the total investment committed for the initial 4-year exploration period. There are precedents, both national and provincial in which extensions of time limits were considered in cases similar to mentioned above. Based on the above, it is concluded that the Group is able to request an extension of time of a year and that it will be granted.

(e) Pursuant to the agreements for the acquisition of Jade Honest Group (note 35(a)), if within 3 years subsequent to the completion on 4 May 2009, the Company having obtained a technical report in a form and substance reasonably acceptable to the Company having been prepared and issued by a firm of independent technical consultants to be appointed by the Company and agreed by the Vendors showing, and the Company being satisfied, that the aggregate proved reserves (as defined in the PRMS) in the Concessions are not less than 100 million tons of oil, the Company shall forthwith arrange to issue the Contingent Announcement and within 90 days after the publication of the Contingent Announcement on the website of the Stock Exchange, at the choice of the Company after consultation with the Vendors, either (i) pay to the Vendors by a cheque a sum of HK$780,000,000 as to HK$259,740,000 to Vendor 1 and as to HK$520,260,000 to Vendor 2; or (ii) in the event of the Company having obtained the necessary legal and regulatory approvals, pay to the Vendors in aggregate HK$780 million by allotment and issue of new Shares at the price equivalent to the average closing price of the Shares as stated in the Stock Exchange daily quotations sheet for the 10 Business Days immediately preceding the date of the Contingent Announcement in the same proportion as stated in (i) above, or (iii) in the event of the Company having obtained the necessary legal and regulatory approvals, pay to the Vendors in aggregate HK$780 million in the same proportion as stated in (i) above by a combination of cheque and allotment and issue of new Shares at the price equivalent to the average closing price of the Shares as stated in the Stock Exchange daily quotations sheet for the 10 Business Days immediately preceding the date of the Contingent Announcement in any proportion in the absolute discretion of the Company.

The above contingent consideration is a derivative in accordance with HKAS 39 “Financial Instruments: Recognition and Measurement”. At the date of acquisition, the estimated reserves are classified as prospective resources by reference to technical report prepared by an international independent technical advisor. Having considered the technical report and the fact that the Concessions are still at the exploration stage, the directors of the Company does not expect that the proved reserves in the areas will exceed 100 million tons of oil. Hence, in the opinion of the directors of the Company, the fair value of the contingent consideration at the date of acquisition and at the end of the reporting period is not significant.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. FIXED ASSETS

(a) The Group

Property, Furniture, fixtures and office equipment HK$’000 325 2 2,713 (2,724) – (96) 220 220	plant and equipment Motor vehicles Sub-Total HK$’000 HK$’000 1,580 1,905 – 2 1,349 4,062 – (2,724) – – – (96) 2,929 3,149 2,929 3,149	plant and equipment Motor vehicles Sub-Total HK$’000 HK$’000 1,580 1,905 – 2 1,349 4,062 – (2,724) – – – (96) 2,929 3,149 2,929 3,149	Investment properties HK$’000 73,585 2,591 – – (22,224) (53,952) – –	Total fixed assets HK$’000 75,490 2,593 4,062 (2,724) (22,224) (54,048) 3,149 3,149 3,149 (2) 168 50 3,365 3,365
220 (2) 168 50 436	2,929 – – – 2,929	3,149 (2) 168 50 3,365	– – – – –	3,149 (2 168 50
				3,365
436	2,929	3,365	–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Accumulated depreciation At 1 January 2008 Charge for the year Written back on disposals Disposal of subsidiaries attributable to discontinued operations (note 36(a)(iv)) At 31 December 2008 At 1 January 2009 Charge for the year At 31 December 2009 Carrying amount At 31 December 2009 At 31 December 2008	Property, Furniture, fixtures and office equipment HK$’000 67 550 (500) (54) 63 63 54 117 319 157	plant and equipment Motor vehicles Sub-Total HK$’000 HK$’000 53 120 724 1,274 – (500) – (54) 777 840 777 840 586 640 1,363 1,480 1,566 1,885 2,152 2,309	Investment properties HK$’000 – – – – – – – – – –	Total fixed assets HK$’000 120 1,274 (500) (54) 840 840 640 1,480 1,885 2,309

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) The Company

Furniture, fixtures and office equipment HK$’000 18 2,706 (2,724)	Motor vehicle HK$’000 – 1,349 –	Total property plant and equipment HK$’000 18 4,055 (2,724) 1,349 – – 1,349 1 769 (500) 270 270 540 809 1,079
– – –	1,349 – –	1,349 – –
–	1,349
1 499 (500) – –	– 270 – 270 270	1 769 (500
		270 270
– – –	540 809 1,079

(c) The Group leases certain furniture, fixtures and office equipment under finance leases expiring within 5 years. At the end of the lease term, the Group has the option to purchase the leased asset at a price deemed to be a bargain purchase option. None of the leases includes contingent rental.

At the end of the reporting period, the carrying amount of the furniture, fixtures and office equipment held under finance leases of the Group was approximately HK$26,000 (2008: HK$38,000).

(d) The investment property of the Group carried at fair value were revalued as at the date of disposal of Elegant Pool Limited, i.e. 24 December 2008, on an open market value basis calculated by reference to recent market transactions. The valuations were carried out by an independent firm of surveyors, who have among their Staff Associates of the Hong Kong Institute of Surveyors with recent experience in the location and category of property being valued.

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APPENDIX I

18. INTANGIBLE ASSETS

Cost At 1 January Exchange adjustment Arising on acquisition of subsidiaries (note 35(c)) At 31 December Accumulated amortisation At 1 January Charge for the year At 31 December Carrying amount At 31 December	The Group 2009 2008 HK$’000 HK$’000 – – (2) – 3,368	The Group 2009 2008 HK$’000 HK$’000 – – (2) – 3,368
	3,366 – 120 120	–
		– –
		–
	3,246	–

Intangible assets represents the coal trading licenses held by the Group. The amortisation charge for the year is included in “Administrative expenses” in the consolidated income statement.

During the year, the management of the Group determines that there is no impairment to the intangible assets.

19. INTEREST IN SUBSIDIARIES

Unlisted shares, at cost Less: Impairment loss Due from subsidiaries Less: allowance for doubtful debts (note (a))	The Company 2009 2008 HK$’000 HK$’000 2,395,092 – – –	The Company 2009 2008 HK$’000 HK$’000 2,395,092 – – –
	2,395,092 - - - - - - - - - - - - 1,028,050 –	– - - - - - - - - - - - - 120,044 –
	1,028,050 ------------ --------------------------------------------- 3,423,142	120,044 ------------ --------------------------------------------- 120,044

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) Movement in the allowance for doubtful debts

At 1 January Disposal of subsidiaries At 31 December	The Company 2009 2008 HK$’000 HK$’000 – 48,146 – (48,146) – –	The Company 2009 2008 HK$’000 HK$’000 – 48,146 – (48,146) – –
		–

(b) The amounts due from subsidiaries are unsecured, interest-free and repayable on demand.
(c) The following list contains only the particulars of subsidiaries which principally affect the results, assets or liabilities of the Group. The class of shares held is ordinary unless otherwise stated.

						Proportion	of ownership	interest
				Place of	Particulars of
				establishment/	issued and	Group’s	Held by
				incorporation	paid up	effective	the	Held by a	Principal
Name	of	company		and operation	capital	interest	Company	subsidiary	activities
Total Belief Limited				British Virgin	1 share of	100%	100%	–	Investment
				Islands/	US$1				holding
				Hong Kong PRC	US$1,000,000	100%	–	100%	Investment
(“Shenzhen			Yuanxie”)* PRC		RMB5,000,000	51%	–	51%	holding Investment
(“Shenzhen			Zhilai”)**						holding
				PRC	RMB5,000,000	51%	–	100%	Coal trading
(“Sihui Zhilai”)**
Jumbo Hope Group				Hong Kong	1 share of	100%	–	100%	Investment
Limited					HK$1				holding
Rich Result Limited				Hong Kong	1 share of	100%	–	100%	Trading of
					HK$1				frozen
									food
Cheer	Profit Group Limited British Virgin				1 share of	100%	–	100%	Investment
				Islands	US$1				holding
High Luck Group Limited British Virgin					100 shares of	100%	–	100%	Investment
				Islands/	US$1				holding
				Hong Kong/
				Argentina
Maxipetrol Petroleros				de Argentina	N/A	60%	–	60%	Exploration
Occidente – UTE									of natural
									resources

Registered under the laws of the PRC as a wholly foreign owned enterprise (“WFOE”).
** Private limited liability company.

– 95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. DEPOSIT PAID FOR POTENTIAL INVESTMENT

				The	Group	The Company	The Company
				2009	2008	2009	2008
				HK$’000	HK$’000	HK$’000	HK$’000
As	at	31	December	30,000	54,600	–	54,600

On 8 December 2009, Techno Wealth Limited (“Techno Wealth”), an indirect wholly-owned subsidiary of the Company, entered into a memorandum of understanding (“MOU”) with an independent third party (“Vendor”) in relation to the proposed acquisition of 90% of the equity interests of (Qinglong Manzu Autonomous County Hongwen Gold Company Limited) (“Hongwen Gold”), for an initially-agreed consideration of HK$630,000,000. Hongwen Gold is principally engaged in mining and selling of gold concentrates. A refundable deposit of HK$30,000,000 for the proposed acquisition was paid to the Vendor upon execution of the MOU.

On 6 February 2010, Techno Wealth, the Vendor, Hongwen Gold and Mr. Sun Jingzu, an independent third party, entered into a sale and purchase agreement (“Agreement”) to acquire the entire issued share capital of Fortune Ease Holdings Limited, which in turn indirectly holds 90% equity interest in Hongwen Gold, and the shareholder’s loan for an adjusted aggregate consideration of HK$600,000,000. The adjusted consideration of HK$600,000,000 is to be satisfied by (i) set-off of the HK$30,000,000 deposit paid under the MOU; (ii) HK$30,000,000 payable to the Vendors in cash after the signing of the Agreement; and (iii) HK$540,000,000 by the issue of consideration shares upon completion. The further sum of HK$30,000,000 was paid in cash on 8 February 2010.

The balance of HK$30,000,000 as at the end of the reporting period represents the deposit money paid by the Group in relation to the acquisition of Hongwen Gold. In the previous year, the balance as at the end of the reporting period represents the deposit money paid by the Group in relation to the acquisition of Jade Honest Limited (see note 35(a)).

21. INTEREST IN A JOINTLY CONTROLLED ENTITY

Share of net assets	The Group 2009 2008 HK$’000 HK$’000 9,606 15,128

Details of the Group’s interest in the jointly controlled entity are as follows:

			Proportion	of ownership	interest
		Particulars of
	Place of	issued and	Group’s	Held by
	incorporation	paid up	effective	the	Held	by a	Principal
Name of joint venture	and operation	capital	interest	Company	subsidiary		activity
Smart Win International Limited	British Virgin	200 shares of	50%	–		50%	Investment
(“Smart Win”)	Islands/	US$1 each					holdings
	Hong Kong

– 96 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Summary financial information of the jointly controlled entity – Group’s effective interest:

Current assets Current liabilities Net assets Income Expenses Loss for the year	2009 HK$’000 9,646 (40) 9,606	2008 HK$’000 15,201 (73
		15,128

	3,467 (8,989)	– (4,372
	(5,522)	(4,372

22. TRADE AND OTHER RECEIVABLES

Trade receivables (note a) Other receivables (note d) Amount due from a minority shareholder Loans and receivables Held-to-maturity securities (note e) Prepayment and deposits	The Group 2009 2008 HK$’000 HK$’000 2,829 5,212 5,987 51,718 2 –	The Group 2009 2008 HK$’000 HK$’000 2,829 5,212 5,987 51,718 2 –	The Company 2009 2008 HK$’000 HK$’000 – – – 236 – –	The Company 2009 2008 HK$’000 HK$’000 – – – 236 – –
	8,818 11,342 22,287	56,930 – 34,785	– – 265	236 – 34,361
	42,447	91,715	265	34,597

All of the trade and other receivables (including amount due from a minority shareholder) are expected to be recovered or recognised as expense within one year.

Notes:

(a) Ageing analysis

The following is an aged analysis of trade receivables net of allowance for doubtful debts presented based on the invoice date at the reporting date.

0 – 14 days 15 – 60 days 61 – 90 days Over 90 days	The Group 2009 2008 HK$’000 HK$’000 – 5,212 480 – 441 – 1,908 – 2,829 5,212	The Group 2009 2008 HK$’000 HK$’000 – 5,212 480 – 441 – 1,908 – 2,829 5,212
		5,212

Trade receivables are due within 14 days (2008: 90 days) from the date of billing. Further details on the Group’s credit policy are set out in note 34(a).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Impairment of trade and other receivables

Impairment losses in respect of trade and other receivables are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade receivables directly (see note 2(l)(i)).

The movement in the allowance for doubtful debts during the year including both specific and collective loss components, is as follows:

At 1 January Impairment losses recognised Uncollectible amounts written off Disposal of subsidiaries attributable to discontinued operations At 31 December	The Group 2009 2008 HK$’000 HK$’000 – 8,722 – – – (1,000) – (7,722) – –	The Group 2009 2008 HK$’000 HK$’000 – 8,722 – – – (1,000) – (7,722) – –
		–

The Group does not hold any collateral over these balances.

(c) Trade receivables that are not impaired

The aging analysis of trade receivables that are neither individually nor collectively considered to be impaired is as follows:

Neither past due nor impaired Past due but not impaired – Less than 1 month past due – 1 to 3 months past due – 3 to 6 months past due	The Group 2009 2008 HK$’000 HK$’000 – 5,212 480 – 973 – 1,376 – 2,829 5,212	The Group 2009 2008 HK$’000 HK$’000 – 5,212 480 – 973 – 1,376 – 2,829 5,212
		5,212

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

Receivable that was past due nor impaired related to an independent customer that the balance was fully settled subsequent to the end of the reporting period. The Group does not hold any collateral over this balance.

(d) The balance as at 31 December 2008 mainly represented:
(i) the remaining consideration receivable of HK$39,880,000 on disposal of Elegant Pool Limited and as disclosed in note 36(a)(ii). The balance bore interest at 5% per annum, repayable on 24 September 2009 and secured by the equity shares of Elegant Pool Limited. The balance was fully repaid during the current year; and
(ii) the consideration receivable of HK$11,600,000 for the disposal of the sub-underwriting shares of a company listed on the main board of the Stock Exchange to an independent third party. The balance was unsecured, bearing interest at 6% per annum and repayable on 1 July 2009. The balance was fully repaid during the current year.

– 98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(e) Held-to-maturity securities are unlisted with maturity date on 5 January 2010. Their carrying amount as at 31 December 2009 approximates to their fair value.

23. PLEDGED BANK DEPOSITS

The amounts represent deposits pledged to a bank to secure banking facilities granted to an independent third party. The deposits carry fixed interest rate of 1.71% per annum. These deposits have been pledged to secure a short-term financial guarantee (see note 39(b)) and therefore are classified as current assets. The pledged deposits were released on 6 April 2010 when the financial guarantee was released and expired. There was no pledged bank deposit in the previous year.

24. CASH AND CASH EQUIVALENTS

Deposits with banks Cash at bank and in hand Cash and cash equivalents in the statement of financial position and statement of cash flows	The Group 2009 2008 HK$’000 HK$’000 93,001 107,607 70,746 46,478 163,747 154,085	The Company 2009 2008 HK$’000 HK$’000 93,001 107,607 1,504 21,206 94,505 128,813	The Company 2009 2008 HK$’000 HK$’000 93,001 107,607 1,504 21,206 94,505 128,813
			128,813

Bank balances carry interest at market rates ranged from 0.02% to 1.71% (2008: 0.1% to 2.45%) per annum.

25. TRADE AND OTHER PAYABLES

Trade payables (note a) Other payables and accruals Amounts due to directors Amount due to a subsidiary Financial liabilities measured at amortised cost	The Group 2009 2008 HK$’000 HK$’000 257 2,504 13,277 2,942 202 638 – – 13,736 6,084	The Company 2009 2008 HK$’000 HK$’000 – – 4,191 2,929 202 638 120 – 4,513 3,567	The Company 2009 2008 HK$’000 HK$’000 – – 4,191 2,929 202 638 120 – 4,513 3,567
			3,567

All of the trade and other payables (including amounts due to directors and a subsidiary) are expected to be settled within one year or are repayable on demand.

Notes:

(a) The following is an ageing analysis of the trade payables presented based on the invoice date at the end of the reporting period:

0 – 14 days 15 – 60 days	The Group 2009 2008 HK$’000 HK$’000 – 2,504 257 – 257 2,504	The Group 2009 2008 HK$’000 HK$’000 – 2,504 257 – 257 2,504
		2,504

– 99 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. CONVERTIBLE NOTES

(a) On 4 May 2009, pursuant to the agreements for the acquisition of the Jade Honest Group (note 35(a)), the Company issued HK$1,832,400,000 zero coupon convertible notes to nominees of the Vendors. The convertible notes confer to the noteholder the right to convert into the Company’s shares at a conversion price of HK$0.32 per share, with maturity date falling on the thirtieth anniversary of the date of issue for the settlement of part of the consideration of the acquisition of the Jade Honest Group.

Pursuant to the terms of the convertible notes, the Company has no obligation to repay any outstanding amount of the convertible notes at any time of the conversion period up to maturity, but has the right to redeem the whole or any part of the outstanding principal amount of the convertible notes at an amount equal to 100% of the principal amount of the convertible notes being redeemed at any time after the issue of the convertible notes up to maturity.

The convertible notes are interest-free and are freely transferable with the prior consent of the Company and, if required, that of Stock Exchange.

The noteholders may at any time before the maturity date convert the whole or part of the principal amount of the convertible notes into new ordinary shares of the Company at the conversion price of HK$0.32 per share, provided that (i) no conversion rights attached to the convertible notes may be exercised, to the extent that following such exercise, a holder of the convertible notes and parties acting in concert with it, taken together, will directly or indirectly, control or be interested in 20% or more of the voting rights of the Company (or such other percentage as may from time to time be specified in the Hong Kong Code on Takeovers and Mergers as being the level for triggering a mandatory general offer); and (ii) no holder of the convertible notes shall exercise the conversion right attached to the convertible notes held by such holders if immediately after such conversion, the public float of the shares falls below the minimum public float requirement stipulated under Rule 8.08 of the Listing Rules as required by the Stock Exchange. The conversion price of HK$0.32 per share is subject to adjustment for the consolidation or sub-division of shares, capitalisation of profits or reserves or subsequent issue of securities by the Company.

In the opinion of the directors of the Company, since the convertible notes are not repayable by the Company and the Company has no intention to redeem any convertible notes at any time up to maturity, the convertible notes are therefore classified as equity instruments containing an equity element only and are presented in equity heading “convertible notes reserve”.

The total number of ordinary shares of the Company to be issued under the convertible notes is 5,726,250,000 of HK$0.10 each. The fair value of the convertible notes are determined by reference to the closing market price of the ordinary shares of the Company, being HK$0.51, at the issue date of the convertible notes.

The movement of the amount of the convertible notes during the year is set out below:

At the beginning of the year Issued upon the acquisition of Jade Honest (note 35(a)) Converted during the year At the end of the year	2009 HK$’000 – 2,897,132 (2,142,287) 754,845	2008 HK$’000 – – –
		–

At the time when the convertible notes are converted into ordinary shares of the Company, the nominal value of the shares issued upon conversion will be transferred from the convertible notes reserve to the share capital account while the difference between the fair value of the

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

convertible notes at their issue dates and the nominal value of the shares issued will be transferred from the convertible notes reserve to the share premium. During the year, convertible notes with an aggregate carrying amount of HK$2,142,287,000 (principal amount of HK$1,354,970,000) were converted into 4,234,281,000 of the Company’s shares. Accordingly, HK$423,428,000 was transferred to share capital account while HK$1,718,859,000 was transferred to share premium. If the remaining convertible notes with an aggregate carrying amount of HK$754,845,000 are fully converted into ordinary shares of the Company subsequently, HK$149,197,000 will be transferred to the share capital account while the remaining HK$605,648,000 will be transferred to the share premium.

(b) On 20 November 2009, the Company issued convertible notes with maturity date on the second anniversary of the date of issue (the “Second Tranche”) for an aggregate principal amount of HK$124,000,000. The convertible notes bear interest at 3% per annum payable semi-annually and are unsecured and freely transferrable.

The noteholders may at any time before maturity convert the whole or part of the principal amount of the convertible notes into new ordinary shares of the Company at the conversion price of (i) HK$0.31 per share from the issue date up to the date falling six months after the issue date of the convertible notes; and (ii) HK$0.35 per share from the next date falling six months after the issue date of the convertible notes up to maturity. The conversion prices are subject to adjustment for the consolidation or sub-division of shares, capitalisation of profits or reserves or subsequent issue of securities in the Company.

Upon maturity, the convertible notes, in respect of which the conversion rights have not been exercised, will be redeemed at their principal amount together with any accrued interest in cash.

As the convertible notes have different convertible prices during the conversion period, the conversion of the convertible notes will not be settled by an exchange of a fixed number of the Company’s equity instruments. In accordance with the requirements of HKAS 39 “Financial Instruments: Recognition and Measurement”, the convertible notes must be separated into a liabilities component consisting of the straight debt element and an option right of the noteholders to convert the convertible notes into equity. The proceeds received from the issue of the convertible notes have been split as follows:

(i) Liability components were initially measured by deducting the fair value of the embedded financial derivative from the proceeds of issue of the convertible notes as a whole.

The interest charged for the period is calculated by applying an effective interest rate of 19.88% to the liabilities component since the convertible notes were issued.

(ii) Embedded derivative comprise the fair value of the conversion option of the noteholders to convert the convertible notes into the Company’s shares.
(iii) The fair value of the embedded financial derivative was calculated using the Trinomial Option Pricing Model. The major inputs used in the model as at the issue date were as follows:

Stock price	HK$0.365
Exercise price	HK$0.310
Risk-free rate	0.09%
Expected option period	0.5 year
Expected volatility	57.423%
Expected dividend yield	0%

– 101 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The risk-free rate was determined with reference to the Hong Kong Exchange Fund Notes Yields. The expected option period is estimated based on the terms of the convertible notes. The expected volatility was determined based on the historical price volatilities of the Company under the same period as the expected option period.

Any changes in the major inputs into the model will result in changes in the fair value of the embedded financial derivative. The variables and assumptions used in calculating the fair value of the embedded financial derivative are based on the directors’ best estimates.

The movement of the liability component and embedded financial derivative of the Second Tranche of the convertible notes for the year is set out below:

As at 1 January 2008 and 2009 Issued during the year Transaction cost incurred Effective interest charged during the year (note 6(a)) Changes in fair value during the year (note 5(b)) Converted during the year As at 31 December 2009	Liability component HK$’000 – 92,251 (4,613) 258 – (87,896) –	Embedded financial derivatives HK$’000 – 31,749 – – (8,055) (23,694) –	Total HK$’000 – 124,000 (4,613) 258 (8,055) (111,590)
			–

The fair value of the liabilities component of the convertible notes is calculated using cash flows discounted at a rate based on the effective interest rate of 23.08%

The changes in the fair value of the embedded financial derivative for the year resulted in a fair value gain of HK$8,055,000 (2008: HK$Nil)

At the time when the convertible notes are converted into ordinary shares of the Company, the nominal value of the shares issued upon conversion will be transferred from the liability component and the embedded financial derivative component of the convertible notes to the share capital account while the difference will be transferred to the share premium. During the year, all convertible notes were converted into 400,000,000 number of the Company’s shares. Accordingly, HK$40,000,000 was transferred to share capital account while HK$71,590,000 was transferred to share premium.

27. PROMISSORY NOTES

At beginning of year Issued upon acquisition of Jade Honest Group (note 35(a)) Effective interest charged (note 6(a)) Interest waived upon early settlement (note 5(c)) Settled during the year Loss on early settlement (note 6(c)) At end of year	2009 HK$’000 – 108,551 1,408 (476) (120,300) 10,817 –	2008 HK$’000 – – – – – –
		–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 4 May 2009, pursuant to the agreements for the acquisition of the Jade Honest Group (note 35(a)), the Company issued promissory notes of HK$123,000,000 to the nominees of the Vendors, with maturity date falling on the third anniversary of the date of issue for the settlement of part of the consideration for the acquisition of the Jade Honest Group. The promissory notes bear interest at 2% per annum payable on the maturity date and are unsecured and freely transferrable.

The carrying amount of the promissory notes is denominated in Hong Kong dollars and effective interest rate as at the issue date was 6.30% based on the maturity period of 3 years.

All promissory notes were fully repaid on 3 December 2009.

28. BANK AND OTHER BORROWINGS

Bank borrowings, unsecured and guaranteed Other borrowing, unsecured	The Group 2009 2008 HK$’000 HK$’000 45,368 – 40,000 – 85,368 –	The Company 2009 2008 HK$’000 HK$’000 – – 40,000 – 40,000 –	The Company 2009 2008 HK$’000 HK$’000 – – 40,000 – 40,000 –
			–

The bank and other borrowings as at 31 December 2009 were expected to be settled within one year.

The other borrowing was obtained from an independent third party, and bears interest at 3.5% per annum and is repayable on 22 December 2010.

29. OBLIGATIONS UNDER FINANCE LEASES

At 31 December 2009, the Group had obligations under finance leases payable as follows:

The Group 2009 2008 Present value of the minimum lease payments Total minimum lease payments Present value of the minimum lease payments Total minimum lease payments HK$’000 HK$’000 HK$’000 HK$’000 12 13 12 13	The Group 2009 2008 Present value of the minimum lease payments Total minimum lease payments Present value of the minimum lease payments Total minimum lease payments HK$’000 HK$’000 HK$’000 HK$’000 12 13 12 13	The Group 2009 2008 Present value of the minimum lease payments Total minimum lease payments Present value of the minimum lease payments Total minimum lease payments HK$’000 HK$’000 HK$’000 HK$’000 12 13 12 13	The Group 2009 2008 Present value of the minimum lease payments Total minimum lease payments Present value of the minimum lease payments Total minimum lease payments HK$’000 HK$’000 HK$’000 HK$’000 12 13 12 13	The Group 2009 2008 Present value of the minimum lease payments Total minimum lease payments Present value of the minimum lease payments Total minimum lease payments HK$’000 HK$’000 HK$’000 HK$’000 12 13 12 13
12 1 13	13 1 14		12 13 25	13 13
				26
25	27 (2)		37	39
		)		(2
	25			37

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. INCOME TAX IN THE STATEMENT OF FINANCIAL POSITION

(a) Current taxation in the statement of financial position represents:

Provision for the year – PRC Enterprise Income Tax Provisional tax paid – PRC Enterprise Income Tax	The Group and the Company 2009 2008 HK$’000 HK$’000 44 154 (32) (136) 12 18

(b) Deferred tax liabilities recognised:

The component of deferred tax liability recognised in the consolidated statement of financial position and the movements during the current and the previous year is as follows:

The Group At 1 January 2008 Charged to income statement Disposal of subsidiaries attributable to discontinued operations (note 36(a)(iv)) At 31 December 2008 and 1 January 2009 Charged to income statement At 31 December 2009	Revaluation of investment properties HK$’000 1,286 – (1,286) – – –

(c) Deferred tax assets not recognised:

In accordance with the accounting policy set out in note 2(t), the Group has not recognised deferred tax assets in respect of cumulative tax losses of HK$19,662,000 (2008: HK$15,721,000) as it is not probable that future taxable profits against which the losses can be utilised will be available in the relevant tax jurisdiction and for the entity. The tax losses do not expire under current tax legislation.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. PROVISIONS

Provision for compensation to landowners The Group As 1 January 2009 Additional provision made Provisions utilised At 31 December 2009 Less: Amount included under “current liabilities”	HK$’000 – 7,713 – 7,713 (7,713) –

Pursuant to the terms and conditions set out in the bidding documents in relation to the exploration permits of the Concessions, the Group is obliged to indemnify the surface owners for any damage caused by the activities conducted by them. Provision is therefore made for the best estimate of the expected settlement by the directors of the Company, after seeking advice from an Argentine solicitor, for the compensation to be paid for the entry permit and implementation of work as regards to property involved in explorative operations within one year prior to the end of the reporting period. As at the end of the period, Argentine Peso 3,800,000 (equivalent to approximately HK$7,713,000) was included in the exploration and evaluation assets in respect of such compensation to be incurred.

32. EQUITY-SETTLED SHARE-BASED TRANSACTIONS

The Company has a share option scheme which was adopted on 30 August 2002 whereby the directors of the Company are authorised, at their discretion, to invite employees of the Group, including directors of any company in the Group, to take up options for a nominal consideration to subscribe for shares of the Company.

The total number of shares which may be issued upon exercise of all options to be granted under the scheme shall not in aggregate exceed 10% of the total number of shares of the Company in issue on the adoption date of the scheme (i.e., 433,302,000 shares). As at the date of this report, 7,372,466,000 shares of the Company were in issue.

Under the scheme, the total number of shares to be issued upon exercise of the options granted to each eligible person (including both exercised and outstanding options) in any 12-month period shall not exceed 1% of the total number of shares in issue. The exercise price (subscription price) shall be such price as determined by the board of directors in its absolute discretion at the time of the making of the offer but in any case the exercise price shall not be lower than the highest of (i) the closing price of the shares as stated in the Stock Exchange’s daily quotations sheets on the date of the offer of grant, which must be a trading day; (ii) the average closing price of the shares as stated in the Stock Exchange’s daily quotations sheets for the five trading days immediately preceding the date of the offer of grant; and (iii) the nominal value of a share.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The options vest from the date of grant and are exercisable within a period of five years.

(a) The terms and conditions of the grants that existed during the year are follows, whereby all options are settled by physical delivery of shares:

Options granted to directors: – on 8 May 2007 Options granted to employees: – on 8 May 2007 Options granted to consultants: – on 8 May 2007 Total option shares	Number of shares issuable under options granted Vesting conditions Contractual life of options 12,999,000 From date of grant 5 years 12,999,000 From date of grant 5 years 17,332,000 From date of grant 5 years 43,330,000

(b) The number and the weighted average exercise prices of share options are as follows:

	2009	2009	2008	2008
		Number of		Number of
		shares		shares
	Weighted	issuable	Weighted	issuable
	average	under	average	under
	exercise	options	exercise	options
	price	granted	price	granted
	HK$’000	HK$’000	HK$’000	HK$’000
Outstanding at the beginning
of the year	HK$0.6	34,664,000	HK$0.6	38,997,000
Granted during the year	HK$0.6	–	HK$0.6	–
Exercised during the year	HK$0.6	–	HK$0.6	(4,333,000)
Outstanding at the end of the
year	HK$0.6	34,664,000	HK$0.6	34,664,000

Exercisable at the end of the
year	HK$0.6	34,664,000	HK$0.6	34,664,000

The weighted average share price at the date the share options were exercised during the year was HK$Nil (2008: HK$1.17).

The share options outstanding at 31 December 2009 had an exercise price of HK$0.60 (2008: HK$0.60) (note 33(b)(iv)) and a weighted average remaining contractual life of 2 years (2008: 3 years).

– 106 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. CAPITAL AND RESERVES

(a) Movements in components of equity

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

The Company

Share capital HK$’000 77,764 433 – 78,197	Share premium Employee share-based compensation reserve Contributed surplus HK$’000 HK$’000 HK$’000 353,001 11,554 122,864 3,451 (1,284) – – – – 356,452 10,270 122,864	Share premium Employee share-based compensation reserve Contributed surplus HK$’000 HK$’000 HK$’000 353,001 11,554 122,864 3,451 (1,284) – – – – 356,452 10,270 122,864	Share premium Employee share-based compensation reserve Contributed surplus HK$’000 HK$’000 HK$’000 353,001 11,554 122,864 3,451 (1,284) – – – – 356,452 10,270 122,864	Shares to be issued HK$’000 – – – –	Convertible notes reserve Accumulated losses HK$’000 HK$’000 – (200,771) – – – (31,464) – (232,235)	Convertible notes reserve Accumulated losses HK$’000 HK$’000 – (200,771) – – – (31,464) – (232,235)	Total equity HK$’000 364,412 2,600 (31,464)
							335,548

78,197 9,375 – – 463,428 –	356,452 38,437 – – 1,790,449 –	10,270 – – – – –	122,864 – – – – –	– – 95,625 – – –	– – – 2,897,132 (2,142,287) –	(232,235) – – – – (13,511)	335,548 47,812 95,625 2,897,132 111,590 (13,511)
551,000	2,185,338	10,270	122,864	95,625	754,845	(245,746)	3,474,196

– 107 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Share capital

(i) Authorised and issued share capital

2009 Number of shares ’000 HK$’000 20,000,000 2,000,000	2009 Number of shares ’000 HK$’000 20,000,000 2,000,000	2008 Number of shares ’000 HK$’000 20,000,000 2,000,000	2008 Number of shares ’000 HK$’000 20,000,000 2,000,000

781,971 – 93,750 4,634,281	78,197 – 9,375 463,428	777,638 4,333 – –	77,764 433 – –
5,510,002	551,000	781,971	78,197

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.

(ii) Share issued upon conversion of convertible notes

On 4 May 2009, the Company issued convertible notes for an aggregate principal amount of HK$1,832,400,000 (note 26(a)). During the year, convertible notes for a principal amount of HK$1,354,970,000 were converted and 4,234,281,000 ordinary shares of the Company were issued. Up to the date of this report, convertible notes totalling HK$1,609,940,000 were converted into 5,031,063,000 ordinary shares of the Company.
On 20 November 2009, the Company issued convertible notes for an aggregate principal amount of HK$124,000,000 (note 26(b)). In November 2009, all convertible notes were converted and 400,000,000 ordinary shares of the Company were issued.

(iii) Shares issued under share option scheme

On 6 June 2008, options were exercised to subscribe for 4,333,000 ordinary shares in the Company for a consideration of HK$2,600,000 of which HK$433,000 was credited to share capital and the balance of HK$2,167,000 was credited to the share premium account. HK$1,284,000 has been transferred from the employee share-based compensation reserve to the share premium account in accordance with the accounting policy set out in note 2(s)(ii). No option was exercised during the year 2009.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iv) Terms of unexpired unexercised share options at the end of the reporting period:

		2009	2008
		Number of	Number of
		shares	shares
		issuable	issuable
		under	under
	Exercise	option	option
Exercisable period	price	granted	granted
8 May 2007 to 7 May 2012	HK$0.60	34,664,000	34,664,000

(v) Shares issued under subscription and placement
On 18 January 2010, Max Sun Enterprises Limited (“Max Sun”), the immediate holding company of the Company, entered into a subscription agreement with the Company to subscribe for 322,582,000 new ordinary shares of HK$0.1 each of the Company at HK$0.31 per share. The new ordinary shares of HK$0.1 each were issued on 26 February 2010.
On 19 January 2010, the Company entered into a placing agreement with an independent placing agent to place an aggregate of 743,100,000 new ordinary shares of HK$0.1 each of the Company at HK$0.31 per share. The new ordinary shares of HK$0.1 each were issued on 28 January 2010 and the placement was then completed in February 2010.

(c) Nature and purpose of reserves

(i) Share premium

The application of the share premium account is governed by the Companies Act 1981 of Bermuda.

(ii) Employee share-based compensation reserve

This represents the fair value of the actual or estimated number of unexercised share options granted to employees of the Company recognised in accordance with the accounting policy adopted for share-based payments in note 2(s)(ii).

(iii) Capital reserve

The capital reserve of the Group represents the difference between the nominal value of ordinary shares issued by the Company and the aggregate of the share capital and share premium of subsidiaries acquired through a reorganisation in preparation to the listing of the Company’s shares on the Stock Exchange in October 1998.

(iv) Exchange fluctuation reserve

The exchange fluctuation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policy set out in note 2(w).

(v) Contributed surplus

The contributed surplus of the Company represents the difference between the aggregate net asset value of subsidiaries acquired as a result of the reorganisation in preparation for the listing of the Company’s shares on the Stock Exchange and the nominal amount of the Company’s shares issued for their acquisition. Under Section 54 of the Bermuda Companies Act 1981, contributed surplus is available for distribution as dividends to shareholders subject

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

to the provisions of the Company’s bye-laws and provided that immediately following the distribution, the Company is able to pay its liabilities as and when they fall due or the realisable value of the Company’s assets would not be less than the aggregate of its liabilities and its issued share capital and share premium account.

(vi) Convertible notes reserve

The convertible notes reserve comprises the value of the unexercised equity component of convertible notes issued by the Group.

(vii) Shares to be issued

An obligation to issue a fixed number of the Company’s own shares at a fixed amount is an equity instrument and recognised in the reserve (shares to be issued). The balance will be transferred to share capital and share premium once shares are issued. Any excess of par value of issued shares will be transferred to share premium.

(d) Distributability of reserves

At 31 December 2009, the Company had no reserves available for cash distribution and/ or distribution in specie. Under the Companies Act 1981 of Bermuda (as amended), the Company’s contributed surplus in the amount of HK$122,864,000 (2008: HK$122,864,000) is currently not available for distribution. The Company’s share premium account in the amount of HK$2,185,338,000 as at 31 December 2009 (2008: HK$356,452,000), may be distributed in the form of fully paid bonus shares.

(e) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefit for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

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

The Group monitors capital on the basis of an adjusted gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non– current borrowings as shown in the consolidated statement of financial position) less cash and cash equivalents. Total capital is calculated as total equity as shown in the consolidated statement of financial position.

During 2009, the Group’s strategy, which was unchanged from 2008, was to maintain the ratio within 10% to 40%. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares, return capital to shareholders or sell assets to reduce debt.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The net debt-to-capital ratio as at 31 December 2009 and 2008 was as follow:

Bank and other borrowings (note 28) Obligations under finance leases (note 29) Total borrowings Less: Cash and cash equivalents (note 24) Net debt Total equity Adjusted gearing ratio	2009 HK$’000 85,368 25	2008 HK$’000 – 37 37 (154,085) (154,048) 311,698 (49%)
	85,393 (163,747)	37 (154,085
	(78,354) 3,429,525 (2%)

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

34. FINANCIAL RISK MANAGEMENT AND FAIR VALUES

The Group’s major financial instruments include held-to-maturity securities, derivative financial instruments, borrowings, trade and other receivables and trade and other payables. Details of the financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include credit risk, liquidity risk, interest rate risk and currency risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(a) Credit risk

(i) As at 31 December 2009, the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statement of financial position after deducting any impairment allowance and the amount of contingent liabilities in relation to financial guarantees issued by the Group as disclosed in note 39(b).
(ii) In respect of trade and other receivables, in order to minimize risk, the management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. Credit evaluations of its customers’ financial position and condition is performed on each and every major customer periodically. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. The Group does not require collateral in respect of its financial assets. Debts are usually due within 14 days (2008: 90 days) from the date of billing.
(iii) In respect of trade receivables, the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The default risk of the industry and country in which customers operate also has an influence on credit risk. At the end of the reporting period, the Group had a certain concentration of credit risk as 93% (2008: nearly all) of the total trade and other receivables was due from two (2008: four) customers/debtors of the Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iv) The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The Group monitors closely the credit ratings of these counterparties and will take appropriate action when their ratings change. Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in note 22.
(v) As set out in note 39(a), the financial guarantees given by the Group in 2009 was released on 6 April 2010.

(b) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to board approval. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants to ensure that it maintains sufficient amount of cash and adequate committed lines of funding from major financial institutions to satisfy its contractual and reasonably foreseeable obligations as they fall due.

The following table sets out the remaining contractual maturities at the end of the reporting period of the Group’s and the Company’s non-derivative financial liabilities based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group and the Company are required to pay:

The Group

			2009	2009					2008	2008
			More						More
		More	than 2		Total			More	than 2		Total
	Within 1	than 1	years		contractual		Within 1	than 1	years		contractual
	year or	year but	but less	More	undiscounted		year or	year but	but less	More	undiscounted
	on	less than	than 5	than 5	cash	Carrying	on	less than	than 5	than 5	cash	Carrying
	demand	2 years	years	years	flow	amount	demand	2 years	years	years	flow	amount
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Non-derivative financial
liabilities
Trade and other payables	13,736	–	–	–	13,736	13,736	6,084	–	–	–	6,084	6,084
Bank and other borrowings	88,566	–	–	–	88,566	85,368	–	–	–	–	–	–
Obligations under finance
leases	13	13	1	–	27	25	13	13	13	–	39	37
	102,315	13	1	–	102,329	99,129	6,097	13	13	–	6,123	6,121

Financial guarantee issued
Maximum amount
guaranteed (note 39(a))	26,654	–	–	–	26,654	–	–	–	–	–	–	–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The amounts included above for financial guarantee contracts represent the maximum amounts that could be required to be paid if the guarantee were called upon in entirety.

The Company

				2009						2008
				More						More
			More	than 2					More	than 2		Total
		Within 1	than 1	years		Total		Within 1	than 1	years		contractual
		year or	year but	but less	More	contractual		year or	year but	but less	More	undiscounted
		on	less than	than 5	than 5	undiscounted	Carrying	on	less than	than 5	than 5	cash	Carrying
		demand	2 years	years	years	5 years	amount	demand	2 years	years	years	flow	amount
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Other	payable	4,513	–	–	–	4,513	4,513	3,567	–	–	–	3,567	3,567
Other	borrowing	41,365	–	–	–	41,365	40,000	–	–	–	–	–	–
		45,878	–	–	–	45,878	44,513	3,567	–	–	–	3,567	3,567

(c) Interest rate risk

The Group’s interest risk arises primarily from its borrowings and other receivables. Borrowings and other receivables obtained at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The Group’s interest rate profile as monitored by management is set out in (i) below.

The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. The Group’s cash flow interest rate risk mainly concentrates on the fluctuation of market interest rate arising from the Group’s bank deposits.

The Group is exposed to interest rate risk as its bank deposits are all interest-bearing. All bank deposits are short-term deposits with maturities less than or equal to three months. Management does not anticipate any significant impact resulting from the change in interest rates because the Group’s bank balances are carried at low interest rates and the interest income thereon is not significant.

(i) Interest rate profile

The following table details the interest rate profile of the Group’s bank deposits, receivables and borrowings at the end of the reporting period:

2009 2008 Effective interest rates Effective interest rates % HK$’000 % HK$’000 Fixed rate bank deposit and receivables: Restricted bank deposits 0% 9,265 – – Pledged bank deposit 1.71% 28,355 – – Deposit with banks 0.02% – 0.3% 93,001 0.1% – 1.4% 107,607 Other receivables – – 5% – 6% 51,480 Total bank deposits and receivables 130,621 159,087	2009 2008 Effective interest rates Effective interest rates % HK$’000 % HK$’000 Fixed rate bank deposit and receivables: Restricted bank deposits 0% 9,265 – – Pledged bank deposit 1.71% 28,355 – – Deposit with banks 0.02% – 0.3% 93,001 0.1% – 1.4% 107,607 Other receivables – – 5% – 6% 51,480 Total bank deposits and receivables 130,621 159,087	2009 2008 Effective interest rates Effective interest rates % HK$’000 % HK$’000 Fixed rate bank deposit and receivables: Restricted bank deposits 0% 9,265 – – Pledged bank deposit 1.71% 28,355 – – Deposit with banks 0.02% – 0.3% 93,001 0.1% – 1.4% 107,607 Other receivables – – 5% – 6% 51,480 Total bank deposits and receivables 130,621 159,087
	130,621	159,087

– 113 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2009 2008 Effective interest rates Effective interest rates % HK$’000 % HK$’000 Fixed rate borrowings: Bank borrowings 4.779% 45,368 – – Other borrowing 3.5% 40,000 – – Obligations under finance leases 2.85% 25 2.85% 37 Total borrowings 85,393 37 Total bank deposits, receivables and borrowings 216,014 159,124 Fixed rate bank deposits and receivables as a percentage of total bank deposits, receivables and borrowings 60% 100% Fixed rate borrowings as a percentage of total bank deposits, receivables and borrowings 40% –	2009 2008 Effective interest rates Effective interest rates % HK$’000 % HK$’000 Fixed rate borrowings: Bank borrowings 4.779% 45,368 – – Other borrowing 3.5% 40,000 – – Obligations under finance leases 2.85% 25 2.85% 37 Total borrowings 85,393 37 Total bank deposits, receivables and borrowings 216,014 159,124 Fixed rate bank deposits and receivables as a percentage of total bank deposits, receivables and borrowings 60% 100% Fixed rate borrowings as a percentage of total bank deposits, receivables and borrowings 40% –	2009 2008 Effective interest rates Effective interest rates % HK$’000 % HK$’000 Fixed rate borrowings: Bank borrowings 4.779% 45,368 – – Other borrowing 3.5% 40,000 – – Obligations under finance leases 2.85% 25 2.85% 37 Total borrowings 85,393 37 Total bank deposits, receivables and borrowings 216,014 159,124 Fixed rate bank deposits and receivables as a percentage of total bank deposits, receivables and borrowings 60% 100% Fixed rate borrowings as a percentage of total bank deposits, receivables and borrowings 40% –
	85,393	37
	216,014 60% –	159,124

		100%

(ii) Sensitivity analysis

All of the borrowings and other receivables of the Group which are fixed rate instruments are insensitive to any changes in interest rates. A change in interest rate at the end of the reporting period would not affect profit or loss.

At 31 December 2009, it is estimated that a general increase/decrease of 50 basis points in interest rates, with all other variables held constant, would decrease/increase the Group’s loss after tax and accumulated losses by approximately HK$314,000 (2008: HK$229,000).

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to the exposure to interest rate risk for variable rate interest bearing financial instruments in existence at that date. The 50 basis points increase or decrease represents management’s assessment of a reasonably possible change in interest rates over the period until the end of the next reporting period. The analysis is performed on the same basis for 2008.

(d) Currency risk

Presently, there is no hedging policy with respect to the foreign exchange exposure. The Group’s functional currency is Hong Kong dollars as substantially all the turnover are in Hong Kong dollars. The Group’s foreign exchange exposure was insignificant.

– 114 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(i) Exposure to currency risk

The following table details the Group’s and the Company’s exposure at the end of the reporting period to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate.

The Group Trade and other receivables Cash and cash equivalents Trade and other payables Net exposure arising from recognised assets and liabilities The Company Other receivables Cash and cash equivalents Other payables Exposure arising from recognised assets and liabilities	Exposure to foreign currencies (expressed in Hong Kong dollars) 2009 2008 Renminbi United States Dollars Euros Renminbi United States Dollars Euros HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 159 – 1,002 – – – 7,362 10 10 51 9 – – – (1,703) (47) – – 7,521 10 (691) 4 9 Exposure to foreign currencies (expressed in Hong Kong dollars) 2009 2008 Renminbi United States Dollars Euros Renminbi United States Dollars Euros HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – – – 1,002 – – – – – 10 51 – – – – (1,703) (47) – – – – (691) 4 –	Exposure to foreign currencies (expressed in Hong Kong dollars) 2009 2008 Renminbi United States Dollars Euros Renminbi United States Dollars Euros HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 159 – 1,002 – – – 7,362 10 10 51 9 – – – (1,703) (47) – – 7,521 10 (691) 4 9 Exposure to foreign currencies (expressed in Hong Kong dollars) 2009 2008 Renminbi United States Dollars Euros Renminbi United States Dollars Euros HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – – – 1,002 – – – – – 10 51 – – – – (1,703) (47) – – – – (691) 4 –
		–

– 115 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Sensitivity analysis

The following table indicates the approximate change in the Group’s loss after tax (and accumulated losses) and other components of consolidated equity in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the end of the reporting period. The sensitivity analysis includes balances between group companies where the denomination of the balances is in a currency other than the functional currencies of the lender or the borrower.

The Group

		2009			2008
	Increase/	Effect on		Increase/	Effect on
	(decrease)	loss after	Effect on	(decrease)	loss after	Effect on
	in foreign	tax and	other	in foreign	tax and	other
	exchange	accumulated	components	exchange	accumulated	components
	rates	losses	of equity	rates	losses	of equity
		HK$’000	HK$’000		HK$’000	HK$’000
Renminbi	5%	–	–	5%	107	107
	-5%	–	–	–5%	163	163
United States
dollars	5%	384	384	5%	–	–
	-5%	(368)	(368)	–5%	(1)	(1)
Euros	5%	–	–	5%	–	–
	-5%	(1)	(1)	–5%	(1)	(1)

The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the end of the reporting period and had been applied to each of the Group entities’ exposure to currency risk for financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant.

The stated changes represent management’s assessment of reasonably possible changes in foreign exchange rates over the period until the end of the next reporting period. In this respect, it is assumed that the pegged rate between the Hong Kong dollar and the United States dollar would be materially unaffected by any changes in movement in value of the United States dollar against other currencies. The analysis excludes differences that would result from the transaction of the financial statements of foreign operations into the Group’s presentation currency. The analysis is performed on the same basis for 2008.

(e) Fair values

The fair values of cash and cash equivalents, restricted and pledged bank deposits, deposit paid for potential investment, trade and other receivables, trade and other payables, bank and other borrowings, obligations under finance leases are not materially different from their carrying amounts because of the immediate or short-term maturity of these financial instruments. The fair value has been determined either by reference to the market value at the end of each reporting period or by discounting the relevant cash flows using current interest rates for similar instruments.

(f) Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair values of the following financial instruments:

(i) Interest-bearing loans and borrowings

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Financial guarantees

The fair value of financial guarantees issued is determined by reference to fees charged in an arm’s length transaction for similar services, when such information is obtainable, or is otherwise estimated by reference to interest rate differentials, by comparing the actual rates charged by lenders when the guarantee is made available with the estimated rates that lenders would have charged, had the guarantees not been available, where reliable estimates of such information can be made.

35. ACQUISITION OF ASSETS AND LIABILITIES THROUGH ACQUISITION OF SUBSIDIARIES

(a) Acquisition of Jade Honest

On 4 May 2009, the Company completed its acquisition of 100% equity interest in Jade Honest Limited (“Jade Honest”), a company that directly held 100% equity interest in High Luck which is the beneficial and registered owner of 60% interest in the Concessions, from independent third parties for a consideration of HK$3,213,001,000 and a contingent consideration of HK$780,000,000 (see note 16(e)). This transaction has been reflected as purchases of assets and liabilities.

Details of the net assets acquired in respect of the acquisition of Jade Honest are summarised below:

NET ASSETS ACQUIRED
Exploration and evaluation assets (note 16)
Other receivables
Cash and cash equivalents
Other payables and accruals
Current taxation
Amounts due to shareholders
Net assets
Minority interests
Assignment of shareholders’ loan
Consideration satisfied by:
Deposit for acquisition of subsidiaries paid in previous years (note 20)
Issuance of new shares (note)
Promissory notes (note 27)
Convertible notes (note 26(a))
Direct expenses incurred in connection with acquisition of subsidiaries
– paid in previous years
– paid during the year
Cash and cash equivalents acquired
Cash consideration paid
Net outflow of cash and cash equivalents in respect of the acquisition of Jade
Honest

HK$’000
3,217,382
9
2,723
(8,128)
(72)
(817,909)
2,394,005
1,087
817,909
3,213,001
54,600
143,437
108,551
2,897,132
3,758
5,523
3,213,001
2,723
(5,523)
(2,800)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note:

Pursuant to the agreements for the acquisition of Jade Honest, three tranches of share issue will be made on completion, three months after completion and six months after completion respectively.

In the first tranche, 93,750,000 new shares were issued on 4 May 2009. The fair value of the shares issued amounting to approximately HK$47,813,000 was determined using the published closing price of HK$0.51 on 4 May 2009.

As at 31 December 2009, the Company had approximately 187,500,000 shares to be issued in connection with the acquisition of Jade Honest. The fair value of the shares to be issued was determined using the published closing price of HK$0.51 at the date of completion, amounting to approximately HK$95,625,000.

In July 2009, Mr. Wong Cheung Yiu and Mr. Chan Koon Wa (the “Vendors”), instructed the Company to stop the issue of the second tranche consideration shares (“T2 Shares”) to the nominees assigned by them under an irrevocable payment instructions but issue the consideration shares to them directly instead. However, under the irrevocable payment instructions, the Company is obliged to issue the consideration shares to the nominees directly. After seeking the legal advice from an independent legal adviser, the Company made an application to the High Court of Hong Kong (“Court”) on 4 August 2009 for an interpleader relief for the purpose of seeking an order or direction from the Court concerning the allotment and issue of the T2 Shares (“First Proceedings”). First hearing in respect of the interpleader relief took place on 16 December 2009. It was adjudged on the same date that the Company is to abide by and be bound by the Court’s determination of the issues in relation to the entitlement of the T2 Shares and to allot and issue the T2 Shares as the Court may direct after the final determination of the issues. Up to the date of this report, the Company has not been informed that the issues have been determined and the issue of the T2 Shares was suspended.

Prior to the due date of issue of the third tranche consideration shares (“T3 Shares”) on 4 November 2009, the Company faced the same issue as mentioned in the preceding paragraph. On 4 November 2009, the Company initiated proceedings (“Second Proceedings”) of a similar nature to the First Proceedings. The hearing of the Second Proceedings has been fixed to be on 24 May 2010.

A legal opinion was obtained from the Company’s legal advisor on 23 April 2010. Pursuant to the legal opinion obtained, the legal advisor is of the opinion that:

(i) there is a possibility, but most unlikely, that the Vendors and the nominees assigned by the Vendors (collectively “Respondants”) in the interpleader proceedings (i.e., First Proceedings and Second Proceedings) could make allegations against the Company in view of that no allegations have made until now;
(ii) any claim that the Respondants may make would be for non-delivery of the T2 shares and T3 shares. However, the Company had made it clear in the interpleader proceedings that it was ready, willing and able to make delivery, but is confounded as to whom delivery should be made. The reason for the interpleader proceedings was to protect the Company against possible allegations that the Company was in default by not delivering. The Court has awarded costs in favour of the Company in the interpleader proceedings. This is a clear indication that there is nothing before the Court to lead it to believe that there was any impropriety on the part of the Company. From this, it can be seen that a probable claim against the Company is remote at best; and
(iii) the issue of the two tranches of consideration shares after completion are post-completion events. The first tranche of consideration shares were issued on 4 May 2009 in accordance with the irrevocable payment Instructions. The mere fact that the

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

second and third tranches of consideration shares have not yet been issued did not affect the fact that completion of the sale and purchase agreements have taken place so far as the Company is concerned.

Based on the above legal opinion, the directors of the Company were of the opinion that the possible allegations make against the Company was remote. No provision is considered necessary.

(b) Acquisition of Shenzhen Zhilai

On 7 December 2009, the Company completed its acquisition of 51% equity interest in (“Shenzhen Zhilai”), a company that directly held 100% equity interest in (“Sihui Zhilai”) which holds a coal trading license in PRC, from an independent third party for a consideration of RMB2,550,000 (approximately HK$2,894,000). This transaction has been reflected as purchases of assets and liabilities.

Details of the net assets acquired at fair value in respect of the acquisition of Shenzhen Zhilai are summarised below:

NET ASSETS ACQUIRED
Property, plant and equipment
Intangible assets
Prepayments, deposits and other receivables
Cash and cash equivalents
Other payables and accruals
Bank borrowings
Net assets
Minority interests
Total consideration – satisfied by deferred consideration (note)
Cash and cash equivalents acquired
Cash consideration paid
Net inflow of cash and cash equivalents in respect of the acquisition of
Shenzhen Zhilai

HK$’000
50
3,368
454
53,053
(5,858)
(45,393)
5,674
(2,780)
2,894
53,053
–
53,053

Note:

The deferred consideration will be settled by cash on or before 24 November 2010 according to the terms under share transfer agreement.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Summary of acquisition of subsidiaries

Details of the net assets acquired at fair value in respect of the acquisition of the above subsidiaries are summarised below:

NET ASSETS ACQUIRED
Exploration and evaluation assets (note 16)
Property, plant and equipment (note 17(a))
Intangible assets (note 18)
Prepayments, deposits and other receivables
Cash and cash equivalents
Other payables and accruals
Bank borrowings
Current taxation
Amounts due to shareholders
Net assets
Minority interests
Assignment of shareholders’ loan
Total purchase consideration satisfied by:
Deposit for acquisition of subsidiaries paid in previous years (note 20)
Issuance of new shares
Promissory notes (note 27)
Convertible notes (note 26(a))
Direct expenses incurred in connection with acquisition of subsidiaries
– paid in previous years
– paid during the year
Deferred consideration
Cash and cash equivalents acquired
Cash consideration paid
Net cash inflow arising on acquisitions

HK$’000
3,217,382
50
3,368
463
55,776
(13,986)
(45,393)
(72)
(817,909)
2,399,679
(1,693)
817,909
3,215,895
54,600
143,437
108,551
2,897,132
3,758
5,523
2,894
3,215,895
55,776
(5,523)
50,253

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. DISPOSAL OF SUBSIDIARIES

(a) Disposal of subsidiaries attributable to discontinued operations

For the year ended 31 December 2008

(i) Smart Wave Limited

As explained in note 9(a), the Company disposed of its entire equity interest in Smart Wave Limited and the amount due to the Company from Smart Wave Limited on 30 June 2008 for an aggregate consideration of HK$12,250,000. The net liabilities of Smart Wave Limited at the date of disposal were as follows:

NET LIABILITIES DISPOSED OF
Other property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Amount due to intermediate holding company
Trade and other payables
Other borrowing
Assignment of amounts due from subsidiaries
Exchange fluctuation reserve realised
Gain on disposal of discontinued operation (note 9(a))
Total consideration – satisfied by cash
Cash consideration received
Cash and cash equivalents disposed of
Net cash inflow arising from disposal

HK$’000
42
152,512
33,669
44
(33,764)
(164,579)
(11,389)
(23,465)
33,764
(2,849)
4,800
12,250
12,250
(44)
12,206

The impact of Smart Wave Limited on the Group’s results and cash flows for the period from 1 January 2008 to 30 June 2008 has been disclosed in note 9(a).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Elegant Pool Limited

As explained in note 9(b), the Group disposed of its entire equity interest in Elegant Pool Limited and the amount due to the Group from Elegant Pool Limited on 24 December 2008 for an aggregate consideration of HK$49,880,000. The net liabilities of Elegant Pool Limited at the date of disposal were as follows:

NET LIABILITIES DISPOSED OF
Investment properties
Amount due to immediate holding company
Deferred tax liabilities
Current taxation
Assignment of amounts due from the subsidiaries
Exchange fluctuation reserve realised
Gain on disposal of discontinued operation (note 9(b))
Satisfied by:
Cash consideration received
Deferred consideration (note 22(d)(i))
Cash consideration received
Net cash inflow arising from disposal

HK$’000
53,952
(54,287)
(1,286)
(2,263)
(3,884)
54,287
(1,755)
1,232
49,880
10,000
39,880
49,880
10,000
10,000

The impact of Elegant Pool Limited on the Group’s results and cash flows for the period from 1 January 2008 to 24 December 2008 has been disclosed in note 9(b).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) New Times Finance Limited and Jefta Holdings Limited

As explained in note 9(c), the Company disposed of its entire equity interest in NTHL and the amount due to the Company from NTHL on 1 December 2008 for an aggregate consideration of HK$500. NTHL was an investment holding company and its principal investments was two wholly-owned subsidiaries, New Times Finance Limited and Jefta Holdings Limited, which was engaged in the provision of financial services. The net liabilities of New Times Finance Limited and Jefta Holdings Limited at the date of disposal were as follows:

NET LIABILITIES DISPOSED OF Trade and other receivables Loan receivables Trade and other payables Gain on disposal of discontinued operations (note 9(c)) Total consideration Net cash inflow/outflow arising from disposal	HK$’000 159 – (1,683) (1,524) 1,524 – –

The impact of New Times Finance Limited and Jefta Holdings Limited on the Group’s results and cash flows for the period from 1 January 2008 to 1 December 2008 has been disclosed in note 9(c).

(iv) Summary of the disposal of subsidiaries attributable to discontinued operations

Details of the net assets/(liabilities) disposed of at the respective dates of the disposal of subsidiaries attributable to discontinued operations are summarised as follows:

Property, plant and equipment (note 17(a))
Investment properties (note 17(a))
Inventories
Trade and other receivables
Cash an cash equivalents
Amount due to immediate holding company
Amount due to intermediate holding company
Trade and other payables
Other borrowing
Deferred tax liabilities (note 30(b))
Current taxation
Assignment of amounts due from subsidiaries
Exchange fluctuation reserve realised
Gain on disposal of discontinued operations (note 9(d))
Total consideration

HK$’000
42
53,952
152,512
33,828
44
(54,287)
(33,764)
(166,262)
(11,389)
(1,286)
(2,263)
(28,873)
88,051
(4,604)
7,556
62,130

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Satisfied by: Cash consideration received Deferred consideration (note 22(d)(i)) Cash consideration received Cash and cash equivalents disposed of Net cash inflow arising from disposals	HK$’000 22,250 39,880 62,130 22,250 (44) 22,206

(b) Disposal of subsidiaries

For the year ended 31 December 2008

(i) Disposal of New Times Holdings Limited

As explained in note 36(a)(iii), on 1 December 2008, the Group disposed of its entire equity interest in together with shareholders’ loan of NTHL to an independent third party for an aggregate consideration of HK$500. Other than its principal investments in New Times Finance Limited and Jefta Holdings Limited, NTHL held various dormant subsidiaries. The net liabilities of these subsidiaries at the date of disposal were as follows:

NET LIABILITIES DISPOSED OF Amount due to immediate holding company Trade and other payables Assignment of amount due from subsidiary Gain on disposal of subsidiaries Total consideration – satisfied by cash Cash consideration received Net cash inflow arising from disposal	HK$’000 (36,429) (79) (36,508) 36,429 80 1 1 1

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Disposal of Optima Worldwide Investment Limited

On 1 December 2008, the Group disposed of its entire equity interest in together with shareholders’ loan of Optima Worldwide Investment Limited to an independent third party for an aggregate consideration of HK$100.

HK$’000

NET LIABILITIES DISPOSED OF Amount due to immediate holding company Assignment of amount due from subsidiary Gain on disposal of a subsidiary Total consideration – satisfied by cash Cash consideration received Net cash inflow/outflow arising from disposal	(52) (52) 52 – – – –

(iii) Summary of disposal of subsidiaries

Details of the net assets/(liabilities) disposed of in respect of the disposal of subsidiaries are summarised as follows:

Amount due to immediate holding company Trade and other payables Assignment of amounts due from subsidiaries Gain on disposal of subsidiaries Total consideration Satisfied by: Cash consideration received Cash consideration received Net cash inflow arising from disposals	HK$’000 (36,481) (79) (36,560) 36,481 80 1 1 1 1

37. MATERIAL RELATED PARTY TRANSACTIONS

Name of party

Relationship

Taifook Securities Company Limited The company’s controlled by Dato’ Dr. Cheng Yu New World Development Company Tung, the ultimate beneficiary of the single largest Limited shareholder of the Company New World Insurance Management Limited

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) The following is a summary of significant related party transactions entered into in the normal course of business between the Group and its related party during the year.

		Term and
	Nature of	pricing
Related parties	transactions	policies	2009	2008
			HK$’000	HK$’000
Taifook Securities	Commission income	(i)	–	684
Company Limited	Brokerage charges	(i)	–	14
New World Development	Rent, rates and	(i)	8	–
Company Limited	management fee
New World Insurance	Insurance	(i)	22	3
Management Company
Limited

Note:

(i) agreed by parties concerned.

(b) Key management personnel remuneration

Remuneration for key management personnel, including amounts paid to the Company’s directors as disclosed in note 10 and certain of the highest paid employees as disclosed in note 11, is as follows:

Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions	2009 HK$’000 1,858 – 16 1,874	2008 HK$’000 4,582 79 41
		4,702

Total remuneration is included in “staff costs” (see note 6(b)).

(c) Amount due from/(to) related parties

	The	Group	The Company	The Company
	2009	2008	2009	2008
	HK$’000	HK$’000	HK$’000	HK$’000
Amount due from minority
shareholder (note 22)	2	–	–	–
Amounts due from
subsidiaries (note 19)	–	–	1,028,050	120,044
Amount due to a subsidiary
(note 25)	–	–	(120)	–
Prepayment and deposits	287	16	–	–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. COMMITMENTS

(a) Capital commitments outstanding at 31 December 2009 not provided for in the consolidated financial statements were as follows:

==> picture [356 x 67] intentionally omitted <==

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

The Group
2009 2008
HK$’000 HK$’000
Contracted for
– Activities of exploration 153,780 –
----- End of picture text -----

(b) Commitments under operating leases

As at 31 December 2009, the Group had commitments for future minimum lease payments under non-cancellable operating leases payable as follows:

Within one year In the second to fifth year inclusive	The Group 2009 2008 HK$’000 HK$’000 1,334 1,215 1,933 102 3,267 1,317	The Group 2009 2008 HK$’000 HK$’000 1,334 1,215 1,933 102 3,267 1,317
		1,317

The Group leases its offices under operating lease arrangements. The lease for properties is negotiated for a term of a range of one to three years.

(c) Other commitments

Other commitments outstanding at 31 December 2009 not provided for in the consolidated financial statements were as follows:

	The	Group
	2009	2008
	HK$’000	HK$’000
Contracted for
– Investment cost of potential investment (note 20)	600,000	2,045,400

In addition, as at 31 December 2009, the Group has the following obligations and commitments in respect of the exploration of natural resources operation in Argentina:

(i) it is the obligation of the Consortium to fulfill the investment commitment for the exploration work in the Tartagal and Morillo license areas up to a total amount of US$35,990,000 and US$13,000,000 respectively (the “Investment Commitment”) within the initial four-year period of the Concessions. The amount not spent in the exploration work at the end of the initial four-year period must be paid to the government of Salta Province of Argentina. The Consortium is obliged to obtain a guarantee for the benefit of the government of Salta Province of Argentina for an amount equal to the Investment Commitment (the “Guarantee”). The Guarantee is to be fulfilled by posting a performance bond which shall consist of, among others, a surety bond issued by leading insurance companies in Argentina for an amount equal to the Investment Commitment (subject to the amount spent relating to the exploration work in the Concession sites) to the government of Salta Province of Argentina.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) To place in the Province of Salta two Work-Over equipments capable of operating at 3,000/4,000 meters deep;
(iii) To provide its own personnel for the exploration of the Tartagal and Morillo license areas;
(iv) To reach agreements with surface owners and finish the survey of the Tartagal and Morillo license;
(v) To prepare a work plan for submission to UTE-Administration Committee within 45 days after JHP’s technicians arrive to Argentina;
(vi) To produce a monthly report regarding the status of the works, to be submitted to the Province of Salta;
(vii) An annual fee of AR$948,985 (equivalent to approximately HK$1,926,000) in relation to the exploration permits of the Concessions payable to the government of Salta Province of Argentina; and
(viii) To take an environmental liability insurance in favour of the government of Salta Province of Argentina and/or third persons to cover any damage that the work may cause in the Tartagal and Morillo license areas.

39. CONTINGENT LIABILITIES – FINANCIAL GUARANTEE

(a) In December 2009, Sihui Zhilai, a subsidiary indirectly owned by the Company, issued corporate guarantees to a bank in connection with banking facilities granted by the bank to (“Sihui Kun Peng”), an independent third party of the Group. At 31 December
2009, such facilities was drawn down by Sihui Kun Peng to extent of USD3,406,000 (equivalent to HK$26,413,000). The maximum liabilities of the Group under the guarantee issued represents the amount drawn down by Sihui Kun Peng of USD3,406,000 (equivalent to HK$26,413,000). No recognition was made because, in the opinion of the director of the Company, the fair value of the guarantee was insignificant and that the directors did not consider it is probable that a claim would be made against the Group under the guarantee.

Subsequent to the end of the reporting period, the financial guarantee given by the Group was released on 6 April 2010.

(b) In 2007, the Group issued a joint corporate guarantee to a bank in connection with bank facilities granted by the bank to Wandi Estate Development Company Limited (“Wandi Estate Development”), an independent third party of the Group. At 31 December 2007, such facilities was drawn down by Wandi Estate Development, to the extent of RMB35,000,000 (equivalent to HK$37,450,000). The maximum liability of the Group under the guarantee issued represents the amount drawn down by Wandi Estate Development of RMB35,000,000 (equivalent to HK$37,450,000). No recognition was made in 2007 because the fair value of the guarantee was insignificant and that the directors did not consider it is probable that a claim would be made against the Company under the guarantee.

On 6 March 2008, the Group’s completed property held for sale, held under a disposal group of Smart Wave Limited, was foreclosed by Beijing First Intermediate Peoples Court ( ) as a result of the default in progress repayment of the bank loan by Wandi Estate Development. Pursuant to the legal opinion dated 23 May 2008, the directors of the Group are of the opinion that no provision was recognised because the financial guarantee liabilities of the Group cannot be measured reliably up to the date of disposal of Smart Wave Limited.

Upon the disposal of Smart Wave Limited on 30 June 2008 as set out in note 36(a)(i), the Group had no financial guarantee outstanding as at the year-end date.

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APPENDIX I

40. EVENT AFTER THE REPORTING PERIOD

Other than those disclosed elsewhere in the financial statements, the Group does not have any other significant events after the end of the reporting period which required to be disclosed.

41. PARENT AND ULTIMATE HOLDING COMPANY

At 31 December 2009, the directors consider the parent and ultimate controlling party of the Group to be Max Sun Enterprises Limited and Chow Tai Fook Nominee Limited, which is incorporated in the British Virgin Islands and Hong Kong respectively. These entities do not produce financial statements available for public use.

42. COMPARATIVE FIGURES

As a result of the application of HKAS 1 (revised 2007), Presentation of financial statements, and HKFRS 8, Operating segments, certain comparative figures have been adjusted to conform to current year’s presentation and to provide comparative amounts in respect of items disclosed for the first time in 2009. Further details of these developments are disclosed in note 3.

43. ACCOUNTING ESTIMATES AND JUDGEMENTS

In the process of applying the Group’s accounting policies, management has made certain key assumptions concerning the future, and other key sources of estimated uncertainty at the end of the reporting period. Note 26, 32 and 34 contain information about the assumptions and their risk factors relating to convertible notes, equity-settled share-based transactions and financial instruments. Other judgements made by the management in the application of HKFRSs that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

(a) Impairment of exploration and evaluation assets

Recoverable amounts of exploration and evaluation assets are determined where there is impairment indication and requires an estimation of the existence and the amounts of hydrocarbons that can be explored in the oil fields. The Group relied on the expert to assess the geological risk of discovering hydrocarbons in the oil fields and estimated the value of exploration opportunities and development potential.

(b) Impairment of property, plant and equipment

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, which requires significant judgement relating to level of revenue and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and operating costs. Changes in these estimates could have a significant impact on the carrying amount of the assets and could result in additional impairment charge or reversal of impairment in future periods.

(c) Impairment receivables

The Group maintains an allowance for doubtful debts accounts based upon evaluation of the recoverability of the trade and other receivables, where applicable, at the end of each reporting period. The estimates are based on the ageing of the trade and other receivables balances and the historical write-off experience, net of recoveries. If the financial condition of the debtors were to deteriorate, additional impairment allowance might be required.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Impairment for investment in subsidiaries and a jointly controlled entity

If circumstances indicate that the investment in subsidiaries and a jointly controlled entity may not be recoverable, investment in subsidiaries and a jointly controlled entity may be considered impaired, and an impairment loss may be recognised in accordance with HKAS 36, Impairment of Assets. The carrying amount of investment in subsidiaries and a jointly controlled entity is reviewed periodically in order to assess whether the recoverable amount has declined below the carrying amount. The asset is tested for impairment whenever events or changes in circumstances indicate that the recorded carrying amount may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling prices because quoted market prices for investment in subsidiaries and a jointly controlled entity are not readily available. In determining the value in use, expected cash flows generated by the investment in subsidiaries and a jointly controlled entity are discounted to their present value, which requires significant judgment relating to level of sale volume, tariff and amount of operating costs of the subsidiaries and a jointly controlled entity. The Company uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, tariffs and amount of operating costs of the subsidiaries and a jointly controlled entity.

(e) Depreciation and amortisation

Property, plant and equipment and intangible assets are depreciated and amortised on a straight– line basis over the estimated useful lives of the assets, after taking into account the estimated residual values. The management reviews the estimated useful lives and the residual values of the assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period. The determination of the useful lives and the residual values are based on the historical experience with similar assets and taking into account anticipated technological changes. The depreciation and amortisation expense for future periods are adjusted if there are significant changes from previous estimates.

(f) Taxation

The Group is subject to various taxes in the PRC. Significant judgment is required in determining the provision for taxation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that are initially recorded, such differences will impact the tax provisions in the period in which such determination is made.

44. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2009

Up to the date of issue of these financial statements, the HKICPA has issued the following amendments, new standards and Interpretations which are not yet effective for the year ended 31 December 2009.

The Group has not early applied any of the following new and revised Standards, Amendments or Interpretations that have been issued but are not yet effective.

HKFRSs (Amendments)	Amendments to HKFRS 5 as part of Improvements to
	HKFRSs 20081
HKFRSs (Amendments)	Improvements to HKFRSs 20092
HKAS 24 (Revised)	Related Party Disclosures5
HKAS 27 (Revised)	Consolidated and Separate Financial Statements1
HKAS 32 (Amendment)	Classification of Rights Issues4
HKAS 39 (Amendment)	Eligible hedged items1

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKFRS 1 (Amendment) Additional Exemptions for First-time Adopters[3] HKFRS 2 (Amendment) Group Cash-settled Share-based Payment Transactions[3] HKFRS 3 (Revised) Business Combinations[1] HKFRS 9 Financial Instruments[7] HK(IFRIC) – Int 14 (Amendment) Prepayments of a Minimum Funding Requirement[5] HK(IFRIC) – Int 17 Distributions of Non-cash Assets to Owners[1] HK(IFRIC) – Int 19 Extinguishing Financial Liabilities with Equity Instruments[6]

1 Effective for annual periods beginning on or after 1 July 2009.
2 Amendments that are effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate.
3 Effective for annual periods beginning on or after 1 January 2010. 4 Effective for annual periods beginning on or after 1 February 2010. 5 Effective for annual periods beginning on or after 1 January 2011. 6 Effective for annual periods beginning on or after 1 July 2010. 7 Effective for annual periods beginning on or after 1 January 2013.

The application of HKFRS 3 (Revised) may affect the Group’s accounting for business combination for which the acquisition date is on or after 1 January 2010. HKAS 27 (Revised) will affect the accounting treatment for changes in the Group’s ownership interest in a subsidiary.

HKFRS 9 Financial instruments introduces new requirements for the classification and measurement of financial assets and will be effective from 1 January 2013, with earlier application permitted. The Standard requires all recognised financial assets that are within the scope of HKAS 39 Financial instruments: Recognition and measurement to be measured at either amortised cost or fair value. Specifically, debt investments that (i) are held within a business model whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost. All other debt investments and equity investments are measured at fair value. The application of HKFRS 9 might affect the classification and measurement of the Group’s financial assets.

The directors of the Company anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the consolidated financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Set out below are the audited financial statements of the Group as extracted from page 27 to 109 of the annual report of the Company for the year ended 31 December 2008.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2008

Note CONTINUING OPERATION Turnover 4 & 14 Cost of sales Gross profit/(loss) Other revenue 5 Other net income 5 Equity settled share-based payment expenses Administrative expenses Other operating expenses Loss from operations Finance costs 6(a) Gain on disposal of subsidiaries 31(b)(iii) Share of losses of jointly controlled entity 7 Loss before taxation Income tax 8(a) Loss for the year from continuing operations DISCONTINUED OPERATIONS Loss for the year from discontinued operations 9(d) Loss for the year 6 Loss attributable to equity shareholders of the Company 12 & 29(b) Dividends Loss per share 13 From continuing and discontinued operations – Basic and diluted From continuing operation – Basic and diluted From discontinued operations – Basic and diluted	2008 HK$’000 33,020 (32,010)	2007 HK$’000 (Restated) 154,259 (156,325) (2,066) 1,528 – (12,838) (16,445) (1,000) (30,821) (1) (30,822) – – (30,822) – (30,822) (28,915) (59,737) (59,737) – (HK9.32 cents) (HK4.81 cents) (HK4.51 cents)
	1,010 2,977 256 – (24,698) (2,225) (22,680) (1) (22,681) 80 (4,372) (26,973) (154) (27,127) (15,024)	(2,066 1,528 – (12,838 (16,445 (1,000
		(30,821 (1
		(30,822 – –
		(30,822 –
		(30,822
		(28,915
	(42,151) (42,151) – (HK5.40 cents) (HK3.48 cents) (HK1.92 cents)

The notes on pages 29 to 93 form part of these financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

As at 31 December 2008

Note NON-CURRENT ASSETS Fixed assets 15(a) – Other property, plant and equipment – Investment properties Goodwill 16 Deposit paid for potential investment 18 Interest in jointly controlled entity 19 CURRENT ASSETS Inventories 20 Trade and other receivables 21 Loan receivables, unsecured 22 Cash and cash equivalents 23 CURRENT LIABILITIES Trade and other payables 24 Other borrowing 25 Obligation under finance leases 26 Current taxation 27(a) NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Obligation under finance leases 26 Deferred tax liabilities 27(b) NET ASSETS CAPITAL AND RESERVES 29(a) Share capital Reserves TOTAL EQUITY	2008 HK$’000 2,309 – – 54,600 15,128	2007 HK$’000 1,785 73,585 – 54,600 – 129,970 162,598 73,788 – 160,195 396,581 156,573 10,700 13 2,936 (170,222) 226,359 356,329 35 1,286 (1,321) 355,008 77,764 277,244 355,008
	72,037 – 91,715 – 154,085 245,800 6,084 – 12 18 (6,114) 239,686 311,723 25 – (25)	129,970
		162,598 73,788 – 160,195
		396,581
		156,573 10,700 13 2,936
		(170,222)
		226,359
		356,329
		35 1,286
		(1,321)
	311,698 78,197 233,501 311,698

The notes on pages 29 to 93 form part of these financial statements.

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APPENDIX I

BALANCE SHEET

As at 31 December 2008

Note NON-CURRENT ASSETS Property, plant and equipment 15(b) Investment in subsidiaries 17 Deposit paid for potential investment 18 CURRENT ASSETS Other receivables 21 Amounts due from subsidiaries 17 Cash and cash equivalents 23 CURRENT LIABILITIES Other payables 24 Current taxation 27(a) NET CURRENT ASSETS NET ASSETS CAPITAL AND RESERVES 29(b) Share capital Reserves TOTAL EQUITY	2008 HK$’000 1,079 – 54,600 55,679 34,597 120,044 128,813 283,454 3,567 18 (3,585)	2007 HK$’000 17 – 54,600 54,617 3,294 251,554 82,949 337,797 28,002 – (28,002) 309,795 364,412 77,764 286,648 364,412
	279,869	309,795
	335,548
	78,197 257,351	77,764 286,648
	335,548

The notes on pages 29 to 93 form part of these financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2008

Share capital HK$’000 55,631 – 21,700 433 – – 77,764	Share premium HK$’000 119,078 – 230,472 3,451 – – 353,001	Employee share- based compensation reserve HK$’000 – 12,838 – (1,284) – – 11,554	Capital reserves HK$’000 9,585 – – – – – 9,585	Exchange fluctuation reserve HK$’000 903 – – – 2,856 – 3,759	Accumulated losses HK$’000 (40,918) – – – – (59,737) (100,655)	Total reserve HK$’000 88,648 12,838 230,472 2,167 2,856 (59,737) 277,244	Total equity HK$’000 144,279 12,838 252,172 2,600 2,856 (59,737)
							355,008

77,764 433 – – –	353,001 3,451 – – –	11,554 (1,284) – – –	9,585 – – – –	3,759 – 845 (4,604) –	(100,655) – – – (42,151)	277,244 2,167 845 (4,604) (42,151)	355,008 2,600 845 (4,604) (42,151)
78,197	356,452	10,270	9,585	–	(142,806)	233,501	311,698

The notes on pages 29 to 93 form part of these financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2008

Note OPERATING ACTIVITIES Loss before taxation from continuing and discontinued operations Adjustments for: Depreciation Valuation loss on investment properties Write down of inventories Finance costs Interest income Equity settled share-based payment expenses Net loss on disposal of property, plant and equipment Impairment loss on goodwill Impairment loss on trade and other receivables Recovery of debts on loan receivables Reversal of impairment loss on trade and other receivables Share of losses of jointly controlled entity Gain on disposal of subsidiaries 31(b)(iii) Gain on disposal of subsidiaries attributable to discontinued operations 9(d) Foreign exchange loss/(gain) OPERATING LOSS BEFORE CHANGES IN WORKING CAPITAL Decrease/(increase) in inventories Increase in trade and other receivables Decrease in loan receivables, unsecured Increase in trade and other payables CASH USED IN OPERATIONS Interest paid Interest received Income tax paid – Hong Kong – PRC Income tax refunded – Hong Kong NET CASH USED IN OPERATING ACTIVITIES	2008 HK$’000 (41,997) 1,274 22,224 – 854 (2,293) – 2,224 – – – – 4,372 (80) (7,556) 845	2007 HK$’000 (59,498) 76 7,901 15,912 430 (1,531) 12,838 – 10,200 1,000 (400) (2,991) – – – (4,188) (20,251) (116,687) (15,189) 400 94,113 (57,614) (430) 1,531 – – – (56,513)
	(20,133) 19,540 (11,875) – 4,494 (7,974) (854) 2,293 (1,643) (136) 970 (7,344)	(20,251 (116,687 (15,189 400 94,113
		(57,614 (430 1,531 – – –
		(56,513

– 136 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note INVESTING ACTIVITIES Payment for the purchase of fixed assets Payment for the deposit of potential investment Payment for the investment in a jointly controlled entity Proceeds from disposal of subsidiaries attributable to discontinued operations, net of cash disposed of 31(a)(iv) Proceeds from disposal of subsidiaries 31(b)(iii) NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Loans borrowed Repayment of bank and other borrowings Capital element of finance lease rental payments Proceeds from shares issued under share option scheme Issue of new shares Payment for the expenses of issuing new shares NET CASH GENERATED FROM FINANCING ACTIVITIES NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT 1 JANUARY EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT 31 DECEMBER 23 Note:	2008 HK$’000 (4,062) – (19,500) 22,206 1	2007 HK$’000 (1,799) (54,600) – – – (56,399) 10,700 (9,965) (10) 2,600 255,250 (3,078) 255,497 142,585 14,754 2,856 160,195
	(1,355) – – (11) 2,600 – – 2,589 (6,110) 160,195 –	(56,399
		10,700 (9,965 (10 2,600 255,250 (3,078
		255,497 142,585 14,754 2,856
	154,085

Major non-cash transaction

For the disposal of Elegant Pool Limited, the deferred consideration of HK$39,880,000 was recorded as trade and other receivables as at the balance sheet date. (see note 31(a)(ii)).

The notes on pages 29 to 93 form part of these financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2008

1. BACKGROUND INFORMATION

The Company is a limited liability company incorporated in Bermuda and its registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The Company is listed on the main board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of Compliance

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange. A summary of the significant accounting policies adopted by the Group is set out below.

The HKICPA has issued certain amendments and interpretations which are or have become effective. It has also issued certain new and revised HKFRSs which are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 3 provides information on initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.

(b) Basis of Preparation of the Financial Statements

The consolidated financial statements for the year ended 31 December 2008 comprise the Company and its subsidiaries and the Group’s interest in a jointly controlled entity.

The measurement basis used in the preparation of the financial statements is the historical cost convention except for the revaluation of certain assets and liabilities as explained in the accounting policies set out below.

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

Judgements made by management in the application of HKFRSs that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 38.

(c) Subsidiaries

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases.

Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less any impairment losses (see note 2(j)(ii)), unless the investment is classified as held for sale.

(d) Jointly Controlled Entities

An investment in a jointly controlled entity is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the jointly controlled entity’s net assets, unless it is classified as held for sale. The consolidated income statement includes the Group’s share of the post-acquisition, post-tax results of the jointly controlled entity for the year, including any impairment loss on goodwill relating to the investment in jointly controlled entity recognised for the year (see notes 2(e) and (j)(ii)).

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

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

(e) Goodwill

Goodwill represents the excess of the cost of a business combination or an investment in a jointly controlled entity over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash– generating units and is tested annually for impairment (see note 2(j)(ii)). In respect of jointly controlled entity, the carrying amount of goodwill is included in the carrying amount of the interest in the jointly controlled entity.

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in a jointly controlled entity is recognised immediately in profit or loss.

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(f) Other Investments in Equity Securities

The Group’s and the Company’s policies for investments in equity securities, other than investments in subsidiaries and jointly controlled entity, are as follows:

Investments in equity securities are initially stated at cost, which is their transaction price unless fair value can be more reliably estimated using valuation techniques whose variables include only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. These investments are subsequently accounted for as follows, depending on their classification:

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

Investments in equity securities that do not have a listed market price in an active market and whose fair value cannot be reliably measured are recognised in the balance sheet at cost less impairment losses (see note 2(j)(i)).

Other investments in securities are classified as available-for-sale equity securities and are initially recognised at fair value plus transaction costs. At each balance sheet date the fair value is remeasured, with any resultant gain or loss being recognised directly in equity. Dividend income from these investments is recognised in profit or loss in accordance with the policy set out in note 2(s)(iv) and, where these investments are interest-bearing, interest calculated using the effective interest method is recognised in profit or loss in accordance with the policy set out in note 2(s)(v). When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss.

Investments are recognised/derecognised on the date the Group and/or the Company commits to purchase/sell the investments or when they expire.

(g) Investment Property

Investment properties are land and/or buildings which are owned or held under a leasehold interest (see note 2(i)) to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use.

When the Group holds a property interest under an operating lease to earn rental income and/ or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease (see note 2(i)), and the same accounting policies are applied to that interest as are applied to other investment properties leased under finance leases. Lease payments are accounted for as described in note 2(i).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(h) Other Property, Plant and Equipment

Other property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 2(j)(ii)).

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

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

Furniture, fixtures and office equipment 20% Motor vehicles 20% – 33%

(i) Leased Assets

(i) Classification of assets leased to the Group

Assets held by Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases, with the following exceptions:

property held under operating leases that would otherwise meet the definition of an investment property is classified as an investment property on a property-by– property basis and, if classified as investment property, is accounted for as if held under a finance lease (see note 2(g)); and
land held for own use under an operating lease, the fair value of which cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. For these purposes, the inception of the lease is the time that the lease was first entered into by the Group or taken over from the previous lessee.

(ii) Assets acquired under finance leases

Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset or, if lower, the present value of the minimum lease payments of such assets are included in fixed assets and the corresponding liabilities, net of finance charges, are recorded as obligations under finance lease. Deprecation is provided at rates which write off the cost or valuation of the assets over the term of the relevant lease or where it is likely the Company or Group will obtain ownership of the asset, the life of the asset, as set out in note 2(h). Impairment losses are accounted for in accordance with the accounting policy as set out in note 2(j)(ii). Finance charges implicit in the lease payments are

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

(iii) Operating lease charges

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

The cost of acquiring land held under an operating lease is amortised on a straight– line basis over the period of the lease term except where the property is classified as an investment property.

(j) Impairment of Assets

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

Investments in equity securities (other than investments in subsidiaries and jointly controlled entity) (see note 2(j)(ii)) and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale equity securities are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

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

For unlisted equity securities carried at cost, impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities are not reversed.
For trade receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

For available-for-sale securities, which are stated at fair value when a decline in the fair value has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity shall be removed from equity and recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment;
investments in subsidiaries and jointly controlled entity (except for those classified as held for sale); and
goodwill.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment.

Calculation of recoverable amount

The recoverable amount of an asset is greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Recognition of impairment losses

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

Reversal of impairment losses

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

(iii) Interim financial reporting and impairment

Under the Rules Governing the Listing of Securities on the Stock Exchange, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition and reversal criteria as it would at the end of the financial year (see note 2(j) (i) and (ii)).

Impairment losses recognised in an interim period in respect of goodwill and available-for-sale equity securities carried at cost are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates.

(k) Inventories

(i) General trading

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

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

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

– 144 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Property development

Inventories in respect of property development activities are carried at the lower of cost and net realisable value. Cost and net realisable values are determined as follows:

Completed property held for sale

In the case of completed properties developed by the Group, cost is determined by an apportionment of the total development costs for that development project attributable to the unsold properties. Net realisable value represents the estimated selling price less costs to be incurred in selling the property.

The cost of completed properties held for sale comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

(l) Trade and Other Receivables

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

(m) Interest-bearing Borrowings

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

(n) Trade and Other Payables

Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in accordance with 2(r)(i), trade and other payables are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are carried at cost.

(o) Cash and Cash Equivalents

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

(p) Employee Benefits

(i) Short-term employee benefits and contributions to defined contribution retirement plans

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Share-based payments

The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in an employee share-based compensation reserve within equity. The fair value is measured at grant date using the Black-Scholes – Option Pricing Model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the share options, the total estimated fair value of the share options is spread over the vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options expected to vest is reviewed. Any adjustment to the cumulative fair value recognised in prior years is charged/credited to the profit or loss for the year under review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the employee share-based compensation reserve. On vesting date, the amount recognised as an expenses is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the employee share-based compensation reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s shares. The equity amount is recognised in the employee share-based compensation reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to accumulated losses).

(iii) Termination benefits

(q) Income Tax

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

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.

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

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The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the 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 profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
the same taxable entity; or
different taxable entities which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realize the current tax assets and settle the current tax liabilities on a net basis or realize and settle simultaneously.

(r) Financial Guarantees Issued, Provisions and Contingent liabilities

(i) Financial guarantees issued

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probable that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in respect of that guarantee, that is the amount initially recognised, less accumulated amortisation.

(ii) Other provisions and contingent liabilities

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

(s) 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 profit or loss as follows:

(i) Sale of goods

(ii) Sale of properties

Revenue arising from the sale of properties held for sale is recognised upon the signing of the sale and purchase agreement or the issue of an occupation permit by the relevant government authorities, whichever is the later. Deposits and instalments received on properties sold prior to the date of revenue recognition are included in the balance sheet under deposits received.

(iii) Rental Income from operating lease

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

(iv) Dividends

(v) Interest income

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

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(vi) Service income

Service income is recognised when services are rendered.

(t) Translation of Foreign Currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss, except those arising from foreign currency borrowings used to hedge a net investment in a foreign operation which are recognised directly in equity.

Non-monetary assets and liabilities measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items, including goodwill on consolidation of foreign operations acquired on or after 1 January 2005, are translated into Hong Kong dollars at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in a separate component of equity. Goodwill on consolidation of a foreign operation acquired before 1 January 2005 is translated at the foreign exchange rate that applied at the date of acquisition of the foreign operation.

On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relate to that foreign operation is included in the calculation of the profit or loss on disposal.

(u) Borrowing Costs

Borrowing costs are expensed in profit or loss in the period in which they are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

(v) Discontinued Operations

A discontinued operation is a component of the Group’s business, the operations and cash flow of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. It also occurs when the operation is abandoned.

Where an operation is classified as discontinued, a single amount is presented on the face of the income statement, which comprises:

the post-tax profit or loss of the discontinued operation; and

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the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group(s) constituting the discontinued operation.

(w) Related Parties

For the purposes of these financial statements, parties are considered to be related to the Group

if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;
(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals; or
(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

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

(x) Segment Reporting

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

In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purpose of these financial statements.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include trade receivables and property, plant and equipment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra– group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, tax balances, corporate and financing expenses.

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3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has where applicable applied the following amendments and interpretations (“new HKFRSs”) issued by the HKICPA which are or have become effective.

HKAS 39 & HKFRS 7 (Amendments) Reclassification of Financial Assets HK(IFRIC) – Int 11 HKFRS 2: Group and Treasury Share Transactions HK(IFRIC) – Int 12 Service Concession Arrangements HK(IFRIC) – Int 14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The application of the new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior year adjustment is required.

The Group has not early applied any of the following new and revised standards, amendments or interpretations which have been issued but are not yet effective for annual periods beginning on 1 January 2008.

HKFRSs (Amendments) Improvements to HKFRSs[1] HKAS 1 (Revised) Presentation of Financial Statements[2] HKAS 23 (Revised) Borrowing Costs[2] HKAS 27 (Revised) Consolidated and Separate Financial Statements[3] HKAS 32 & 1 (Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation[2] HKAS 39 (Amendment) Eligible Hedged Items[3] HKFRS 1 and HKAS 27 (Amendments) Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate[2] HKFRS 1 (Revised) First-time Adoption of Hong Kong Financial Reporting Standards[3] HKFRS 2 (Amendments) Vesting Conditions and Cancellations[2] HKFRS 3 (Revised) Business Combinations[3] HKFRS 8 Operating Segments[2] HK(IFRIC) – Int 13 Customer Loyalty Programmes[4] HK(IFRIC) – Int 15 Agreements for the Construction of Real Estate[2] HK(IFRIC) – Int 16 Hedges of a Net Investment in a Foreign Operation[5] HK(IFRIC) – Int 17 Distributions of Non-cash Assets to Owners[3] HK(IFRIC) – Int 18 Transfer of Assets from Customers[6]

1 Effective for annual periods beginning on or after 1 January 2009 unless otherwise stated in the specific HKFRS

2 Effective for annual periods beginning on or after 1 January 2009

3 Effective for annual periods beginning on or after 1 July 2009

4 Effective for annual periods beginning on or after 1 July 2008

5 Effective for annual periods beginning on or after 1 October 2008
6 Effective for transfers on or after 1 July 2009

HKAS 1 Revised affects certain disclosures of the financial statements. Under the revised standard, the Profit and Loss Account is renamed as the “Income Statement”, the Balance Sheet is renamed as the “Statement of Financial Position” and the Cash Flow Statement is renamed as the “Statement of Cash Flows”. All income and expenses arising from transactions with non-owners (i.e., the non-owner movements of equity) are presented under the “Income Statement” and “Statement of Comprehensive Income”, and the total carried to the “Statement of Changes in Equity”, while the owner changes in equity are presented in the “Statement of Changes in Equity”.

The application of HKFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

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HKAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary.

The Company’s directors anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group.

4. TURNOVER

The principal activities of the Group are general trading, property investment and development and provision of financial services. During the year, the Group’s property investment and development operation and provision of financial services operation were discontinued.

Turnover represents the sales value of goods supplied to customers and rental income. The amount of each significant category of revenue recognised in turnover during the year, for both continuing and discontinued operations, is as follows:

Continuing operation Trading of non-ferrous metals Trading of frozen food Discontinued operations (note 9(d)) Gross rentals from investment properties	2008 HK$’000 26,046 6,974 33,020 – 33,020	2007 HK$’000 (Restated) 154,259 –
		154,259 1,194
		155,453

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

5. OTHER REVENUE, NET INCOME AND OPERATING INCOME

Continuing operation 2008 2007 HK$’000 HK$’000 (Restated) 1,945 1,335 348 188 2,293 1,523 684 – – 5 2,977 1,528	Continuing operation 2008 2007 HK$’000 HK$’000 (Restated) 1,945 1,335 348 188 2,293 1,523 684 – – 5 2,977 1,528	Discontinued operation 2008 2007 HK$’000 HK$’000 (Restated) – 8 – – – 8 – – – – – 8	Discontinued operation 2008 2007 HK$’000 HK$’000 (Restated) – 8 – – – 8 – – – – – 8	Consolidated 2008 2007 HK$’000 HK$’000 (Restated) 1,945 1,343 348 188 2,293 1,531 684 – – 5 2,977 1,536	Consolidated 2008 2007 HK$’000 HK$’000 (Restated) 1,945 1,343 348 188 2,293 1,531 684 – – 5 2,977 1,536
					1,536

194 62	– –	– 2,453	– 4,082	194 2,515	– 4,082
256	–	2,453	4,082	2,709	4,082

– –	– –	– –	2,991 400	– –	2,991 400
−	–	–	3,391	–	3,391

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6. LOSS FOR THE YEAR

Loss for the year is arrived at after charging/(crediting) the following:

Continuing operation 2008 2007 HK$’000 HK$’000 (Restated) – – – – – – 1 1 1 1	Continuing operation 2008 2007 HK$’000 HK$’000 (Restated) – – – – – – 1 1 1 1	Discontinued operation 2008 2007 HK$’000 HK$’000 (Restated) – 251 700 – 153 178 – – 853 429	Discontinued operation 2008 2007 HK$’000 HK$’000 (Restated) – 251 700 – 153 178 – – 853 429	Consolidated 2008 2007 HK$’000 HK$’000 (Restated) – 251 700 – 153 178 1 1 854 430	Consolidated 2008 2007 HK$’000 HK$’000 (Restated) – 251 700 – 153 178 1 1 854 430
					430

8,039 79 –	3,341 62 12,838	147 – –	283 – –	8,186 79 –	3,624 62 12,838
8,118	16,241	147	283	8,265	16,524

– 154 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(c) Other items Cost of inventories Depreciation for fixed assets Valuation loss on investment properties Write down of inventories Net foreign exchange loss Impairment loss on trade and other receivables Impairment loss on goodwill Net loss on disposal of property, plant and equipment Minimum lease payments under operating leases on leasehold land and buildings Auditor’s remuneration Gross rental income from investment properties less direct outgoings of HK$nil (2007: HK$208,000)	Continuing operation 2008 2007 HK$’000 HK$’000 (Restated) 32,010 156,325 1,268 72 – – – – – 5 – 1,000 – – 2,224 – 4,758 1,091 500 500 – –	Discontinued operation 2008 2007 HK$’000 HK$’000 (Restated) – – 6 4 22,224 7,901 – 15,912 – – – – – 10,200 – – – 64 80 – – (986)	Consolidated 2008 2007 HK$’000 HK$’000 (Restated) 32,010 156,325 1,274 76 22,224 7,901 – 15,912 – 5 – 1,000 – 10,200 2,224 – 4,758 1,155 580 500 – (986)

7. SHARE OF LOSSES OF JOINTLY CONTROLLED ENTITY

Share of losses of jointly controlled entity before taxation Share of jointly controlled entity’s taxation	2008 HK$’000 (4,372) – (4,372)	2007 HK$’000 (Restated) – –
		–

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APPENDIX I

8. INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT

(a) Income tax in the consolidated income statement represents:

Current tax – Hong Kong – PRC Enterprise Income Tax Deferred income tax	Continuing 2008 HK$’000 – 154	operation 2007 HK$’000 (Restated) – –	Discontinued operation 2008 2007 HK$’000 HK$’000 (Restated) – – – 239	Discontinued operation 2008 2007 HK$’000 HK$’000 (Restated) – – – 239	Consolidated 2008 2007 HK$’000 HK$’000 (Restated) – – 154 239 154 239 – – 154 239	Consolidated 2008 2007 HK$’000 HK$’000 (Restated) – – 154 239 154 239 – – 154 239
	154 –	– –	– –	239 –	154 –	239 –
	154	–	–	239	154

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 and reduced corporate profits tax rate from 17.5% to 16.5% which is effective from the year of assessment 2008/2009. No provision for Hong Kong Profits Tax has been made as the Group did not generate any assessable profit arising in Hong Kong during the current and prior years.

Provision for Foreign Enterprise Income Tax in the People’s Republic of China (“PRC”) has been calculated based on total operating expenses of the PRC representative office in accordance with the provisions of the Circular of the State Administration of Taxation Concerning the Related Matters about Reinforcing the Collection and Administration of Taxes of Permanent Establishments of Foreign Enterprises (Guo Shui Fa [1996] No. 165) and the Circular of the State Administration of Taxation Concerning the Related Matters about the Tax Administration of the Permanent Establishments of Foreign Enterprises (Guo Shui Fa [2003] No. 28, issued by the State of Administration of Taxation of the PRC on 13 September 1996 and 12 March 2003 respectively.

Taxation arising in other jurisdictions are calculated at the rates prevailing in the relevant jurisdictions.

On 16 March 2007, the People’s Republic of China promulgated the Law of the People’s Republic of China on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the People’s Republic of China. On 6 December 2007, the State Council of the PRC issued Implementation Regulations of the New Law. The New Law and Implementation Regulations changed the tax rate from 15% to 18% for a subsidiary from 1 January 2008. In 2007, the deferred tax balance has been adjusted to reflect the tax rates that are expected to apply to the respective periods when the asset is realised or the liability is settled.

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

Loss before taxation Continuing operation Discontinued operations Notional tax on loss before taxation, calculated at the rates applicable to losses in the tax jurisdictions concerned Tax effect of non-taxable income Tax effect of non-deductible expenses Tax effect of unused tax losses not recognised Tax effect of deductible temporary differences not recognised Tax effect of PRC income tax on representative office Actual tax expense	2008 HK$’000 (26,973) (15,024) (41,997)	2007 HK$’000 (Restated) (30,822) (28,676) (59,498) (9,860) (461) 5,462 5,101 (3) – 239
	3,730 (8,274) 3,622 857 65 154	(9,860 (461 5,462 5,101 (3 –
	154

9. DISCONTINUED OPERATIONS

(a) Smart Wave limited

On 21 April 2008, the Company entered into a conditional sale and purchase agreement with an independent third party, Rich Fast Holdings Limited (“Rich Fast”), for the disposal of the entire issued share capital together with shareholders’ loan of Smart Wave Limited for an aggregate consideration of HK$12,250,000 (the “Smart Wave Disposal”). Smart Wave Limited holds through a wholly-owned subsidiary, Weiqiu Industrial (Shenzhen) Company Limited (“Weiqiu”), the completed property held for sale located in Shenzhen, PRC, which constitutes the Group’s property development operation.

Upon signing of the agreement, the Company received a deposit of HK$2,000,000 from Rich Fast. The remaining consideration was received on 30 June 2008.

The profit for the year from the discontinued operation of Smart Wave Limited is analysed as follows:

Loss from operation of Smart Wave Limited for the period/year Gain on disposal of Smart Wave Limited (note 31(a)(i))	2008 HK$’000 (2,782) 4,800 2,018	2007 HK$’000 (Restated) (29,133) – (29,133)

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APPENDIX I

The results of Smart Wave Limited for the period from 1 January 2008 to 30 June 2008, which have been included in the consolidated income statement, were as follows:

Other revenue Other net income Write down of inventories Impairment loss on goodwill Administrative expenses Other operating expenses Loss from operations Finance costs Loss before taxation Income tax Loss for the period/year	Period ended 30 June 2008 HK$’000 – (139) – – (581) (1,362)	Year ended 31 December 2007 HK$’000 (Restated) 8 (143) (15,912) (10,200) (759) (1,876) (28,882) (251) (29,133) – (29,133)
	(2,082) (700) (2,782) –	(28,882 (251
		(29,133 –
	(2,782)

No tax charge or credit arose on the disposal of Smart Wave Limited.

During the year, Smart Wave Limited used HK$269,000 (2007: HK$1,255,000) of the Group’s net operating cashflow, and paid HK$nil (2007: HK$46,000) in respect of investing activities and received HK$nil (2007: HK$735,000) in respect of financing activities.

The carrying amounts of the assets and liabilities of Smart Wave Limited at the date of disposal are disclosed in note 31(a)(i).

(b) Elegant Pool limited

On 24 December 2008, the Group entered into a sale and purchase agreement with an independent third party, Flame High Limited (“Flame High”), for the disposal of the entire issued share capital together with shareholder’s loan of Elegant Pool Limited for an aggregate consideration of HK$49,880,000 (“Elegant Pool Disposal”). Elegant Pool Limited holds investment properties located in Beijing, which constitutes the Group’s property investment operation.

Upon signing of the agreement, the Group received a deposit of HK$10,000,000 from Flame High. The balance of the consideration will be payable by Flame High within the nine months from 24 December 2008 with interest at 5% per annum.

The Elegant Pool Disposal was completed on 24 December 2008.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The profit/(loss) for the year from the discontinued operation of Elegant Pool Limited is analysed as follows:

(Loss)/profit of from operation of Elegant Pool Limited for the period/year Gain on disposal of Elegant Pool Limited (note 31(a)(ii))	2008 HK$’000 (19,637) 1,232 (18,405)	2007 HK$’000 (Restated) 54 –
		54

The results of Elegant Pool Limited for the period from 1 January 2008 to 24 December 2008, which have been included in the consolidated income statement, were as follows:

Turnover Other net income Other operating income Valuation loss on investment properties Administrative expenses Other operating expenses (Loss)/profit from operations Finance costs (Loss)/profit before taxation Income tax (Loss)/profit for the period/year	Period ended 24 December 2008 HK$’000 – 2,592 – (22,224) (5) –	Year ended 31 December 2007 HK$’000 (Restated) 1,194 4,225 2,991 (7,901) (216) –
	(19,637) – (19,637) –	293 –
		293 (239)
	(19,637)	54

No tax charge or credit arose on the disposal of Elegant Pool Limited.

During the year, Elegant Pool Limited contributed HK$nil (2007: HK$nil) to the Group’s net operating cashflow, and paid HK$nil (2007: HK$nil) in respect of investing activities and financial activities respectively.

The carrying amounts of the assets and liabilities of Elegant Pool Limited at the date of disposal are disclosed in note 31(a)(ii).

(c) New Times Finance limited and Jefta Holdings limited

On 1 December 2008, the Company disposed of its entire issued share capital together with shareholder’s loan of New Times Holdings Limited (“NTHL”) to an independent third party for an aggregate consideration of HK$500 (“NTHL Disposal”). NTHL was an investment holding company and its principal investments are two wholly-owned subsidiaries, New Times Finance Limited and Jefta Holdings Limited, which were engaged in the provision of financial services.

The NTHL Disposal was completed on 1 December 2008.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The profit for the year from the discontinued operation of provision of financial services is analysed as follows:

(Loss)/profit of provision of financial service operation for the period/year Gain on disposal of provision of financial service operation (note 31(a)(iii))	2008 HK$’000 (161) 1,524 1,363	2007 HK$’000 (Restated) 164 –
		164

The results of the provision of financial service operation for the period from 1 January 2008 to 1 December 2008, which have been included in the consolidated income statement, were as follows:

Other operating income Administrative expenses (Loss)/profit from operations Finance costs (Loss)/profit before taxation Income tax (Loss)/profit for the period/year	Period ended1 December 2008 HK$’000 – (8)	Year ended 31 December 2007 HK$’000 (Restated) 400 (58)
	(8) (153) (161) –	342 (178)
		164 –
	(161)	164

No charge or credit arose on loss on discontinuance of the provision of financial service operations. During the year, New Times Finance Limited and Jefta Holdings Limited used HK$134,000 (2007: HK$3,000) of the Group’s net operating cashflow. and paid HK$nil (2007: HK$nil) in respect of investing activities and financing activities respectively.

The carrying amounts of the assets and liabilities of New Times Finance Limited and Jefta Holdings Limited at the date of disposal are disclosed in note 31(a)(iii).

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APPENDIX I

(d) Summary of the discontinued operations

The loss for the year from the discontinued operations are summarised as follows:

Loss of discontinued operations for the year Gain on disposal of discontinued operations (note 31(a)(iv))	2008 HK$’000 (22,580) 7,556 (15,024)	2007 HK$’000 (Restated) (28,915) – (28,915)

The results of the discontinued operations from 1 January 2007 to the respective dates of discontinued operation, which have been included in the consolidated income statement, were summarised as follows:

Turnover Other revenue Other net income Other operating income Impairment loss on goodwill Write down of inventories Valuation loss on investment properties Administrative expenses Other operating expenses Loss from operations Finance costs Loss before taxation Income tax Loss for the year	2008 HK$’000 – – 2,453 – – – (22,224) (594) (1,362)	2007 HK$’000 (Restated) 1,194 8 4,082 3,391 (10,200) (15,912) (7,901) (1,033) (1,876) (28,247) (429) (28,676) (239) (28,915)
	(21,727) (853) (22,580) –	(28,247 (429
		(28,676 (239
	(22,580)

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APPENDIX I

10. DIRECTORS’ EMOLUMENTS

Directors’ emoluments disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as follows:

Note Chairman Mr. Tse On Kin (i) Executive directors Mr. Wu Jian Feng (iii) Mr. Zhang Cheng Jie (iii) Mr. Li Guoping (i) & (iv) Mr. Cheng Kam Chiu, Stewart (ii) Mr. Cheng Chi Him (ii) Non-executive directors Mr. Chan Chi Yuen Mr. Chan Chung Yin, Victor (iii) Mr. Tsang Kwong Fook, Andrew (i) & (iii) Mr. Wong Man Kong, Peter (ii) Mr. Pei Cheng Ming, Michael (ii) Independent non-executive directors Mr. Fung Chi Kin Mr. Qian Zhi Hui (iii) Mr. Chiu Wai On Mr. Fung Siu To (ii)			Year en	ded 31 Decembe	r 2008
	Directors’ fees HK$’000 – 6 6 – – – 100 10 67 90 90 100 45 100 7	Salaries, allowances and benefits in kind HK$’000 1,420 – – 1,800 – – – – – – – – – – –	Discretionary bonuses HK$’000 79 – – – – – – – – – – – – – –	Retirement scheme contributions HK$’000 12 – – 12 – – – – – – – – – – –	Sub-total HK$’000 1,511 6 6 1,812 – – 100 10 67 90 90 100 45 100 7	Equity settled share-based payment expenses HK$’000 – – – – – – – – – – – – – – –	Total HK$’000 1,511 6 6 1,812 – – 100 10 67 90 90 100 45 100 7
	621	3,220	79	24	3,944	–	3,944

Note Chairman Mr. Tse On Kin (i) Executive directors Mr. Wu Jian Feng (iii) Mr. Zhang Cheng Jie (iii) Mr. Li Guoping (i) & (iv) Non-executive directors Mr. Chan Chi Yuen Mr. Chan Chung Yin, Victor (iii) Mr. Tsang Kwong Fook, Andrew (i) & (iii) Independent non-executive directors Mr. Fung Chi Kin Mr. Qian Zhi Hui (iii) Mr. Chiu Wai On			Year ended 3	1 December 200	7 (Restated)
	Directors’ fees HK$’000 – 60 60 – 100 100 15 100 60 100	Salaries, allowances and benefits in kind HK$’000 937 – – 348 – – – – – –	Discretionary bonuses HK$’000 – – – – – – – – – –	Retirement scheme contributions HK$’000 8 – – 3 – – – – – –	Sub-total HK$’000 945 60 60 351 100 100 15 100 60 100	Equity settled share-based payment expenses HK$’000 1,284 1,284 1,284 – – – – – – –	Total HK$’000 2,229 1,344 1,344 351 100 100 15 100 60 100
	595	1,285	–	11	1,891	3,852	5,743

Notes:

(i) Appointed during the year ended 31 December 2007.
(ii) Appointed during the year ended 31 December 2008.
(iii) Resigned during the year ended 31 December 2008.
(iv) Resigned on 2 March 2009.

– 162 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The above emoluments include the fair value of share options granted to certain directors under the Company’s share option scheme as estimated at the date of grant. As at 31 December 2008, none of the directors held any share options under the Company’s share option scheme. The details of the share option are disclosed under the paragraph “share option scheme” in the report of the directors and note 28.

During the year, no emoluments or incentive payments were paid to the directors as an inducement to join or upon joining the Group or as compensation for loss of office during the year.

11. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments in the Group, two (2007: three) were directors of the Company whose emoluments are included in the disclosures in note 10 above. The emoluments of the remaining three (2007: two) individuals were as follows:

Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions Equity settled share-based payment expenses	2008 HK$’000 1,998 – 24 – 2,022	2007 HK$’000 720 – 18 2,568
		3,306

Analysis of the emoluments of the remaining three (2007: two) individuals with the highest emoluments by the number of individuals and remuneration range is as follows:

	Number of	individuals
Band	2008	2007
Nil – HK$1,000,000	3	–
HK$1,000,001 – HK$1,500,000	–	1
HK$1,500,001 – HK$2,000,000	–	1

During the year, no emoluments or incentive payments were paid to the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office during the year.

12. LOSS ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY

The consolidated loss attributable to equity shareholders of the Company includes a loss of HK$31,464,000 (2007: profit of HK$28,173,000) which has been dealt with in the financial statements of the Company.

13. LOSS PER SHARE

(a) Basic loss per share

(i) For continuing and discontinued operations

The calculation of basic loss per share is based on the loss attributable to ordinary equity shareholders of the Company of HK$42,151,000 (2007: HK$59,737,000) and the weighted average number of 780,110,626 ordinary shares (2007: 641,144,646 ordinary shares) in issue during the year as follows:

– 163 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Weighted average number of ordinary shares

Issued ordinary shares at 1 January Effect of shares issued under placement (note 29(c)(iii)) Effect of share options exercised (note 29(c)(iv)) Weighted average number of ordinary shares at 31 December	2008 777,638,030 – 2,472,596 780,110,626	2007 556,305,030 84,104,109 735,507
		641,144,646

(ii) From continuing operation

The calculation of basic loss per share from continuing operation attributable to ordinary equity shareholders of the Company is based on the loss for the year from continuing operation of HK$27,127,000 (2007: HK$30,822,000 (restated)) and the weighted average number of 780,110,626 ordinary shares (2007: 641,144,646 ordinary shares) in issue during the year.

(iii) From discontinued operations

The calculation of basic loss per share from discontinued operations attributable to ordinary equity shareholders of the Company is based on the loss for the year from discontinued operations of HK$15,024,000 (2007: HK$28,915,000 (restated)) and the weighted average number of 780,110,626 ordinary shares (2007: 641,144,646 ordinary shares) in issue during the year.

(b) Diluted loss per share

Diluted loss per share for both years ended 31 December 2007 and 2008 were the same as the basic loss per share as the potential ordinary shares outstanding during the years had an anti– dilutive effect on the basic loss per share for the years.

14. SEGMENT REPORTING

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

Business segments

The Group comprises the following main business segments:

Property investment and the leasing of properties to generate rental income and to gain development: from the appreciation in the properties’ values in the long term; the development and sale of office premises. Financial services: provision of financial services. General trading: trading of non-ferrous metal and frozen foods

Further details of the discontinued operation under the segments of property investment and development and financial services are set out in note 9 to the financial statements.

There were no inter-segment sales and transfer during the current and prior years.

– 164 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 December 2008

Continuing	operation Discontinued operations Sub-total Property investment and development Financial services Sub-total HK$’000 HK$’000 HK$’000 HK$’000 33,020 – – – (3,011) (21,574) (8) (21,582) 6,032 1,524 7,556 7 – – – 498 5 – 5 – – – – – 22,224 – 22,224	operation Discontinued operations Sub-total Property investment and development Financial services Sub-total HK$’000 HK$’000 HK$’000 HK$’000 33,020 – – – (3,011) (21,574) (8) (21,582) 6,032 1,524 7,556 7 – – – 498 5 – 5 – – – – – 22,224 – 22,224	Total HK$’000 33,020
General trading HK$’000 33,020 (3,011) 7 498 194 –	Financial services HK$’000 – (8) 1,524 – – – –

			(24,593)
		7,556	(22,107) 2,293
			(44,407) (854) 80 7,556 (4,372)
			(41,997) (154)
		– 5 – 22,224	(42,151)

			7 4,055 503 771 194 2,224 22,224

– 165 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Assets Segment assets Investments in equity method jointly controlled entity Unallocated corporate assets Total assets Liabilities Segment liabilities Unallocated corporate liabilities Total liabilities	Continuing operation	Discontinued operations
	General trading Sub-total Property investment and development Financial services Sub-total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 43,739 43,739 – – –		Total HK$’000 43,739 15,128 258,970
	(2,554) (2,554) – – –		317,837

			(2,554 (3,585
			(6,139

For the year ended 31 December 2007 (Restated)

Continuing	operation Discontinued operations Sub-total Property investment and development Financial services Sub-total HK$’000 HK$’000 HK$’000 HK$’000 154,259 1,194 – 1,194 (8,610) (28,447) 342 (28,105) 1,794 46 – 46 72 3 – 3	operation Discontinued operations Sub-total Property investment and development Financial services Sub-total HK$’000 HK$’000 HK$’000 HK$’000 154,259 1,194 – 1,194 (8,610) (28,447) 342 (28,105) 1,794 46 – 46 72 3 – 3	Total HK$’000 155,453
General trading HK$’000 154,259 (8,610) 1,794 72	Financial services HK$’000 – 342 – –

			(36,715
			(23,884 1,531
			(59,068 (430
			(59,498 (239
		46 3	(59,737

			1,840 17 75 1

– 166 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Impairment loss on trade and other receivables – segment Reversals of impairment loss on trade and other receivables – segment Recovery of debts on loan receivables – segment Impairment loss on goodwill – segment Valuation loss on investment properties – segment Write down of inventories – segment Equity settled share-based payment expenses – unallocated Assets Segment assets Unallocated corporate assets Total assets Liabilities Segment liabilities Unallocated corporate liabilities Total liabilities	Continuing	operation Discontinued operations Sub-total Property investment and development Financial services Sub-total HK$’000 HK$’000 HK$’000 HK$’000 1,000 – – – – (2,991) – (2,991) – – (400) – – 10,200 – 10,200 – 7,901 – 7,901 – 15,912 – 15,912 136,339 249,050 297 249,347 (1,101) (164,649) (1,530) (166,179)	Total HK$’000 1,000 (2,991 (400 10,200 7,901 15,912 12,838
	General trading HK$’000 1,000 – – – – – 136,339 (1,101)

			385,686 140,865
			526,551

			(167,280 (4,263
			(171,543

Geographical segment

The Group participates in two principal economic environments: Hong Kong and Mainland China.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets and capital expenditure are based on the geographical location of the assets.

– 167 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Continuing 2008 HK$’000 6,974 – 6,974	operation 2007 HK$’000 (Restated) 154,259 – 154,259	Discontinued 2008 HK$’000 26,046 – 26,046	operations 2007 HK$’000 (Restated) – 1,194 1,194	Consolidated 2008 2007 HK$’000 HK$’000 (Restated 33,020 154,259 – 1,194 33,020 155,453	Consolidated 2008 2007 HK$’000 HK$’000 (Restated 33,020 154,259 – 1,194 33,020 155,453
					155,453

317,837 –	277,204 –	– –	297 249,050	317,837 –	277,501 249,050
317,837	277,204	–	249,347	317,837	526,551

4,062 –	1,811 –	– –	– 46	4,062 –	1,811 46
4,062	1,811	–	46	4,062	1,857

15. FIXED ASSETS

(a) The Group

Furniture, fixtures and office equipment HK$’000 46 2 277 –	Motor vehicles HK$’000 – – 1,580 –	Sub-Total HK$’000 46 2 1,857 –	Investment properties HK$’000 77,300 4,186 – (7,901)	Total fixed assets HK$’000 77,346 4,188 1,857 (7,901
325 325 –	1,580 1,580 –	1,905 1,905 –	73,585 – 73,585	75,490
				1,905 73,585
325 325 2 2,713 (2,724) –	1,580 1,580 – 1,349 – –	1,905 1,905 2 4,062 (2,724) –	73,585 73,585 2,591 – – (22,224)	75,490

				75,490 2,593 4,062 (2,724 (22,224

– 168 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Disposal of subsidiaries attributable to discontinued operations (note 31(a)(iv)) At 31 December 2008 Representing Cost Valuation – 2008 Accumulated depreciation At 1 January 2007 Charge for the year At 31 December 2007	Furniture, fixtures and office equipment HK$’000 (96) 220 220 – 220 44 23 67	Motor vehicles HK$’000 – 2,929 2,929 – 2,929 – 53 53	Sub-Total HK$’000 (96) 3,149 3,149 – 3,149 44 76 120	Investment properties HK$’000 (53,952) – – – – – – –	Total fixed assets HK$’000 (54,048)
					3,149
					3,149 –
					3,149

					44 76
					120

– 169 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 1 January 2008 Charge for the year Written back on disposals Disposal of subsidiaries attributable to discontinued operations (note 31(a)(iv)) At 31 December 2008 Net book value At 31 December 2008 At 31 December 2007	Furniture, fixtures and office equipment HK$’000 67 550 (500) (54) 63 157 258	Motor vehicles HK$’000 53 724 – – 777 2,152 1,527	Sub-Total HK$’000 120 1,274 (500) (54) 840 2,309 1,785	Investment properties HK$’000 – – – – – – 73,585	Total fixed assets HK$’000 120 1,274 (500) (54)
					840

					2,309

					75,370

– 170 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) The Company

Furniture, Fixtures and office equipment HK$’000 – 18	Motor vehicle HK$’000 – –	Total fixed assets HK$’000 – 18 18 4,055 (2,724) 1,349 – 1 1 769 (500) 270 1,079 17
18 2,706 (2,724)	– 1,349 –	18 4,055 (2,724
–	1,349
– 1 1 499 (500)	– – – 270 –	– 1
		1 769 (500
– – 17	270 1,079 –

(c) At 31 December 2007, investment properties with a total carrying amount of HK$73,585,000 were situated outside Hong Kong under medium-term leases.
(d) The Group leases certain furniture, fixtures and office equipment under finance leases expiring within 5 years. At the end of the lease term, the Group has the option to purchase the leased equipment at a price deemed to be a bargain purchase option. None of the leases includes contingent rental.

At the balance sheet date, the net book value of the furniture, fixtures and office equipment held under finance leases of the Group was approximately HK$38,000 (2007: HK$50,000).

16. GOODWILL

==> picture [382 x 87] intentionally omitted <==

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

The Group
2008 2007
HK$’000 HK$’000
At 1 January – 10,200
Impairment loss – (10,200)
At 31 December – –
----- End of picture text -----

– 171 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Goodwill was acquired through acquisition of Smart Wave Limited in prior years. Upon the disposal of Smart Wave Limited on 30 June 2008 as set out in note 31(a)(i), the Group had derecognised the goodwill during the year.

The impairment loss recognised during the prior year related to the Group’s property development activities in PRC. As the recoverable amount of the cash-generating unit (“CGU”) based on value-in-use calculations was less than its carrying amount, the carrying amount of the CGU reduced to its recoverable amount.

17. INTEREST IN SUBSIDIARIES

Unlisted shares, at cost Less: Impairment loss Due from subsidiaries Less: allowance for doubtful debts (note (a))	The Company 2008 2007 HK$’000 HK$’000 – 153,153 – (153,153) − – - - - - - - - - - - - - - - - - - - - - - - - - 120,044 299,700 – (48,146) 120,044 251,554 ------------ --------------------------------------------- ------------ --------------------------------------------- 120,044 251,554	The Company 2008 2007 HK$’000 HK$’000 – 153,153 – (153,153) − – - - - - - - - - - - - - - - - - - - - - - - - - 120,044 299,700 – (48,146) 120,044 251,554 ------------ --------------------------------------------- ------------ --------------------------------------------- 120,044 251,554
	− - - - - - - - - - - - - 120,044 –	– - - - - - - - - - - - - 299,700 (48,146
	120,044 ------------ --------------------------------------------- 120,044

Notes:

(a) Movement in the allowance for doubtful debts

At 1 January Impairment losses recognised Amounts reserved during the year Disposal of subsidiaries At 31 December	The Company 2008 2007 HK$’000 HK$’000 48,146 120,101 – 22,045 – (94,000) (48,146) – – 48,146

(b) The amounts due from subsidiaries are unsecured, interest-free and expected to be repaid within one year.
(c) The directors consider that in light of recurring operating loss of certain subsidiaries, the recoverable amount of these subsidiaries has been reduced to the estimated net realisable value of their identifiable net assets. Accordingly, impairment loss of approximately HK$nil (2007: HK$153,153,000) and HK$nil (2007: HK$48,146,000) in respect of the Company’s interest in subsidiaries and amounts due from subsidiaries were recognised.
(d) The following list contains only the particulars of subsidiaries which principally affect the results, assets or liabilities of the Group. The class of shares held is ordinary unless otherwise stated.

– 172 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Name of company
Place of
establishment/
incorporation
and operation
Particulars of
issued and
paid up
capital
New Times Holdings
Limited
British Virgin
Islands/
Hong Kong
1,000 shares of
HK$1 each
Total Belief Limited
British Virgin
Islands/
Hong Kong
1 share of
US$1
Elegant Pool Limited
British Virgin
Islands/
Mainland
China
100 shares of
US$1 each
Jefta Holdings Limited
British Virgin
Islands/
Hong Kong
100 shares of
US$1 each
New Times Finance
Limited
Hong Kong
2 shares of
HK$10 each
Smart Wave Limited
British Virgin
Islands/
Hong Kong
100 shares of
US$1 each
Weiqiu Industrial
(Shenzhen) Company
Limited #
PRC
RMB10,000,000
Jumbo Hope Group
Limited
Hong Kong
1 share of
HK$1
Rich Result Limited
Hong Kong
1 share of
HK$1
Cheer Profit Group Limited
British Virgin
Islands
1 share of
US$1

Proportion of ownership interest
Group’s
effective
interest
Held by
the
Company
Held by a
subsidiary
Principal
activities
100%
100%
–
Investment
holding
100%
100%
–
Investment
holding
100%
–
100%
Property
investment
100%
–
100%
Investment
holding/
provision
of
financial
services
100%
–
100%
Provision of
financial
services
100%
100%
–
Investment
holding
100%
–
100%
Property
development
100%
–
100%
Trading of
non-ferrous
metal
100%
–
100%
Trading of
frozen
food/
provision
of
financial
services
100%
–
100%
Investment
holding

Registered under the laws of the PRC as a foreign investment enterprise.

Disposed of during the year.

18. DEPOSIT PAID FOR POTENTIAL INVESTMENT

			The	Group and
			the	Company
			2008	2007
			HK$’000	HK$’000
At	31	December	54,600	54,600

The Tartagal Concession and Morillo Concession (collectively the “Concessions”) are defined as the concessions of the exploration permits and potential exploitation permits for oil and developments of hydrocarbons in the province of Salta in northern Argentina covering a total surface area of approximately 7,065 and 3,518 square kilometers respectively. The Tartagal Concession was granted under the Provincial Government Decree No3391/2006 dated 29 December 2006; and the Morillo Concession was granted under the Provincial Government Decree No3388/2006 dated 29 December 2006 to JHP International Petroleum Engineering Limited (“JHP”) and Maxipetrol – Petroleros de Occidente S.A. (“Maxipetrol”) (formerly known as “Oxipetrol – Petroleros de Occidente S.A.”) respectively (collectively the “Consortium”). Pursuant to legal opinion obtained, the directors consider that the aforesaid decrees are legal, valid and enforceable. The exploration permits granted are valid for an initial period of four years and an additional extension of aggregate nine years may be obtained. The holder for an exploration permit has the right to obtain an exploitation permit.

– 173 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 28 August 2007, Corporation, Technical Assistance and Investment Agreement was executed by the Consortium agreeing to distribute the interest in the Concessions as to 70% by JHP. A joint venture company (“UTE”) is to be created to take up the interest to be distributed which will finally be the title owner of the concession of exploration permits to the Concessions. The UTE was registered in the Public Register of Commerce on 14 March 2008.

On 20 September 2007, High Luck Group Limited (“High Luck”) and the Consortium entered into an assignment agreement pursuant to which, the Consortium has agreed to assign 60% interests in the Concessions to High Luck subject to the notification to the Argentina government requesting authorization of the assignment to High Luck. Pursuant to legal opinion obtained, the directors do not foresee any major difficulties in respect of the transfer of ownership from the Consortium to High Luck and the renewal of the Concessions in the future. On 10 October 2007, the Company entered into a conditional framework agreement with two independent third parties (the “Vendors”), under which the Company agreed to acquire from the Vendors the entire issued share capital of Jade Honest Limited (the “Target”) for a consideration of HK$10 billion. The Target beneficially owned 51% of the entire issued share capital of High Luck which in turn, at completion of the acquisition by the Company, will become the beneficial and registered owner of 60% interest of the Concessions. The effective interest in the Concessions to be acquired by the Group will be 30.6%.

Under this conditional framework agreement, the consideration of HK$10 billion is to be satisfied at completion by (i) as to a total of HK$408,229,000 by way of the issue and allotment of 272,152,758 of the Company’s shares at an issue price of HK$1.50 per share to the Vendors or their nominees; (ii) as to a total of HK$9,361,771,000 by the issue of convertible notes by the Company to the Vendors or their nominees; and (iii) as to a total of HK$230,000,000 by the issue of a promissory note by the Company to the Vendors or their nominees.

On 11 November 2007, the Target entered into an unconditional sale and purchase agreement to acquire an additional 49% equity interest in High Luck. As a result, the Target’s interest in the issued share capital of High Luck will be increased to 100%. On 12 November 2007, the Company entered into a supplementary agreement with the Vendors agreeing to increase the consideration for the acquisition to HK$10,312 million. The effective interest in the Concessions to be acquired by the Group will increase from 30.6% to 60%.

Under the supplementary agreement, the additional consideration of HK$312 million is to be satisfied by: (i) HK$54,600,000 payable to the Vendors in cash upon signing of the supplemental agreement (of the amount, HK$39,000,000 is designated as non-refundable); (ii) HK$234,000,000 payable to the Vendors upon completion and to be satisfied by the Company issuing additional convertible notes; and (iii) HK$23,400,000 payable to Vendors in cash upon completion.

The balance of HK$54,600,000 (2007: HK$54,600,000) as at the balance sheet date represents the deposit money paid by the Group in relation to the acquisition of the Concessions.

According to the legal opinion issued by the Argentina legal advisers dated 18 October 2007, it is the obligation of the Consortium to fulfill the investment commitment for the exploration work in Tartagal and Morillo up to a total amount of US$35,990,000 and US$13,000,000 respectively (the “Investment Commitment”) within the initial four-year period of the Concessions. The amount not spent in the exploration work at the end of the initial four-year period must be paid to the government of Salta Province of Argentina. The Consortium is obliged to obtain a performance bond as guarantee for the benefit of the government of Salta Province of Argentina for an amount equal to the Investment Commitment (the “Guarantee”).

Pursuant to the second supplementary agreement on 26 March 2008, the Company has agreed to bear the costs of approximately US$784,000 (equivalent to approximately HK$6,000,000), representing the total insurance premium payable to the insurance company for issuing an insurance policy to the government of Salta Province of Argentina for the initial four-year period, to be incurred by the Vendors. On 28 April 2008, the Company has further agreed to bear the additional costs of approximately US$169,344 (equivalent to approximately HK$1,320,000), representing the 21% value added tax imposed on insurance policy.

– 174 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the third supplementary agreement on 30 August 2008, the Company and the Vendors have agreed to extend the deadline for the fulfillment of the conditions to the Acquisitions from 30 August 2008 to 28 November 2008.

The Company and the Vendors entered into the forth supplementary agreement on 28 November 2008 to extend the deadline for the fulfillment of the conditions to the Acquisitions from 28 November 2008 to 12 December 2008 for obtaining additional time to re-negotiate the terms and conditions of the original agreement.

Pursuant to the fifth supplementary agreement on 12 December 2008, the Company agreed to acquire the entire issued share capital of the Target and the shareholders’ loan of HK$817,909,000 at a revised consideration of HK$2,100 million, and to revise certain other related terms and conditions for the acquisition. In addition, a contingent consideration of HK$780,000,000 will be paid by the Company to the Vendors upon satisfactorily obtaining a technical report issued by a firm of independent technical consultants to be appointed by the Company and agreed by the Vendors.

Under the fifth supplementary agreement, the revised consideration of HK$2,100 million is to be satisfied by: (i) HK$54,600,000 payable to the Vendors in cash upon signing of the supplemental agreement (of the amount, HK$39,000,000 is designated as non-refundable); (ii) HK$90,000,000 payable to the Vendors upon completion and to be satisfied by the Company by way of issue and allotment of a total of 281,250,000 revised consideration shares at the issue price of HK$0.32 per share in three equal tranches (the first tranche to be issued at completion; the second tranche to be issued 3 months after completion; and the third tranche to be issued 6 months after completion); (iii) HK$123,000,000 payable to the Vendors upon completion and to be satisfied by the Company issuing the revised promissory notes; and (iv) HK$1,832,400,000 payable to the Vendors upon completion and to be satisfied by the Company issuing the revised convertible notes. The contingent consideration of HK$780 million will be satisfied at the choice of the Company by way of (i) cash; (ii) issue of new shares; or (iii) a combination of cash and issue of new shares.

On 6 January 2009, the Company entered into the sixth supplementary agreement with the Vendors to amend the payment mechanism of the contingent consideration. Pursuant to the sixth supplementary agreement, no new shares shall be issued to the extent that such issue will result in a change in control of the Company.

The acquisition of the Target had been approved in the special general meeting of the shareholders held on 18 March 2009.

On 31 March 2009, the Company entered into the seventh supplementary agreement with the Vendors to extend the deadline for the fulfillment of the conditions to the Acquisition from 31 March 2009 to 30 April 2009.

19. INTEREST IN JOINTLY CONTROLLED ENTITY

Share of net assets

The	Group
2008	2007
HK$’000	HK$’000
15,128	–

– 175 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of the Group’s interest in the jointly controlled entity are as follows:

Name of joint venture Place of incorporation and operation Particulars of issued and paid up capital Smart Win International Limited (“Smart Win”) British Virgin Islands/Hong Kong 200 shares of US$1 each	Proportion of ownership interest Group’s effective interest Held by the Company Held by a subsidiary Principal activity 50% – 50% Investment holdings

Summary financial information of the jointly controlled entity – Group’s effective interest:

Current assets Current liabilities Net assets Income Expenses Loss for the period	2008 HK$’000 15,201 (73) 15,128	2007 HK$’000 – –
		–

	– (4,372)	– –
	(4,372)	–

On 17 July 2008, Smart Win entered into a legally binding memorandum of understanding (“MOU”) with Empire Energy International Corporation (“Empire Energy”), Great South Land Minerals Ltd (“GSLM”) and Mr. Malcolm Bendall, a major shareholder and president of Empire Energy, in respect of the formation of a proposed joint venture (the “Joint Venture”) to be principally engaged in oil and gas exploration business.

The MOU sets out the terms under which, in consideration of Smart Win granting Empire Energy a loan of up to AUD5,000,000 (equivalent to approximately HK$38,000,000) (the “Loan”), Empire Energy will grant to Smart Win an option to enter into a joint venture agreement (the “JV agreement”) with GSLM for the exploration and development of any oil and gas resources within special exploration license 13/98 (“SEL 13/98”) located in Tasmania, Australia. GSLM holds SEL 13/98 until September 2009 and will proceed with an application for a further extension of the licence period. If entered into, GSLM will contribute the exploration and development rights in relation to SEL 13/98 as its investment in the Joint Venture.

Smart Win holds the irrevocable options and may (i) enter into a JV Agreement with a funding commitment of AUD$40,000,000 (equivalent to approximately HK$304,000,000) and the Loan will be converted as part of the issued share capital of the Joint Venture or (ii) opt out the JV Agreement and request Empire Energy, Mr. Malcolm Bendall and GSLM jointly and severally repay the Loan.

Empire Energy’s obligation to repay the Loan is secured by (i) a deposit of the pledge (the “Pledge”) under a pledge and security agreement into a collateral account for the benefit of Smart Win; and (ii) a guarantee from Mr. Malcolm Bendall. The Pledge represents the 32,000,000 issued and outstanding shares of Class A common stock with a par value of US$0.01 per share, of Empire Energy to be held by the trustees for the benefit of Smart Win in accordance with the pledge and the security agreement.

The pledge and security agreement was entered into on 7 August 2008 between Smart Win and Empire Energy with Mr. Malcolm Bendall and Zions First National Bank. Zions First National Bank appointed as the trustees.

As at the balance sheet date, approximately AUD3,886,000 (equivalent to approximately HK$20,803,000) of the Loan was advanced to Empire Energy.

– 176 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. INVENTORIES

(a) Inventories in the balance sheet comprise:

General trading Finished goods Property investment and development Completed property held for sale (note b) The analysis of carrying value of land and properties held by the Outside Hong Kong – medium-term lease	The Group 2008 2007 HK$’000 HK$’000 – 19,540 – 143,058 − 162,598 Group is as follows: The Group 2008 2007 HK$’000 HK$’000 – 143,058

(b) The analysis of carrying value of land and properties held by the Group is as follows:
(c) The analysis of the amount of inventories recognised as an expense is as follows:

	2008	2007
	HK$’000	HK$’000
Carrying amount of inventories sold	32,010	156,325
Write down of inventories	–	15,912

The write down of inventories made during the prior year arose due to a decrease in the estimated net realisable value of the completed property held for sale based on the latest market transaction made in similar location.

All inventories were expected to be recovered within one year.

(d) Upon the disposal of Smart Wave Limited on 30 June 2008 as set out in note 31(a)(i), the Group had no completed property held for sale as at 31 December 2008.

– 177 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. TRADE AND OTHER RECEIVABLES

Trade receivables (note a) Other receivables (note d) Less: allowance for doubtful debts (note b) Loan and receivables Prepayment and deposits	The Group 2008 2007 HK$’000 HK$’000 5,212 42,443 51,718 36,348 – (8,722)	The Group 2008 2007 HK$’000 HK$’000 5,212 42,443 51,718 36,348 – (8,722)	The Company 2008 2007 HK$’000 HK$’000 – – 236 9 – –	The Company 2008 2007 HK$’000 HK$’000 – – 236 9 – –
	56,930 34,785	70,069 3,719	236 34,361	9 3,285
	91,715	73,788	34,597	3,294

All of the trade and other receivables are expected to be recovered within one year.

Notes:

(a) Aging analysis

Trade receivables are net of allowance for doubtful debts of HK$nil (2007: HK$4,651,000) with the following age analysis as of the balance sheet date:

				The	Group
				2008	2007
				HK$’000	HK$’000
Less	than	90	days	5,212	37,792

Trade receivables are due within 90 days from the date of billing. Further details on the Group’s credit policy are set out in note 30(a).

(b) Impairment of trade and other receivables

Movement in the allowance for doubtful debts

At 1 January Impairment losses recognised Uncollectible amounts written off Amounts reversed during the year Disposal of subsidiaries attributable to discontinued operations At 31 December	The Group 2008 2007 HK$’000 HK$’000 8,722 11,751 – 1,000 (1,000) (1,038 – (2,991 (7,722) – – 8,722	The Group 2008 2007 HK$’000 HK$’000 8,722 11,751 – 1,000 (1,000) (1,038 – (2,991 (7,722) – – 8,722
		8,722

– 178 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at the balance sheet date, the trade receivables of HK$nil (2007: HK$8,722,000) were individually determined to be impaired and full allowance for impairment loss had been made. These individually impaired receivables related to customers that were in financial difficulties and management assessed that only a portion of the receivables could be recovered. Consequently, specific allowances for doubtful debts of HK$nil (2007: HK$1,000,000) were recognised. The Group does not hold any collateral over these balances.

(c) Trade receivables that are not impaired

The aging analysis of trade receivables that are neither individually nor collectively considered to be impaired are as follows:

Neither past due nor impaired Past due but not impaired	The Group 2008 2007 HK$’000 HK$’000 5,212 37,792 – – 5,212 37,792	The Group 2008 2007 HK$’000 HK$’000 5,212 37,792 – – 5,212 37,792
		37,792

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

(d) The balance as at 31 December 2008 mainly represents:

(i) the remaining consideration receivable of HK$39,880,000 on disposal of Elegant Pool Limited and as disclosed in note 31(a)(ii). The balance bears interest at 5% per annum, repayable on 24 September 2009 and secured by the equity share of Elegant Pool Limited; and
(ii) the consideration receivable of HK$11,600,000 for the disposal of the sub-underwriting shares. The balance is unsecured, bearing interest at 6% per annum and repayable on 1 July 2009.

The balance as at 31 December 2007 mainly represents the advances by the PRC subsidiary, Weiqiu to Wandi Estate Development Company Limited (“Wandi Estate Development”), Shenzhen Wandi Property Company Limited (“Shenzhen Wandi”) and Shenzhen Wei Jian Da Investment and Development Company Limited (“Wei Jian Da”) totalling HK$31,746,000. All these companies are long-term business partners with Weiqiu and principally engaged in property development and investment in PRC. Wandi Estate Development, Shenzhen Wandi and Wei Jian Da are companies related to each other and the advances were unsecured, interest-free and have no fixed terms of repayment.

Upon disposal of Smart Wave Limited on 30 June 2008 as set out in note 31(a)(i), the Group had derecognized these receivables.

22. LOAN RECEIVABLES, UNSECURED

Loan receivables, unsecured Less: allowance for doubtful debts (Note (a))	The Group 2008 2007 HK$’000 HK$’000 – 6,750 – (6,750) − –	The Group 2008 2007 HK$’000 HK$’000 – 6,750 – (6,750) − –
		–

– 179 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) Movement in the allowance for doubtful debts

At 1 January Uncollectible amounts written off Amounts recovered during the year Disposal of subsidiaries attributable to discontinued operations At 31 December	The Group 2008 2007 HK$’000 HK$’000 6,750 12,642 – (5,492) – (400) (6,750) – – 6,750	The Group 2008 2007 HK$’000 HK$’000 6,750 12,642 – (5,492) – (400) (6,750) – – 6,750
		6,750

At the balance sheet date, the loan receivables of HK$nil (2007: HK$6,750,000) were individually determined to be impaired and full allowance for impairment loss had been made. These individually impaired receivables related to debtors that were in financial difficulties and management assessed that the amounts are unlikely to be recovered. Special allowances of HK$6,750,000 for the doubtful debts which have been brought forward from 2006 had been made in the previous year. The Group does not hold any collateral over these balances.

Upon the disposal of Jefta Holdings Limited on 1 December 2008 as set out in note 31(a)(iii), the Group had derecognised these receivables.

(b) The balances as at 31 December 2007 were unsecured, bearing interest at Hong Kong Dollar Prime Rate and repayable within one year from the dates on which the loans were granted. As at 31 December 2007, the loan receivables were already past due and default interest was calculated at 2% over Hong Kong Dollar Prime Rate per month.

23. CASH AND CASH EQUIVALENTS

Deposits with banks Cash at bank and on hand Cash and cash equivalents in the balance sheet and cash flow statement	The Group 2008 2007 HK$’000 HK$’000 107,607 – 46,478 160,195 154,085 160,195	The Company 2008 2007 HK$’000 HK$’000 107,607 – 21,206 82,949 128,813 82,949	The Company 2008 2007 HK$’000 HK$’000 107,607 – 21,206 82,949 128,813 82,949
			82,949

24. TRADE AND OTHER PAYABLES

Trade payables (note a) Other payables and accruals Deposit received (note b) Amounts due to directors Amount due to a subsidiary Financial liabilities measured at amortised cost	The Group 2008 2007 HK$’000 HK$’000 2,504 61,061 2,942 18,248 – 76,814 638 450 – – 6,084 156,573	The Company 2008 2007 HK$’000 HK$’000 – – 2,929 1,599 – – 638 450 – 25,953 3,567 28,002	The Company 2008 2007 HK$’000 HK$’000 – – 2,929 1,599 – – 638 450 – 25,953 3,567 28,002
			28,002

– 180 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

All of the trade and other payables (including amounts due to directors and a subsidiary) are expected to be settled within one year or are repayable on demand.

Notes:

(a) The following is an ageing analysis of the trade payables as at the balance sheet date:

Less than 90 days	The Group 2008 2007 HK$’000 HK$’000 2,504 61,061

(b) The balance represented deposits received on properties sold prior to the date of revenue recognition. Upon the disposal of Smart Wave Limited on 30 June 2008 as set out in note 31(a)(i), the Group had no deposits received as at 31 December 2008.

25. OTHER BORROWING

			The Group	The Group
			2008	2007
			HK$’000	HK$’000
Other	borrowing,	unsecured	–	10,700

The other borrowing as at 31 December 2007 was expected to be settled within one year.

The other borrowing was obtained from an independent third party and bear interest at 5.85% per annum and was repayable on 31 December 2007.

Upon the disposal of Smart Wave Limited on 30 June 2008 as set out in note 31(a)(i), the Group had no other borrowings as at 31 December 2008. Up to the date of disposal, the balance remains outstanding and compound interest was charged at 7.61% to 8.78% per annum on the outstanding balance.

26. OBLIGATIONS UNDER FINANCE LEASES

At 31 December 2008, the Group had obligations under finance leases repayable as follows:

The Group 2008 2007 Present value of the minimum lease payments Total minimum lease payments Present value of the minimum lease payments Total minimum lease payments HK$’000 HK$’000 HK$’000 HK$’000 12 13 13 15	The Group 2008 2007 Present value of the minimum lease payments Total minimum lease payments Present value of the minimum lease payments Total minimum lease payments HK$’000 HK$’000 HK$’000 HK$’000 12 13 13 15	The Group 2008 2007 Present value of the minimum lease payments Total minimum lease payments Present value of the minimum lease payments Total minimum lease payments HK$’000 HK$’000 HK$’000 HK$’000 12 13 13 15	The Group 2008 2007 Present value of the minimum lease payments Total minimum lease payments Present value of the minimum lease payments Total minimum lease payments HK$’000 HK$’000 HK$’000 HK$’000 12 13 13 15
12 13 25	13 13 26	12 23 35	13 23
			36
37	39 (2) 37	48	51 (3)
			48

– 181 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. INCOME TAX IN THE CONSOLIDATED BALANCE SHEET

(a) Current taxation in the balance sheet represents:

Provision for the year – Hong Kong Profits Tax – PRC Enterprise Income Tax Provision for prior years – Hong Kong Profits Tax – PRC Enterprise Income Tax Provision tax paid – Hong Kong Profits Tax – PRC Enterprise Income Tax	The Group 2008 2007 HK$’000 HK$’000 – – 154 239 – 673 – 2,024 – – (136) – 18 2,936	The Company 2008 2007 HK$’000 HK$’000 – – 154 – – – – – – – (136) – 18 –	The Company 2008 2007 HK$’000 HK$’000 – – 154 – – – – – – – (136) – 18 –
			–

(b) Deferred tax liabilities recognised:

The component of deferred tax liability recognised in the consolidated balance sheet and the movements during the current and prior year is as follows:

The Group At 1 January 2007 Charged to income statement At 31 December 2007 and 1 January 2008 Charged to income statement Disposal of subsidiaries attributable to discontinued operation (note 31(a)(iv)) At 31 December 2008	Revaluation of investment properties HK$’000 1,286 –
	1,286 – (1,286)
	–

(c) Deferred tax assets not recognised:

At the balance sheet date, the Group has unused tax losses of HK$15,721,000 (2007: HK$24,195,000) available for offset against future profits that may be carried forward indefinitely. No deferred tax asset has been recognised in respect of the tax losses due to the unpredictability of future profit streams.

– 182 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. EQUITY SETTLED SHARE-BASED TRANSACTIONS

Under the scheme, the total number of shares to be issued upon exercise of the options granted to each eligible person (including both exercised and outstanding options) in any 12-month period shall not exceed 1% of the total number of shares in issue. The exercise price (subscription price) shall be such price as determined by the board of directors in its absolute discretion at the time of the making of the offer but in any case the exercise price shall not be lower than the highest of (i) the closing price of the shares as stated in the Stock Exchange’s daily quotation sheets on the date of the offer of grant, which must be a trading day; (ii) the average closing price of the shares as stated in the Stock Exchange’s daily quotation sheets for the five trading days immediately preceding the date of the offer of grant; and (iii) the nominal value of a share.

The options vest from the date of grant and are exercisable within a period of five years.

(a) The terms and conditions of the grants that existed during the year are as follows, whereby all options are settled by physical delivery of shares:

Options granted to directors: – on 8 May 2007 Options granted to employees: – on 8 May 2007 Options granted to consultants: – on 8 May 2007 Total option shares	Number of shares issuable under options Vesting conditions Contractual life of options 12,999,000 From date of grant 5 years 12,999,000 From date of grant 5 years 17,332,000 From date of grant 5 years 43,330,000

– 183 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) The number and the weighted average exercise prices of share options are as follows:

	2008	2008	2007	2007
		Number of		Number of
		shares		shares
	Weighted	issuable	Weighted	issuable
	average	under	average	under
	exercise	options	exercise	options
	price	granted	price	granted
Outstanding at the beginning
of the year	HK$0.6	38,997,000	–	–
Granted during the year	HK$0.6	–	HK$0.6	43,330,000
Exercised during the year	HK$0.6	(4,333,000)	HK$0.6	(4,333,000)
Outstanding at the end of the
year	HK$0.6	34,664,000	HK$0.6	38,997,000

Exercisable at the end of the
year	HK$0.6	34,664,000	HK$0.6	38,997,000

The weighted average share price at the date of exercise for share options exercised during the year was HK$1.17 (2007: HK$0.89).

The share options outstanding at 31 December 2008 had an exercise price of HK$0.60 (2007: HK$0.60) (note 29(c)(v)) and a weighted average remaining contractual life of 3 years (2007: 4 years).

(c) Fair value of share options and assumptions

The fair value of services received in return for share options granted is measured by reference to the fair value of share option granted. The estimate of fair value of the share options granted is based on the Black-Scholes Options Pricing Model (the “Model”). The Model is one of the commonly used models to estimate the fair value of an option. The Model is used to calculate a theoretical call price using the five key determinants of an option’s price: stock price, strike price, volatility, time to expiration, and short-term (risk free) interest rate. Dilution effect was considered in applying the Model. The variables and assumptions used in computing fair value of the share options are based on the management’s best estimate. The fair value of an option varies with different variables of certain subjective assumptions. Any change in the variable so adopted may materially affect the estimation of the fair value of an option.

Fair value of share options and assumptions:

Fair value at measurement date	HK$0.2963
Closing share price on the date of grant	HK$0.56
Exercise price	HK$0.60
Expected volatility	101.42%
Assumed life of option from the date of valuation	2 years
Risk-free interest rate	3.953%
Expected dividend yield	0%

The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility based on publicly available information. Expected dividends are based on historical dividends. Changes in the subjective input assumptions could materially affect the fair value estimate.

There were no service conditions or market conditions associated with the share options granted.

– 184 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. CAPITAL AND RESERVES

(a) The Group

Share capital HK$’000 55,631 – 21,700 433 – – 77,764	Share premium Employee share-based compensation reserve HK$’000 HK$’000 119,078 – – 12,838 230,472 – 3,451 (1,284) – – – – 353,001 11,554	Share premium Employee share-based compensation reserve HK$’000 HK$’000 119,078 – – 12,838 230,472 – 3,451 (1,284) – – – – 353,001 11,554	Capital reserve HK$’000 9,585 – – – – – 9,585	Exchange fluctuation reserve A HK$’000 903 – – – 2,856 – 3,759	ccumulated losses HK$’000 (40,918) – – – – (59,737) (100,655)	Total reserves HK$’000 88,648 12,838 230,472 2,167 2,856 (59,737) 277,244	Total equity HK$’000 144,279 12,838 252,172 2,600 2,856 (59,737)
							355,008

77,764 433 – – –	353,001 3,451 – – –	11,554 (1,284) – – –	9,585 – – – –	3,759 – 845 (4,604) –	(100,655) – – – (42,151)	277,244 2,167 845 (4,604) (42,151)	355,008 2,600 845 (4,604) (42,151)
78,197	356,452	10,270	9,585	–	(142,806)	233,501	311,698

– 185 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) The Company

Share capital HK$’000 55,631 – 21,700 433 – 77,764	Share premium Employee share-based compensation reserve HK$’000 HK$’000 119,078 – – 12,838 230,472 – 3,451 (1,284) – – 353,001 11,554	Share premium Employee share-based compensation reserve HK$’000 HK$’000 119,078 – – 12,838 230,472 – 3,451 (1,284) – – 353,001 11,554	Contributed surplus A HK$’000 122,864 – – – – 122,864	ccumulated losses HK$’000 (228,944) – – – 28,173 (200,771)	Total reserves HK$’000 12,998 12,838 230,472 2,167 28,173 286,648	Total equity HK$’000 68,629 12,838 252,172 2,600 28,173
						364,412

77,764 433 –	353,001 3,451 –	11,554 (1,284) –	122,864 – –	(200,771) – (31,464)	286,648 2,167 (31,464)	364,412 2,600 (31,464)
78,197	356,452	10,270	122,864	(232,235)	257,351	335,548

(c) Share capital

(i) Authorised and issued share capital

Note Authorised: Ordinary shares of HK$0.10 each (ii) Ordinary shares, issued and fully paid: At 1 January Shares issued under placement (iii) Shares issued under share option scheme (iv) At 31 December	2008 Number of shares ’000 HK$’000 20,000,000 2,000,000 777,638 77,764 – – 4,333 433 781,971 78,197	2007 Number of shares ’000 HK$’000 20,000,000 2,000,000 556,305 55,631 217,000 21,700 4,333 433 777,638 77,764	2007 Number of shares ’000 HK$’000 20,000,000 2,000,000 556,305 55,631 217,000 21,700 4,333 433 777,638 77,764
			77,764

The holders of ordinary shares are entitled to received dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.

(ii) Increase in authorised share capital

By an ordinary resolution passed at the special general meeting held on 29 June 2007, the Company’s authorized share capital was increased to HK$300,000,000 by the creation of an additional 2,100,000,000 ordinary shares of HK$0.1 each, ranking pari passu with the existing ordinary shares of the Company in all respects.

– 186 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Further on 12 December 2007, an ordinary resolution was passed at the special general meeting to increase the authorised share capital of the Company to HK$2,000,000,000 by the creation of an additional 17,000,000,000 ordinary shares of HK$0.1 each, ranking pari passu with the existing shares of the Company in all respects.

(iii) Shares issued under placement

On 14 May 2007, Good Power International Limited (“Good Power”), the former ultimate holding company of the Company, placed 70,000,000 existing ordinary shares of HK$0.1 each of the Company to independent investors at a price of HK$0.78 per share. On the same date, Good Power entered into a top-up subscription agreement with the Company to subscribe for 70,000,000 new ordinary shares of HK$0.1 each of the Company at HK$0.78 per share. The new ordinary shares of HK$0.1 each were issued on 18 May 2007.
On 16 May 2007, Good Power placed 30,000,000 existing ordinary shares of HK$0.1 each of the Company to independent investors at a price of HK$0.87 per share. On the same date, Good Power entered into a conditionally top-up subscription agreement with the Company to subscribe for 30,000,000 new ordinary shares of HK$0.1 each of the Company at HK$0.87 per share. On the same date, the Company entered into share subscription agreements with two independent investors to allot and issue 10,000,000 new ordinary shares of HK$0.1 each of the Company at HK$0.87 per share. The new ordinary shares of HK$0.1 each were issued on 22 May 2007.
On 29 October 2007, Good Power entered into sale and purchase agreements with ten independent investors to sell 107,000,000 existing ordinary shares of the Company at a price of HK$1.55 per share. On the same date, Good Power entered into a conditionally top-up subscription agreement with the Company to subscribe for 107,000,000 new ordinary shares of HK$0.1 each of the Company at HK$1.55 per share. The new ordinary shares of HK$0.1 each were issued on 8 November 2007.

(iv) Shares issued under share option scheme

On 6 June 2008, options were exercised to subscribe for 4,333,000 (2007: 4,333,000) ordinary shares in the Company for a consideration of HK$2,600,000 (2007: HK$2,600,000) of which HK$433,000 (2007: HK$433,000) was credited to share capital and the balance of HK$2,167,000 (2007: HK$2,167,000) was credited to the share premium account. HK$1,284,000 (2007: HK$1,284,000) has been transferred from the employee share-based compensation reserve to the share premium account in accordance with the accounting policy set out in note 2(p)(ii).

(v) Terms of unexpired unexercised share options at balance sheet date:

		2008	2007
		Number of	Number of
		shares issuable	shares issuable
Exercisable period	Exercise price	under options	under options
8 May 2007 to 7 May 2012	HK$0.60	34,664,000	38,997,000

(d) Nature and purpose of reserves

(i) Share premium

The application of the share premium account is governed by the Companies Act 1981 of Bermuda.

– 187 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Employee share-based compensation reserve

(iii) Capital reserve

The capital reserve of the Group represents the difference between the nominal value of ordinary shares issued by the Company and the aggregate of the share capital and share premium of subsidiaries acquired through a reorganisation in relation to the listing of the Company’s shares on the Stock Exchange in October 1998.

(iv) Exchange fluctuation reserve

(v) Contributed surplus

The contributed surplus of the Company represents the difference between the aggregate net asset value of subsidiaries acquired as a result of the reorganisation prepared for the listing of the Company’s shares on the Stock Exchange and the nominal amount of the Company’s shares issued for the acquisition. Under Section 54 of the Bermuda Companies Act 1981, contributed surplus is available for distribution as dividends to shareholders subject to the provisions of the Company’s bye-laws and provided that immediately following the distribution, the Company is able to pay its liabilities as and when they fall due or the realisable value of the Company’s assets would not be less than the aggregate of its liabilities and its issued share capital and share premium account.

(e) Distributability of reserves

At 31 December 2008, the Company had no retained profits available for cash distribution and/ or distribution in specie. Under the Companies Act 1981 of Bermuda (as amended), the Company’s contribution surplus in the amount of HK$122,864,000 (2007: HK$122,864,000) is currently not available for distribution. The Company’s share premium account in the amount of HK$356,452,000 as at 31 December 2008 (2007: HK$353,001,000), may be distributed in the form of fully paid bonus shares.

(f) Capital management

The Group monitors capital on the basis of an adjusted gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non– current borrowings as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as total equity as shown in the consolidated balance sheet, plus net debt.

During 2008, the Group’s strategy, which was unchanged from 2007, was to maintain the ratio within 10% to 40%. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares, return capital to shareholders or sell assets to reduce debt.

– 188 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Other borrowing (note 25) Obligations under finance leases (note 26) Total borrowings Less: Cash and cash equivalents (note 23) Net debt Total equity Adjusted gearing ratio	2008 HK$’000 – 37	2007 HK$’000 10,700 48 10,748 (160,195) (149,447) 355,008 (42%)
	37 (154,085)	10,748 (160,195
	(154,048) 311,698 (49%)

30. FINANCIAL RISK MANAGEMENT OBJECTIVE AND POLICIES

The Group’s major financial instruments include borrowings, trade and other receivables and trade and other payables. Details of the financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include credit risk, liquidity risk, interest rate risk, currency risk and other price risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(a) Credit risk

(i) As at 31 December 2008, the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated balance sheets after deducting any impairment allowance.
(ii) In respect of trade and other receivables, in order to minimize risk, the management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. Credit evaluations of customers’ financial position and condition is performed on each and every major customer periodically. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. The Group does not require collateral in respect of its financial assets. Debts are usually due within 90 days from the date of billing.
(iii) In respect of trade receivables, the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The default risk of the industry and country in which customers operate also has an influence on credit risk. At the balance sheet date, the Group had a certain concentration of credit risk as nearly all (2007: 84%) of the total trade and other receivables was due from four (2007: three) customers/ debtors of the Group.
(iv) The credit risk on liquid funds is limited because the counterparties are banks with high credit rating assigned by international credit-rating agencies. The Group monitors closing the credit ratings of these counterparties and will take appropriate action when their ratings change. Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in note 21.
(v) As set out in note 34, the financial guarantees given by the Group in 2007 was terminated due to disposal of Smart Wave Limited as disclosed in note 31(a)(i).

– 189 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the short-term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to board approval. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants to ensure that it maintains sufficient amount of cash and adequate committed lines of funding from major financial institutions to satisfy its contractual and reasonably foreseeable obligations as they fall due.

The following table set out the remaining contractual maturities at the balance sheet date of the Group’s and the Company’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the balance sheet date) and the earliest date the Group and the Company required to pay:

The Group

==> picture [356 x 273] intentionally omitted <==

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

2008 2007
More More
than 1 than 2 Total More More Total
year years contractual than 1 than 2 contractual
Within but but un- Within year years un-
1 year less less More discounted 1 year but less but less More discounted
or on than 2 than 5 than 5 cash Carrying or on than 2 than 5 than 5 cash Carrying
demand years years years flow amount demand years years years flow amount
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Trade and other payables 6,084 – – – 6,084 6,084 156,573 – – – 156,573 156,573
Other borrowings – – – – – – 10,700 – – – 10,700 10,700
Obligations under finance
leases 13 13 13 – 39 37 15 13 23 – 51 48
6,097 13 13 – 6,123 6,121 167,288 13 23 – 167,324 167,321
The Company
2008 2007
More More
than 1 than 2 Total More More Total
year years contractual than 1 than 2 contractual
Within but but un- Within year years un-
1 year less less More discounted 1 year but less but less More discounted
or on than 2 than 5 than 5 cash Carrying or on than 2 than 5 than 5 cash Carrying
demand years years years flow amount demand years years years flow amount
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Other payable 3,567 – – – 3,567 3,567 28,002 – – – 28,002 28,002
----- End of picture text -----

(c) Interest rate risk

The Group’s interest rate risks arise primarily from its borrowings and other receivables. Borrowings and other receivables obtained at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The Group’s interest rate profile as monitored by management is set out in (i) below.

– 190 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Interest rate profile

The following table details the interest rate profile of the Group’s bank deposits, receivables and borrowings at the balance sheet date:

2008 2007 Effective interest rates Effective interest rates % HK$’000 % HK$’000 Fixed rate bank deposit and receivables: Deposit with banks 0.1% – 1.4% 107,607 – – Other receivables 5% – 6% 51,480 – – Total bank deposits and receivables 159,087 – Fixed rate borrowings: Other borrowing – – 7.57% 10,700 Obligation under finance leases 2.85% 37 2.85% 48 Total borrowings 37 10,748 Total bank deposits, receivables and borrowings 159,124 10,748 Fixed rate bank deposits and receivables as a percentage of total bank deposits, receivables and borrowings 100% – Fixed rate borrowings as a percentage of total bank deposits, receivables and borrowings – 100%	2008 2007 Effective interest rates Effective interest rates % HK$’000 % HK$’000 Fixed rate bank deposit and receivables: Deposit with banks 0.1% – 1.4% 107,607 – – Other receivables 5% – 6% 51,480 – – Total bank deposits and receivables 159,087 – Fixed rate borrowings: Other borrowing – – 7.57% 10,700 Obligation under finance leases 2.85% 37 2.85% 48 Total borrowings 37 10,748 Total bank deposits, receivables and borrowings 159,124 10,748 Fixed rate bank deposits and receivables as a percentage of total bank deposits, receivables and borrowings 100% – Fixed rate borrowings as a percentage of total bank deposits, receivables and borrowings – 100%	2008 2007 Effective interest rates Effective interest rates % HK$’000 % HK$’000 Fixed rate bank deposit and receivables: Deposit with banks 0.1% – 1.4% 107,607 – – Other receivables 5% – 6% 51,480 – – Total bank deposits and receivables 159,087 – Fixed rate borrowings: Other borrowing – – 7.57% 10,700 Obligation under finance leases 2.85% 37 2.85% 48 Total borrowings 37 10,748 Total bank deposits, receivables and borrowings 159,124 10,748 Fixed rate bank deposits and receivables as a percentage of total bank deposits, receivables and borrowings 100% – Fixed rate borrowings as a percentage of total bank deposits, receivables and borrowings – 100%
	159,087 – 7.57% 37 2.85% 37	–
		10,700 48
		10,748
	159,124 100% –	10,748

		– 100%

(ii) Sensitivity analysis

At 31 December 2008, it is estimated that a general increase/decrease of 50 basis points in interest rates, with all other variables held constant, would decrease/increase the Group’s loss after tax and accumulated losses by approximately HK$229,000 (2007: HK$784,000).

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the balance sheet date and had been applied to the exposure to interest rate risk for non-derivative financial liabilities in existence at that date. The 50 basis points increase or decrease represents management’s assessment of a reasonably possible change in interest rates over the period until the next annual balance sheet date. The analysis is performed on the same basis for 2007.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Currency risk

Presently, there is no hedging policy with respect to the foreign exchange exposure. The Group’s transactional currency is Hong Kong dollars as substantially all the turnover are in Hong Kong dollars. The Group’s transactional foreign exchange exposure was insignificant.

(i) Exposure to currency risk

The following table details the Group’s and the Company’s exposure at the balance sheet date to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate.

Renminbi ’000 962 9 (1,461) – (490)	2008 United States Dollars ’000 – 7 (6) – 1	Euros ’000 – 1 – – 1	Renminbi ’000 35,529 3,191 (142,581) (10,000) (113,861)	2007 United States Dollars ’000 – 8 (2) – 6	Euros ’000 – 1 – –
					1

962 9 (1,461)	– 7 (6)	– – –	971 2,898 –	– 8 –	– – –
(490)	1	–	3,869	8	–

(ii) Sensitivity analysis

The following table indicates the approximate change in the Group’s loss after tax (and accumulated losses) and other components of consolidated equity in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the balance sheet date. The sensitivity analysis includes balances between group companies where the denomination of the balances is in a currency other than the functional currencies of the lender or the borrower.

– 192 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group

			2008			2007
	Increase/		Effect of		Increase/	Effect of
	(decrease)		loss after	Effect on	(decrease)	loss after	Effect on
	in	foreign	tax and	other	in foreign	tax and	other
	exchange		accumulated	components	exchange	accumulated	components
		rates	losses	of equity	rates	losses	of equity
			HK$’000	HK$’000		HK$’000	HK$’000
Renminbi		5%	107	107	5%	(5,779)	(5,779)
		-5%	163	163	–5%	6,404	6,404
United States	dollars	5%	–	–	5%	3	3
		-5%	(1)	(1)	–5%	(3)	(3)
Euros		5%	–	–	5%	–	–
		-5%	(1)	(1)	–5%	(1)	(1)

The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to each of the group entities’ exposure to currency risk for both derivative and non-derivative financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant.

The stated changes represent management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date. In this respect, it is assumed that the pegged rate between the Hong Kong dollar and the United States dollar would be materially unaffected by any changes in movement in value of the United States dollar against other currencies. Results of the analysis as presented in the above table represent an aggregation of the effects on each of the Group entities’ loss after tax and equity measured in the respective functional currencies, translated into Hong Kong dollars at the exchange rate ruling at the balance sheet date for presentation purposes. The analysis is performed on the same basis for 2007.

(e) Price risk

One of the principal operations of the Group are trading of non-ferrous metals. As non-ferrous metals markets are influenced by global as well as regional supply and demand conditions, any unexpected price changes could affect the Group’s earnings and performance. To protect the Group’s trading businesses from the impact of zinc and copper price fluctuations, the Group closely monitors the net exposure and ensures that is kept to an acceptable level.

(f) Fair values

The fair values of cash and cash equivalents, deposit paid for potential investment, trade and other receivables, trade and other payables, other borrowing, obligations under finance leases are not materially different from their carrying amounts because of the immediate or short term maturity of these financial instruments. The fair value has been determined either by reference to the market value at the balance sheet date or by discounting the relevant cash flows using current interest rates for similar instruments.

(g) Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair values of the following financial instruments:

(i) Interest-bearing loans and borrowings

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

– 193 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Financial guarantees

31. DISPOSAL OF SUBSIDIARIES

(a) Disposal of subsidiaries attributable to discontinued operations

For the year ended 31 December 2008

(i) Smart Wave Limited

As explained in note 9(a), the Company disposed its entire equity interest in Smart Wave Limited and the amount due to the Company from Smart Wave Limited on 30 June 2008 for an aggregate consideration of HK$12,250,000. The net liabilities of Smart Wave Limited at the date of disposal were as follows:

NET LIABILITIES DISPOSED OF
Other property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Amount due to intermediate holding company
Trade and other payables
Other borrowing
Assignment of amounts due from subsidiaries
Exchange fluctuation reserve realised
Gain on disposal of discontinued operation
Total consideration – satisfied by cash
Cash consideration received
Cash and cash equivalents disposed of
Net cash inflow arising from disposal

HK$’000
42
152,512
33,669
44
(33,764)
(164,579)
(11,389)
(23,465)
33,764
(2,849)
4,800
12,250
12,250
(44)
12,206

The impact of Smart Wave Limited on the Group’s results and cash flows in the current and the previous year has been disclosed in note 9(a).

– 194 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Elegant Pool Limited

As explained in note 9(b), the Group disposed its entire equity interest in Elegant Pool Limited and the amount due to the Group from Elegant Pool Limited on 24 December 2008 for an aggregate consideration of HK$49,880,000. The net liabilities of Elegant Pool Limited at the date of disposal were as follows:

NET LIABILITIES DISPOSED OF
Investment properties
Amount due to immediate holding company
Deferred tax liabilities
Current taxation
Assignment of amounts due from the subsidiaries
Exchange fluctuation reserve realised
Gain on disposal of discontinued operation
Satisfied by:
Cash consideration received
Deferred consideration (note 21(d)(i))
Cash consideration received
Net cash inflow arising from disposal

HK$’000
53,952
(54,287)
(1,286)
(2,263)
(3,884)
54,287
(1,755)
1,232
49,880
10,000
39,880
49,880
10,000
10,000

The impact of Elegant Pool Limited on the Group’s results and cash flows in the current and the previous year has been disclosed in note 9(b).

– 195 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) New Times Finance Limited and Jefta Holdings Limited

As explained in note 9(c), the Company disposed its entire equity interest in NTHL and the amount due to the Company from NTHL on 1 December 2008 for an aggregate consideration of HK$500. NTHL was an investment holding company and its principal investments are two wholly-owned subsidiaries, New Times Finance Limited and Jefta Holdings Limited which were engaged in the provision of financial services. The net liabilities of New Times Finance Limited and Jefta Holdings Limited at the date of disposal were as follows:

NET LIABILITIES DISPOSED OF Trade and other receivables Loan receivables Trade and other payables Gain on disposal of discontinued operations Total consideration Net cash inflow/outflow arising from disposal	HK$’000 159 – (1,683) (1,524) 1,524 – –

The impact of New Times Finance Limited and Jefta Holdings Limited on the Group’s results and cash flows in the current and the previous year has been disclosed in note 9(c).

– 196 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iv) Summary of the disposal of subsidiaries attributable to discontinued operations

Details of the net assets/(liabilities) disposed of at the respective dates of the disposal of subsidiaries attributable to discontinued operations are summarised as follows:

Other property, plant and equipment (note 15(a))
Investment properties (note 15(a))
Inventories
Trade and other receivables
Cash an cash equivalents
Amount due to immediate holding company
Amount due to intermediate holding company
Trade and other payables
Other borrowing
Deferred tax liabilities (note 27(b))
Current taxation
Assignment of amounts due from subsidiaries
Exchange fluctuation reserve realised
Gain on disposal of discontinued operations
Total consideration
Satisfied by:
Cash consideration received
Deferred consideration (note 21(d)(i))
Cash consideration received
Cash and cash equivalents disposed
Net cash inflow arising from disposals

HK$’000
42
53,952
152,512
33,828
44
(54,287)
(33,764)
(166,262)
(11,389)
(1,286)
(2,263)
(28,873)
88,051
(4,604)
7,556
62,130
22,250
39,880
62,130
22,250
(44)
22,206

The impact of Elegant Pool Limited on the Group’s results and cash flows in the current and the previous year has been disclosed in note 9(b).

– 197 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Disposal of subsidiaries

For the year ended 31 December 2008

(i) Disposal of New Times Holdings Limited

As explained in note 31(a)(iii), on 1 December 2008, the Group disposed of its entire equity interest in together with shareholders’ loan of NTHL to an independent third party for an aggregate consideration of HK$500. Other than its principal investments in New Times Finance Limited and Jefta Holdings Limited, NTHL held various dormant subsidiaries. The net liabilities of these subsidiaries at the date of disposal were as follows:

NET LIABILITIES DISPOSED OF Amount due to immediate holding company Trade and other payables Assignment of amount due from subsidiary Gain on disposal of subsidiaries Total consideration – satisfied by cash Cash consideration received Net cash inflow/outflow arising from disposal	HK$’000 (36,429) (79) (36,508) 36,429 80 1 1 1

(ii) Disposal of Optima Worldwide Investment Limited

NET LIABILITIES DISPOSED OF Amount due to immediate holding company Assignment of amount due from subsidiary Gain on disposal of a subsidiary Total consideration – satisfied by cash Cash consideration received Net cash inflow/outflow arising from disposal	HK$’000 (52) (52) 52 – – – –

– 198 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Summary of disposal of subsidiaries

Details of the net assets/(liabilities) disposed of in respect of the disposal of subsidiaries are summarised as follows:

Amount due to immediate holding company Trade and other payables Assignment of amounts due from subsidiaries Gain on disposal of subsidiaries Total consideration Satisfied by: Cash consideration received Cash consideration received Net cash inflow arising from disposals	HK$’000 (36,481) (79)
	(36,560) 36,481 80
	1

	1

	1
	1

32. MATERIAL RELATED PARTY TRANSACTIONS

Name of party Relationship Taifook Securities Company Limited A company controlled by Dato’ Dr. Cheng Yu Tung, the ultimate beneficiary of the single largest shareholder of the Company

(a) In addition to those disclosed elsewhere in the financial statements, the following is a summary of significant related party transactions entered into in the normal course of business between the Group and its related party during the year.

		Term and
	Nature of	pricing
Related parties	transactions	policies	2008	2007
			HK$’000	HK$’000
Taifook Securities	Commission income	(i)	684	–
Company Limited	Broker charges	(i)	14	–

Note:

(i) agreed by the parties concerned.

– 199 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Key management personnel remuneration

Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions Equity settled share-based payment expenses	2008 HK$’000 4,582 79 41 – 4,702	2007 HK$’000 2,732 – 34 6,419
		9,185

Total remuneration is included in “staff costs” (see note 6(b)).

33. COMMITMENTS

(a) Capital commitments outstanding at 31 December 2008 not provided for in the financial statement were as follows:

Contracted for – Acquisition of property, plant and equipment – Investment cost of potential investment (note 18)	The Group 2008 2007 HK$’000 HK$’000 – 2,885 2,045,400 10,257,400 2,045,400 10,260,285	The Group 2008 2007 HK$’000 HK$’000 – 2,885 2,045,400 10,257,400 2,045,400 10,260,285
		10,260,285

(b) At 31 December 2008, the total future minimum lease payments under non-cancellable operating leases are payable as follows:

Within one year In the second to fifth year, inclusive	The Group 2008 2007 HK$’000 HK$’000 1,215 4,674 102 8,328 1,317 13,002	The Group 2008 2007 HK$’000 HK$’000 1,215 4,674 102 8,328 1,317 13,002
		13,002

The Group leases its offices under operating lease arrangements. Leases for properties are negotiated for a term of three years.

34. FINANCIAL GUARANTEE

For the year 2007, the Group had given a joint corporate guarantee to a bank in connection with bank facilities granted by the bank to Wandi Estate Development, an independent third party of the Group. At 31 December 2007, such facilities was drawn down by Wandi Estate Development, to extent of RMB35,000,000 (equivalent to HK$37,450,000). The maximum liability of the Group under the guarantee issued represents the amount drawn down by Wandi Estate Development of RMB35,000,000 (equivalent to

– 200 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HK$37,450,000). No recognition was made because the fair value of the guarantee was insignificant and that the directors did not consider it is probable that a claim would be made against the Company under the guarantee.

On 6 March 2008, the Group’s completed property held for sale was foreclosed by Beijing First Intermediate Peoples Court ( ) as a result of the default in progress repayment of the bank loan by Wandi Estate Development. Pursuant to the legal opinion dated 23 May 2008, the directors of the Group are of the opinion that no provision was recognised because the financial guarantee liabilities of the Group cannot be measured reliably up to the date of disposal of Smart Wave Limited.

Upon the disposal of Smart Wave Limited on 30 June 2008 as set out in note 31(a)(i), the Group had no financial guarantee outstanding as at the year-end date.

35. EVENT AFTER THE BALANCE SHEET DATE

Other than those disclosed elsewhere in the financial statements, the Group do not have any other significant event after the balance sheet date need to be disclosed.

36. PARENT AND ULTIMATE HOLDING COMPANY

At 31 December 2008, the directors consider the parent and ultimate controlling party of the Group to be Max Sun Enterprises Limited and Chow Tai Fook Nominee Limited, which is incorporated in the British Virgin Islands and Hong Kong respectively. These entities do not produce financial statements available for public use.

37. COMPARATIVE FIGURES

Certain comparative figures have been restated or reclassified as a result of the presentation of discontinued operation and conformation with the current year’s presentation.

38. ACCOUNTING ESTIMATES AND JUDGEMENTS

The methods, estimates and judgements the directors use in applying the Group’s accounting policies have a significant impact on the Group’s financial position and operating results. Some of the accounting policies require the Group to apply estimates and judgements, on matters that are inherently uncertain. In addition to note 28(c) which contains information about the assumptions and the risk factors relating to fair value of share options granted, certain critical accounting judgements in applying the Group’s accounting policies are described below.

(a) Useful lives and residual values of property, plant and equipment

Management determines the estimated useful lives and residual values for the Group’s property, plant and equipment. The Group will revise the depreciation charge where useful lives and residual values are different to previous estimates, or will write-off or write-down technically obsolete or non-strategic-assets that have been abandoned or sold.

(b) Investment properties

The fair values of investment properties are determined by independent valuers on an open market basis.

In making the judgement, consideration has been given to assumptions that are mainly based on market conditions existing at the balance sheet date and appropriate capitalization rates. These estimates are regularly compared to actual market data and actual transactions entered into by the Group.

– 201 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Estimated impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash– generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

(d) Valuation of inventories

Inventories are stated at the lower of cost and net realisable value at balance sheet date. Net realisable value is determined on the basis of the estimated selling price less the estimated costs necessary to make the sale. The directors estimate the net realisable value for finished goods and work-in-progress based primarily on the latest invoice prices and current market conditions. In addition, the directors perform an inventory review on a product-by-product basis regularly and assess the need for write down of inventories.

(e) Allowance for impairment of doubtful debts

Allowance for impairment of doubtful debts are assessed and provided based on the directors’ regular review of ageing analysis and evaluation of collectibility. A considerable level of judgement is exercised by the directors when assessing the credit worthiness and past collection history of each individual customer. Any increase or decrease in the allowance for impairment of doubtful debts would affect profit or loss in future years.

(f) Taxation

– 202 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. STATEMENT OF INDEBTEDNESS

At the close of business on 30 April 2010, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this Circular, the Enlarged Group had following borrowings:

(i) short term unsecured other borrowing of HK$40,000,000;
(ii) short term unsecured and guaranteed bank borrowing of RMB100,000,000 (equivalent to approximately HK$113,595,000) which were guaranteed by an independent third party;
(iii) outstanding obligation under a finance lease of a photocopier of approximately HK$21,000; and
(iv) short term unsecured borrowing of RMB6,890,000 (equivalent to approximately HK$7,827,000) from Mr. Sun, the former major shareholder of Hongwen Gold.

Save as disclosed above, and apart from intra-group liabilities and normal trade payables in the ordinary course of business, at the close of business on 30 April 2010, the Enlarged Group did not have any outstanding indebtedness, any loan capital, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges or loans or acceptance credits or hire purchase or finance lease commitments, guarantees or other contingent liabilities.

At the close of business on 30 April 2010, the Enlarged Group did not have any debt securities issued and outstanding, and authorized or otherwise created but unissued, and term loans.

The Directors are not aware of any material adverse changes in the Group’s indebtedness position and contingent liabilities since 30 April 2010.

4. WORKING CAPITAL

Taking into account the internal resources, the estimated funds from exercise of the subscription rights attaching to the Bonus Warrants and available banking facilities available to the Enlarged Group, the Directors of the Company, after due and careful inquiry, are of the opinion that following the Completion, the Enlarged Group will have sufficient working capital for its present requirements, that is for least the next 12 months from the date of this circular.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2009, being the date of which the latest published audited financial statements of the Group were made up.

– 203 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

The following is the test of report on the Target Group, prepared for the purpose of incorporation in this circular, received from the independent reporting accountants, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

==> picture [87 x 61] intentionally omitted <==

24 June 2010

The Directors New Times Energy Corporation Limited Room 1007-08, 10th Floor New World Tower I 18 Queen’s Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information relating to Fortune Ease Holdings Limited (the “Target”) and its subsidiaries (hereinafter collectively referred to as the “Target Group”), including the combined statement of financial position of the Target Group and statement of financial position of the Target as at 31 December 2009, the combined statement of comprehensive income, the combined statement of changes in equity and the combined statement of cash flows of the Target Group for the period from 24 September 2009 (date of incorporation) to 31 December 2009 (the “Relevant Period”), together with the notes thereto (the “Financial Information”), for inclusion in the circular of New Times Energy Corporation Limited (the “Company”) to its shareholders dated 24 June 2010 in connection with the proposed acquisition of the entire issued share capital of the Target (the “Circular”).

The Target is a limited liability company incorporated in the British Virgin Islands with limited liabilities on 24 September 2009 and is principally engaged in investment holding. Pursuant to a group reorganisation, as more fully explained in the paragraph headed “Corporate reorganization” in the letter from the board to this Circular (the “Group Reorganisation”), the Target will become the holding company of the Target Group on 4 February 2010. Upon completion of the Group Reorganisation, the Target will have four subsidiaries, Champion City Investments Limited (“Champion City”), (Shenzhen Zhuo De Sheng Trading Company Limited) (“Shenzhen Zhuo De Sheng”), (Shenzhen Wan Kai Sheng Trading Company Limited) (“Shenzhen Wan Kai Sheng”) and (Qinglong Manzu Autonomous County Hongwen Gold Company Limited) (“Hongwen Gold”). Details of the subsidiaries of the Target are set out in note 14 of section B below.

– 204 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

No audited financial statements have been prepared by the Target since its date of incorporation as there is no such statutory requirement. No audited financial statements have been prepared for Champion City, Shenzhen Zhuo De Sheng and Shenzhen Wan Kai Sheng as their first statutory financial statements which cover the period from their respective dates of incorporation to 31 December 2010 are not due to be issued. We have, however, reviewed all relevant transactions of the Target, Champion City, Shenzhen Zhuo De Sheng and Shenzhen Wan Kai Sheng since their dates of incorporation. The financial statements of Hongwen Gold for the years ended 31 December 2007, 2008 and 2009 prepared in accordance with PRC accounting principles, were audited , which are registered auditors in PRC.

All the companies comprising the Target Group have adopted 31 December as their financial year end date.

For the purposes of this report, the directors of the Target have prepared the Financial Information of the Target Group for the Relevant Period in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). We have examined the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and carried out such additional procedures as we considered necessary in accordance with Auditing Guideline “Prospectuses and the reporting accountant” (Statement 3.340) issued by the HKICPA.

The Financial Information of the Target Group for the Relevant Period set out in this report has been prepared in accordance with HKFRSs issued by the HKICPA based on the Underlying Financial Statements, after making such adjustments as we considered appropriate.

The Underlying Financial Statements are the responsibility of the directors of the Target who approved their issue. The directors of the Company 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, form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information, for the purpose of this report and prepared on the basis set out in note 2 of Section B below, gives a true and fair view of the state of affairs of the Target and of the Target Group as at 31 December 2009 and of the Target Group’s combined results and cash flows for the Relevant Period.

Yours faithfully

CCIF CPA Limited

Certified Public Accountants Hong Kong

Sze Chor Chun, Yvonne

Practising Certificate Number P05049

– 205 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

A. FINANCIAL INFORMATION

1. COMBINED STATEMENT OF COMPREHENSIVE INCOME

Section B
Note
Turnover
4
Other revenue
5
Other net income
5
Administrative expenses
OPERATING PROFIT
Finance costs
PROFIT BEFORE TAXATION
6
Income tax
7(a)
PROFIT FOR THE PERIOD
OTHER COMPREHENSIVE INCOME
Exchange differences arising on translation of foreign
operations
Total comprehensive income for the period
Profit for the period attributable to:
9
Owners of the parent
Minority interests
Total comprehensive income for the period
attributable to:
Owners of the parent
Minority interests

For the
period from
24/9/2009 to
31/12/2009
HK$’000
–
1
79,353
(780)
78,574
–
78,574
–
78,574
(134)
78,440
78,574
–
78,574
78,433
7
78,440

– 206 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

2. COMBINED STATEMENT OF FINANCIAL POSITION

Section B
Note
NON-CURRENT ASSETS
Property, plant and equipment
11
Construction in progress
Prepaid lease payments
12
Intangible assets
13
CURRENT ASSETS
Prepaid lease payments
12
Inventories
15
Other receivables, deposits and prepayments
16
Cash and cash equivalents
17
CURRENT LIABILITIES
Trade and other payables
18
Other borrowings
19
Current taxation
20
NET CURRENT ASSETS
TOTAL ASSETS LESS CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Deferred tax liabilities
20
NET ASSETS
CAPITAL AND RESERVES
21(a)
Capital
Reserves
Equity attributable to owners of the Company
Minority interests
TOTAL EQUITY

As at
31/12/2009
HK$’000
7,186
425
23,008
91,152
121,771
2,557
17,149
43,471
30,414
93,591
74,610
7,815
2,242
(84,667)
8,924
130,695
(28,685)
102,010
11,342
78,451
89,793
12,217
102,010

– 207 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

3. STATEMENT OF FINANCIAL POSITION

Section B Note NON-CURRENT ASSET Investment in a subsidiary 14 CURRENT ASSETS Amount due from a subsidiary 16 CURRENT LIABILITIES Amounts due to immediate holding company 18 NET CURRENT LIABILITIES NET LIABILITIES CAPITAL AND RESERVES 21(a) Share capital Accumulated losses TOTAL EQUITY	As at 31/12/2009 HK$’000 – 31,087 (31,097) (10) (10) – (10) (10)

– 208 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

4. COMBINED STATEMENT OF CHANGES IN EQUITY

Issue of share Capital injection Total comprehensive income for the period Acquisition of a subsidiary At 31 December 2009	Attributable to ow Capital Exchange reserve (Note) HK$’000 HK$’000 – – 11,342 – – (123) – – 11,342 (123)	ners of the Target Retained profits Total HK$’000 HK$’000 – – – 11,342 78,574 78,451 – – 78,574 89,793	Minority interests HK$’000 – – (7) 12,224 12,217	Total equity HK$’000 – 11,342 78,444 12,224
				102,010

Note:

Capital

For the purpose of this report, the capital in the combined statement of financial position as at 31 December 2009 represents the combined capital of Shenzhen Wai Kai Sheng and the Target as at the end of reporting period.

Exchange reserve

The exchange reserve comprises all foreign exchange difference arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policy set out in note 2(r).

– 209 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

5. COMBINED STATEMENT OF CASH FLOWS

Section B
Note
OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Negative goodwill recognised
Foreign exchange loss
Interest income
OPERATING CASH FLOWS BEFORE WORKING
CAPITAL CHANGES
Increase in other receivables, deposits and prepayments
Increase in trade and other payables
NET CASH GENERATED FROM OPERATING
ACTIVITIES
INVESTING ACTIVITIES
Acquisition of a subsidiary
23
Interest received
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from issue of shares / paid up capital
NET CASH GENERATED FROM FINANCING
ACTIVITIES
NET INCREASE IN CASH AND CASH
EQUIVALENTS AND AT END OF THE PERIOD
EFFECT ON FOREIGN EXCHANGE RATES
CHANGES
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD
17

For the
period from
24/9/2009 to
31/12/2009
HK$’000
78,574
(79,353)
123
(1)
(657)
(11,010)
59,506
47,839
(28,685)
1
(28,684)
11,342
11,342
30,497
(83)
30,414

– 210 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

B. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

The Target is a limited liability company incorporated in the British Virgin Islands. The registered address and principal place of the business of the Target are Akara Building, 24 De Castro Street, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands and Room 3201-2, 32/F., Cosco Tower, 183 Queen’s Road Central, Hong Kong respectively.

The Financial Information is presented in Hong Kong dollars (“HK$”) which is the functional currency of the Target.

The principal activity of the Target is investment holding. The principal activities of the subsidiaries are disclosed in note 14.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information has been prepared in accordance with HKFRSs issued by the HKICPA. HKFRSs include all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and interpretations (“HKAS – Int”). In addition, the Financial Information includes applicable disclosures required by the Hong Kong Companies Ordinance and 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 Target Group is set out below.

At the date of this report, the HKICPA has issued a number of new and revised HKFRSs that are not yet effective for the Relevant Period. The Target Group has not early adopted these new and revised HKFRSs (see note 3).

(b) Basis of preparation of the financial information

The Target Group reorganisation involved companies under common control, and the Target Group is regarded and accounted for as a continuing group. Accordingly, for the purpose of this report, the Financial Information of the Target Group throughout the Relevant Period has been prepared using the principles of merger accounting as set out in Accounting Guideline 5 “Merger accounting for Common Control Combinations” issued by the HKICPA. The combined statement of comprehensive income, combined statement of change in equity and combined statement of cash flows of the Target Group for the Relevant Period have been prepared on a combined basis and include the Financial Information of the companies now comprising the Target Group as if the current group structure had been in existence throughout the Relevant Period, or since the respective dates of incorporation/establishment of the relevant entity, where this is a shorter period. The combined statement of financial position of the Target Group as at 31 December 2009 has been prepared to present the assets and liabilities of the companies now comprising the Target Group as at that date as if the current group structure had been in existence at that date.

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

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

– 211 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Judgements made by management in the application of HKFRSs that have a significant effect on the Financial Information and estimates with a significant risk of material adjustment in the next year are disclosed in note 26.

(c) Business combination

(i) Business combination involving entities under common control

The combined financial statements incorporate the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or business first came under the control of the controlling party.

The net assets of combining entities or businesses are combined using the existing carrying values from the controlling parties’ perspective. No amount is recognised in respect of goodwill or excess of acquirers’ interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The combined statement of comprehensive income includes the results of each of the combining entities or businesses from the date when the combining entities or businesses first came under the common control.

(ii) Business combination for acquisition of subsidiaries not involving entities under common control

Apart from those which had been accounted for by regarding the Target as being the holding company of the subsidiaries from the date when the combining companies first came under the control of the Target Group, the purchase method of accounting is used to account for the acquisition of subsidiaries not involving entities under common control by the Target Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Target Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss.

(d) Subsidiaries and minority interests

Subsidiaries are entities controlled by the Target Group. Control exists when the Target Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. Subsidiaries are included in the Financial Information from the date that control commences until the date that control ceases.

Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the Financial Information. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

– 212 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Minority interests at the end of the reporting period, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Target, whether directly or indirectly through subsidiaries, are presented in the combined statement of financial position and combined statement of changes in equity within equity, separately from equity attributable to the owners of the Target. Minority interests in the results of the Target Group are presented on the face of the combined statement of comprehensive income as an allocation of total profit or loss for the year between minority interests and the owners of the Target.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Target Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Target Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Target Group has been recovered.

Loans from holders of minority interests and other contractual obligations towards these holders are presented as financial liabilities in the combined statement of financial position in accordance with notes 2(n) or 2(o) depending on the nature of the liability.

When the Target Group acquires any minority interests, no fair value adjustment is made to the identifiable net assets acquired. The excess of the purchase price over the carrying value of minority interests acquired is recognised as a component of equity. Where the Target Group’s interest in a subsidiary is reduced without losing control, any gain or loss on the partial disposal or deemed disposal is recognised as a movement in equity.

In the Target’s statement of financial position, investment in a subsidiary is carried at cost less impairment losses (see note 2(i)(ii)).

(e) Goodwill

Goodwill represents the excess of the cost of a business combination over the Target Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 2(i)(ii)).

Any excess of the Target Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination is recognised immediately in profit or loss.

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

(f) Property, plant and equipment and construction in progress

Property, plant and equipment are carried in the statement of financial position at cost less accumulated depreciation and impairment losses (see note 2(i)(ii)). The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition and location for its intended use.

– 213 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Building 20 years or over the lease term, if shorter Plant and machinery 10 years Motor vehicles 5 years

(g) Intangible assets (other than goodwill)

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Target Group has sufficient resources and the intention to complete development. The expenditure capitalised includes the costs of materials, direct labour and an appropriate proportion of overheads. Capitalised development costs are carried at cost less accumulated amortisation and impairment losses (see note 2(i)(ii)). Other development expenditure is recognised as an expense in the period in which it is incurred.

Other intangible assets that are acquired by the Target Group are carried in the statement of financial position at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 2(i)(ii)).

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

Mining rights 10 years

Both the period and method of amortisation are reviewed annually.

(h) Prepaid lease payments

Prepaid lease payments represent cost of acquisition of land use rights in the PRC. Land use rights are carried at cost less impairment losses (see note 2(i)(ii)) and are charged to the profit or loss on a straight-line basis over the respective periods of the rights of 50 years.

– 214 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

(i) Impairment of assets

(i) Impairment of receivables

Receivables that are carried at cost or amortised cost are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Target Group about one or more of the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

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

Impairment losses are written off against the corresponding assets directly.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment;
prepaid lease payments;
intangible assets; and
goodwill.

If any such indication exists, the asset’s recoverable amount is estimated.

Calculation of recoverable amount

The recoverable amount of assets is the greater of its fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. Where an asset does not generate cash

– 215 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e., a cash-generating unit).

Recognition of impairment losses

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

Reversals of impairment losses

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

(j) Leased assets

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

(i) Classification of assets leased to the Target Group

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

(ii) Operating lease charges

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

(k) Inventories

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

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

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

– 216 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

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

(l) Other receivables, deposits and prepayments

Other receivables, deposits and prepayments are initially recognised at fair value and thereafter carried at amortised cost less allowance for impairment losses for bad and doubtful debts, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are carried at cost less allowance for impairment losses for bad and doubtful debts (see note 2(i)(i)).

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

(n) Interest-bearing borrowings

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

(o) Trade and other payables

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

(p) Employee benefits

(i) Short-term employee benefits

(ii) Contributions to defined contribution schemes

Obligations for contributions to defined contribution retirement schemes are recognised as an expense in profit or loss as incurred.

In accordance with the rules and regulations in the PRC, the Target Group has arranged for its local employees to join defined contribution retirement plans organised by the PRC government. The PRC government undertakes to assume the retirement benefit obligations of all existing and future retired employees payable under the plans. The assets of these plans are held separately from those of the Target Group in independent funds managed by the PRC government. The Target Group is required to make monthly contributions to these plans at applicable rates with the base of their total salary subject to a certain ceiling. The Target Group has no other obligations for the payment of retirement and other post-retirement benefits of employees or retirees other than the payments disclosed above.

– 217 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

(q) Revenue recognition

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

(i) Sales of goods

Revenue from sales of goods 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.

(ii) Interest income

Interest income is recognised in profit or loss as it accrues using the effective interest method.

(r) Translation of foreign currencies

Non-monetary assets and liabilities measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies carried at fair value are translated using the foreign exchange rates at the dates the fair value was determined.

The results of foreign operations are translated into Hong Kong dollar at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items, including goodwill arising on consolidation of foreign operations are translated into Hong Kong dollar at the closing foreign exchange rates ruling at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.

(s) Borrowing costs

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

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

(t) Income tax

– 218 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

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

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

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

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

in the case of current tax assets and liabilities, the Target Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either;
the same taxable entity; or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

– 219 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

(u) Provision and contingent liabilities

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

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

(v) Related parties

For the purposes of the Financial Information, a party is considered to be related to the Target Group

if:

i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Target Group or exercise significant influence over the Target Group in making financial and operating policy decisions, or has joint control over the Target Group;
ii) the Target Group and the party are subject to common control;
iii) the party is an associate of the Target Group or a joint venture in which the Target Group is a venturer;
iv) the party is a member of key management personnel of the Target Group or the Target Group’s parent or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
vi) the party is a post-employment benefit plan which is for the benefit of employees of the Target Group or of any entity that is a related party of the Target Group.

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

(w) Segment reporting

Operating segments, and the amounts of each segment item reported in the Financial Information, are identified from the Financial Information provided regularly to the Target Group’s chief operating decision maker for the purposes of allocating resources to, and assessing the performance of, the Target Group’s various lines of business and geographical locations.

3. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2009

Up to the date of this report, the HKICPA has issued the following new and revised standards, amendments and interpretations which are not yet effective for the Relevant Period.

– 220 –

APPENDIX IIA

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

HKFRSs (Amendments) Amendment to HKFRS 5 as part of Improvements to HKFRSs in 2008[1] HKFRSs (Amendments) Improvements to HKFRSs 2009[2] HKAS 24 (Revised) Related Party Disclosures[6] HKAS 27 (Revised) Consolidated and separate financial statements[1] HKAS 32 (Amendment) Classification of Rights Issues[4] HKAS 39 (Amendment) Eligible Hedged Items[1] HKFRS 1 (Amendment) Additional Exemptions for First-time Adopters[3] HKFRS 2 (Amendment) Group Cash-settled Share-based Payment Transactions[3] HKFRS 3 (Revised) Business Combination[1] HKFRS 9 Financial Instruments[7] HK (IFRIC) – Int 14 (Amendment) Prepayments of a Minimum Funding Requirement[6] HK (IFRIC) – Int 17 Distributions of Non-Cash Assets to Owners[1] HK (IFRIC) – Int 19 Extinguishing Financial Liabilities with Equity Instruments[5] HK – Int 4 (Amendment) Leases – Determination of the Length of Lease Term in respect of Hong Kong Land Leases[3]

Notes:

1 Effective for annual periods beginning on or after 1 July 2009.
2 Amendments that are effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate.
3 Effective for annual periods beginning on or after 1 January 2010.
4 Effective for annual periods beginning on or after 1 February 2010.
5 Effective for annual periods beginning on or after 1 July 2010.
6 Effective for annual periods beginning on or after 1 January 2011.
7 Effective for annual periods beginning on or after 1 January 2013.

The Target Group is in the process of making an assessment of what the impact of these new and revised standards, amendments and interpretations is expected to be in the period of initial application. So far, it has concluded that the adoption of them is unlikely to have a significant impact on the Target Group’s results of operations and financial position.

4. TURNOVER AND SEGMENT INFORMATION

No turnover was generated by the Target Group during the Relevant Period.

Segment information

For the Relevant Period, the Target Group was principally engaged in mining and selling of gold concentrates in the PRC. The results, assets and liabilities of the Target Group during the Relevant Period mainly related to holding of mining rights and the assets are located in PRC.

Since the Target Group is engaged in one operating segment which is the mining and selling of gold products and all of its revenue and assets are generated and located in the PRC, no segment reporting information such as segment revenue, results, assets, liabilities is presented under HKFRS 8 “Operating Segments”.

– 221 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

5. OTHER REVENUE AND NET INCOME

Other revenue Bank interest income Total interest income on financial assets not at fair value through profit or loss Other net income Excess of the acquirer’s share of net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition (“Negative goodwill”) (note 23)	For the period from 24/9/2009 to 31/12/2009 HK$’000 1
	1

	79,353

6. PROFIT BEFORE TAXATION

Profit before taxation is arrived at after charging the following:

Other items Preliminary expenses written off Exchange loss	For the period from 24/9/2009 to 31/12/2009 HK$’000 724 49

7. INCOME TAX IN THE STATEMENT OF COMPREHENSIVE INCOME

a) Taxation in the statement of comprehensive income represents:

Current tax PRC income tax Hong Kong profits tax Deferred tax	For the period from 24/9/2009 to 31/12/2009 HK$’000 – –
	–
	–
	–

– 222 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Notes:

(i) No PRC income tax has been provided for in the Financial Information as the Target Group has no assessable profits for the Relevant Period.
(ii) The Target is incorporated in the British Virgin Islands is exempted from income tax in the British Virgin Islands.
(iii) No Hong Kong profits tax has been provided for the Relevant Period as the Target Group did not have assessable profits subject to Hong Kong profits tax for the Relevant Period.
b)

Reconciliation between tax expense and accounting profit at the applicable tax rate:

Profit before taxation Notional tax on profit before taxation, calculated at the rates applicable in profits in the period jurisdictions concerned Tax effect of non-deductible expenses Tax effect of non-taxable incomes Actual tax expense	For the period from 24/9/2009 to 31/12/2009 HK$’000 78,574 261 187 (448) –

8. DIRECTORS’ EMOLUMENTS

No directors’ emoluments have been paid or are payable for the Relevant Period.

No emoluments or discretionary bonus were paid by the Target Group to the directors as an inducement to join or upon joining the Target Group or as compensation for loss of office during the Relevant Period. No director of the Target Group waived or agreed to waive any emoluments or discretionary bonus during the Relevant Period.

9. LOSS ATTRIBUTABLE TO OWNERS OF THE TARGET

The combined loss attributable to owners of the Target includes a loss of HK$10,000 during the period from 24 September 2009 (date of incorporation) to 31 December 2009 which have been dealt with in the Financial Information of the Target.

==> picture [406 x 208] intentionally omitted <==

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

||||||||
|---|---|---|---|---|---|---|
|Mining|
|rights|
|HK$’000|
|Cost|
|Acquisition|of|a|subsidiary|(note|23)|91,281|
|Exchange|adjustment|(129)|
|At|31|December|2009|91,152|
|Accumulated|amortization|
|Charge|for|the|period|–|
|At|31|December|2009|–|
|Net|book|value|
|At|31|December|2009|91,152|

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

Notes:

The Target Group’s mining rights are as follows:

==> picture [389 x 291] intentionally omitted <==

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

|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Mine|Location|Expiry|date|
|Sanjia|Gold|Mine|(|)|Ma|Juan|Zi|Town,|Qinglong|Manzu|November|2012|
|Autonomous|County,|Heibei|Province,|PRC|
|(|)|
|Sanjia|Gold|Mine|Wangjiegou|Wangjiegou,|Shen|Zhang|Zi|Village,|Ma|Juan|Zi|May|2011|
|Exploitation|Area|Town,|Qinglong|Manzu|Autonomous|County,|
|(|)|Heibei|Province,|PRC|
|(|)|
|Banbishan|Gold|Mine|Banbishan|Village,|Shuang|Shun|Zi|Town,|June|2010|
|(|)|Qinglong|Manzu|Autonomous|County,|Heibei|
|Province,|PRC|
|(|)|
|Banbishan|Gold|Mine|Lengjingou|Banbishan|Village,|Shuang|Shun|Zi|Town,|March|2012|
|Exploitation|Area|Qinglong|Manzu|Autonomous|County,|Heibei|
|(|)|Province,|PRC|
|(|)|
|Qingheyan|Gold|Mine|Qinglong|Town,|Qinglong|Manzu|Autonomous|July|2012|
|Shuiquangou|Exploitation|Area|County,|Heibei|Province,|PRC|
|(|)|(|)|
|Qingheyan|Gold|Mine|Qinglong|Town,|Qinglong|Manzu|Autonomous|August|2010|
|Xiaodongyu|Exploitation|Area|County,|Heibei|Province,|PRC|
|(|)|(|)|

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

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APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Notes:

(i) In September 2009, the certificate of the mining rights of Banbishan Gold Mine Lengjingou Exploitation Area expired and the Target Group has made an application for an extension of the mining rights which was approved in April 2010.
(ii) The Target Group has conducted a review of the carrying amount of the relevant mining rights and made a re-assessment of it by reference to the valuation report prepared by Savills Valuation and Professional Services Limited, an independent professional valuer.

14. INVESTMENT IN SUBSIDIARIES

The Target

As at 31/12/2009 HK$’000

Unlisted shares, at cost –

The particulars of the subsidiaries of the Target at 31 December 2009 are as follows:

Name of the compan Champion City Inves *	y tme *	Proportion of ownership interest Date of incorporation Place of Establishment/ Incorporation and operation Particulars of issued and paid up capital Target Group’s effective interest Held by the Target Held by a subsidiary Principal activity nts Limited 30 September 2009 Hong Kong 1 share of HK$1 100% 100% – Investment holding 25 December 2009 PRC RMBnil 100% – 100% Investment holding * 18 December 2009 PRC RMB10,000,000 100% – 100% Investment holding 19 March 2004 PRC RMB30,000,000 90% – 90% Mining and selling of gold concentrates

Registered under the laws of PRC as a wholly-foreign-owned enterprise (“WOFE”)
** Private limited liability company

15. INVENTORIES

The Target Group

Raw materials Work-in-progress Finished goods	As at 31/12/2009 HK$’000 4,721 4,085 8,343
	17,149

– 227 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

16. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

Other receivables Amount due from a controlling shareholder Amount due from a related company (note (a)) Amount due from a subsidiary Loans and receivables Prepayments and deposits	As at 31/12/2009 The Target Group The Target HK$’000 HK$’000 1,318 – 11,010 – 30,833 – – 31,087	As at 31/12/2009 The Target Group The Target HK$’000 HK$’000 1,318 – 11,010 – 30,833 – – 31,087
	43,161 310	31,087 –
	43,471	31,087

All of the other receivables, deposits and prepayments (including amount due from a subsidiary) were expected to be recovered or recognised as expenses within one year.

Particulars of the advances to a related company, disclosed pursuant to section 161B of the Hong Kong Companies Ordinance, are as follows:

Name of related company:

Relationship: The related company is controlled by Mr. Sun Jingzu (“Mr. Sun”), the former major shareholder of Hongwen Gold.

Balance as at 24 September 2009 Balance as at 31 December 2009 (note) Maximum outstanding balance during the period	As at 31/12/2009 HK$’000 –

	30,833

	30,833

Note: The amount is unsecured, interest-free and repayable on demand.

17. CASH AND CASH EQUIVALENTS

The Target Group

Cash at bank and in hand Cash and cash equivalents in the combined statement of financial position and combined statement of cash flows	As at 31/12/2009 HK$’000 30,414
	30,414

– 228 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

18. TRADE AND OTHER PAYABLES

Trade payables (note (a)) Other payables and accruals Amount due to immediate holding company Amount due to intermediate holding company Trade deposits received	As at 31/12/2009 The Target Group The Target HK$’000 HK$’000 1,997 – 13,161 – 31,097 31,097 28,351 – 4 – 74,610 31,097	As at 31/12/2009 The Target Group The Target HK$’000 HK$’000 1,997 – 13,161 – 31,097 31,097 28,351 – 4 – 74,610 31,097
		31,097

Note:

(a) The following is an aged analysis of accounts payable presented based on the invoice date at the end of the reporting period:

0 to 30 days 31 days to 60 days 61 days to 90 days Over 90 days 19. OTHER BORROWINGS Loans from a former shareholder of Hongwen Gold (note (b))	As at 31/12/2009 HK$’000 919 77 94 907
	1,997

	As at 31/12/2009 HK$’000 7,815

Notes:

(a) Analysed for reporting purposes as follows:

Current portion Non-current portion All of the other borrowings are carried at amortised cost.	As at 31/12/2009 HK$’000 7,815 –
	7,815

(b) The amount is unsecured, bearing interest at 7.75% per annum and repayable on 30 June 2010.

– 229 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

20. INCOME TAX IN THE STATEMENT OF FINANCIAL POSITION

a) Current taxation in the statement of financial position represents:

The Target Group

==> picture [382 x 77] intentionally omitted <==

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

HK$’000
Current taxation arising from:
Acquisition of a subsidiary (note 23) 2,246
Exchange adjustment (4)
At 31 December 2009 2,242
----- End of picture text -----

b) Deferred tax liabilities recognised

The Target Group

Deferred tax arising from: Acquisition of a subsidiary (note 23) Exchange adjustment At 31 December 2009	Depreciation allowances in excess of related depreciation HK$’000 28,726 (41) 28,685

21. CAPITAL AND RESERVES

(a) Movements in components of equity

The reconciliation between the opening and closing balance of each component of the Target Group’s combined equity is set out in the combined statement of changes in equity. Details of the changes in the Target’s individual components of equity between the beginning and the end of the year are set out below:

Issue of share Total comprehensive loss for the year At 31 December 2009	Share Capital HK$’000 – – –	Accumulated losses HK$’000 – (10) (10)	Total HK$’000 – (10) (10)

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APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

(b) Authorised and issued share capital

The Target

Authorised: Ordinary shares of US$1 each Ordinary shares, issued and fully paid: Issue of share At 31 December 2009	As at 31/12/2009 Number of shares HK$’000 50,000 390	As at 31/12/2009 Number of shares HK$’000 50,000 390

	1	–
	1	–

On 16 October 2009, the Company issued 1 shares of US$1 each at par for cash as its initial working capital.

The owners of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Target. All ordinary shares rank equally with regard to the Target’s residual assets.

(b) Distributability of reserves

At 31 December 2009, no reserve was available for distribution to the shareholders of the Target.

(c) Capital management

The Target Group’s objectives when managing capital are:

(a) To safeguard the Target Group’s ability to continue as a going concern, so that it continues to provide returns and benefits for stakeholders;
(b) To support the Target Group’s stability and growth; and
(c) To provide capital for the purpose of strengthening the Target Group’s risk management capability.

The Target Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of the Target Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Target Group currently does not adopt any formal dividend policy. Management regards total equity as capital, for capital management purpose.

22. FINANCIAL RISK MANAGEMENT AND FAIR VALUES

The Target Group’s major financial instruments include other receivables, amount due from a related company and controlling shareholder, trade and other payables and other borrowings. Details of the financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include credit risk, liquidity risk, currency risk, interest rate risk and other price risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

– 231 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

(a) Credit risk

(i) As at 31 December 2009, the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the combined statement of financial position after deducting any impairment allowance.
(ii) As at 31 December 2009, the Target Group had certain concentration of credit risk as nearly 71% of total loans and receivables respectively was due from a related company of the Target Group.
(iii) The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The Target Group monitors closely the credit ratings of these counterparties and will take appropriate action when their ratings change.

(b) Liquidity risk

Liquidity risk is the risk that the Target Group will not be able to meet its financial obligations as they fall due. The Target Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants to ensure that it maintains sufficient amount of cash and adequate committed lines of funding from major financial institutions to satisfy its contractual and reasonably foreseeable obligations as they fall due.

The following liquidity table sets out the remaining contractual maturities at the end of the reporting period of the Target Group’s financial liabilities based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Target Group is required to pay:

Trade and other payables Other borrowings	Within 1 year or on demand HK$’000 74,610 8,112 82,722	More than 1 year but less than 2 years HK$’000 – – –	As at 31 December 2009 Moe than 2 years but less than 5 years More than 5 years HK$’000 HK$’000 – – – – – –	Total contractual undiscounted cash flow HK$’000 74,610 8,112 82,722	Carrying amount HK$’000 74,610 7,815
					82.425

– 232 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

(c) Interest rate risk

The Target Group is exposed to cash flow interest rate risk in relation to variable-rate bank balances and deposits and fair value interest rate risk in relation to fixed-rate other borrowings.

(i) Interest rate profile

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

	As at 31/12/2009	As at 31/12/2009
	Effective
	interest
	rates
	%	HK$’000
Fixed rate borrowings:
Other borrowings	7.75	7,815
Total borrowings		7,815

Net fixed rate borrowings as a percentage of total net
borrowings		100%
Variable rate bank balances and deposits	2.25	13,379

(ii) Sensitivity analysis

All of the other borrowings of the Target Group which are fixed rate instruments are insensitive to change in interest rates. A change in interest rates at the end of each reporting period would not affect profit or loss.

At 31 December 2009, it is estimated that a general increase/decrease of 50 basis points in interest rates, with all other variables held constant, would decrease/increase the Target Group’s profit/loss after tax and retained profits by approximately HK$67,000, other components of equity would not change in response to the general increase/decrease in interest rates.

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to the exposure to interest rate risk for variable rate interest-bearing financial instruments in existence at that date. The 50 basis points increase or decrease represents management’s assessment of a reasonably possible change in interest rates over the period until the end of the next annual reporting period. The analysis is performed on the same basis for the Relevant Period.

(d) Currency risk

The Target Group’s exposure to foreign currency risk is minimal as the Target Group does not have any foreign currency sales and purchases and its monetary assets and liabilities are denominated in its functional currencies. The exchange rate risk to the Target Group is not significant and therefore, no sensitivity analysis is presented.

– 233 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

(e) Price risk

The principal operations of the Target Group is mining and selling of gold concentrates. As gold markets are influenced by global as well as regional supply and demand conditions, any unexpected price changes could affect the Target Group’s earnings and performance. To protect the Target Group’s business from the impact of gold price fluctuations, the Target Group closely monitors the net exposure and ensures that it is kept to an acceptable level.

(f) Fair values

The directors consider that all financial instruments are carried at amounts not materially different from their fair values as at 31 December 2009.

(g) Estimation of fair values

The following summarises the major methods and assumptions applied in determining the fair values of the following financial instruments:

(i) Interest-bearing borrowings

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

23. ACQUISITION OF SUBSIDIARY

On 21 December 2009, Shenzhen Wan Kai Sheng, a wholly-owned subsidiary of the Target, entered into a sale and purchase agreement with Mr. Sun, an independent third party, to acquire the 90% equity interest of Hongwen Gold for an aggregate consideration of RMB27,000,000 (approximately HK$30,667,000). Hongwen Gold is principally engaged in the mining and selling of gold concentrates in PRC.

– 234 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Details of the net assets acquired in respect of the acquisition of Hongwen Gold are summarized below:

Acquiree’s carrying amount before combination HK$’000 7,197 425 3,453 1,338 14,361 32,507 2,040 (15,184) (7,826) (2,246) –	Fair value adjustments HK$’000 – – 87,828 24,264 2,813 – – – – – (28,726)	Fair value HK$’000 7,197 425 91,281 25,602 17,174 32,507 2,040 (15,184) (7,826) (2,246) (28,726) 122,244 (12,224) 110,020 (79,353) 30,667 30,667 1,982 (30,667) (28,685)
36,065	86,179	122,244 (12,224
		110,020 (79,353

Notes:

(a) The fair value was determined with reference to the valuation report prepared by Savills Valuation and Professional Services Limited, an independent professional valuer.
(b) The negative goodwill on the acquisition of Hongwen Gold represented the shortfall of the fair value of the consideration below the fair value of the net assets acquired. In the opinion of the directors of the Target Group, Mr. Sun has no intention to commit and contribute in anticipation of the significant capital expenditure and timing required for future mine development in the foreseeable future. Mr. Sun therefore sold the 90% equity interests in Hongwen Gold at a consideration based on the registered capital of Hongwen Gold in December 2009 to make an exit for his investment which in turn resulting in a discount on this acquisition.

– 235 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

24. MATERIAL RELATED PARTY TRANSACTIONS

(a) Transactions with key management personnel

All members of key personnel are the directors of the Target. Save for those disclosed elsewhere in the Financial Information, the Target Group does not entered into any related parties transaction.

(b) Transactions with related parties

The outstanding balances at the end of the reporting period are as follows:

	The Target	The Target
	Group as at	as at
	31/12/2009	31/12/2009
	HK$’000	HK$’000
Amount due from a related company (note 16)	30,833	–
Loan from a former shareholder of Hongwen Gold (note 19)	(7,815)	–
Amount due from a subsidiary (note 16)	–	31,087
Amount due to immediate holding company (note 18)	(31,097)	(31,097)
Amount due to intermediate holding company (note 18)	(28,351)	–
Amount due from controlling shareholder (note 16)	11,010	–

25. PARENT AND ULTIMATE HOLDING COMPANY

At 31 December 2009, the directors consider the ultimate holding parent and immediate holding company of the Target to be Smart Lion Management Limited and Dencorn International Limited, both of which are incorporated in British Virgin Islands. Neither of them produces financial statements available for public use.

26. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

a) Key sources of estimation uncertainty

In the process of applying the Target Group’s accounting policies which are described in note 2, management has made certain key assumptions concerning the future and other key sources of estimated uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, as discussed below.

i) Impairment of property, plant and equipment and prepaid lease payments

The recoverable amount of an asset is the greater of its fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, which requires significant judgement relating to the level of revenue and amount of operating costs. The Target Group uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in additional impairment charge or reversal of impairment in future periods.

ii) Impairment of receivables

The Target Group maintains impairment allowance for doubtful accounts based upon evaluation of the recoverability of the accounts receivable and other receivables, where applicable, at the end of each reporting period. The estimates are based on the ageing of the accounts receivable and other receivables balances and the historical write-off experience, net of recoveries. If the financial condition of the debtors were to deteriorate, additional impairment allowance may be required.

– 236 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

iii) Valuation of inventories

Inventories are carried at the lower of costs and net realizable value at the end of the reporting period. Net realizable value is determined on the basis of the estimated selling price less the estimated costs necessary to make the sale. The directors estimate the net realizable value for finished goods and work-in-progress based primarily on the latest invoice prices and current market conditions. In addition, the directors perform an inventory review on a product-by-product basis regularly and assess the need for write down of inventories.

iv) Taxation

The Target Group is subject to various taxes in the PRC. Significant judgment is required in determining the provision for taxation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Target Group recognizes liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that are initially recorded, such differences will impact the tax provisions in the period in which such determination is made.

b) Critical accounting judgements in applying the Target Group’s accounting policies

In determining the carrying amounts of some assets and liabilities, the Target Group makes assumptions for the effects of uncertain future events on those assets and liabilities at the end of the reporting period. These estimates involve assumptions about such items as cash flows and discount rates used. The Target Group’s estimates and assumptions are based on historical experience and expectations of future events and are reviewed periodically. In addition to assumptions and estimations of future events, judgements are also made during the process of applying the Target Group’s accounting policies.

C. POST BALANCE SHEET EVENT

No significant events have taken place subsequent to 31 December 2009.

D. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Group in respect of any period subsequent to 31 December 2009.

– 237 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

The following is the text of a report on Hongwen Gold, prepared for the purpose of incorporation in this circular, received from the independent reporting accountants, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

==> picture [87 x 61] intentionally omitted <==

24 June 2010

The Directors New Times Energy Corporation Limited Room 1007-08, 10th Floor New World Tower I 18 Queen’s Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information relating to (Qinglong Manzu Autonomous County Hongwen Gold Company Limited) (“Hongwen Gold”) below, including the statement of financial position as at 31 December 2007, 2008 and 2009, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the years ended 31 December 2007, 2008 and 2009 (the “Relevant Periods”), together with the notes thereto (the “Financial Information”), for inclusion in the circular of New Times Energy Corporation Limited (the “Company”) to its shareholders dated 24 June 2010 in connection with the proposed acquisition of the entire issued share capital of Fortune Ease Holdings Limited (the “Circular”).

Hongwen Gold was established in the People’s Republic of China (the “PRC”) with limited liability on 19 March 2004 with a registered capital of Renminbi (“RMB”) 30,000,000. As at the date of this report, Hongwen Gold is 90% beneficially owned by (Shenzhen Wan Kai Sheng Trading Company Limited) (“Shenzhen Wan Kai Sheng”), a company established in the PRC. During the Relevant Periods, Hongwen Gold was principally engaged in mining and selling of gold concentrates. As at the date of this report and during the Relevant Periods, Hongwen Gold has no subsidiary.

The financial statements of Hongwen Gold for the years ended 31 December 2007, 2008 and 2009 prepared in accordance with PRC accounting principles, were audited by , which are registered auditors in PRC.

– 238 –

APPENDIX IIB

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

For the purposes of this report, the director of Hongwen Gold has prepared the Financial Information of Hongwen Gold for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). We have examined the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and carried out such additional procedures as we considered necessary in accordance with Auditing Guideline “Prospectuses and the reporting accountant” (Statement 3.340) issued by the HKICPA.

The Financial Information of Hongwen Gold for the Relevant Periods set out in this report has been prepared in accordance with HKFRSs issued by the HKICPA based on the Underlying Financial Statements, after making such adjustments as we considered appropriate.

The Underlying Financial Statements are the responsibility of the director of Hongwen Gold who approved their issue. The directors of the Company 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, form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information, for the purpose of this report and prepared on the basis set out in note 2 of Section B below, gives a true and fair view of the state of affairs of Hongwen Gold as at 31 December 2007, 2008 and 2009 and of the results and cash flows of Hongwen Gold for the Relevant Periods.

Yours faithfully,

CCIF CPA Limited Certified Public Accountants Hong Kong

Sze Chor Chun, Yvonne

Practising Certificate Number P05049

– 239 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF HONGWEN GOLD

A. FINANCIAL INFORMATION

1. STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 44,343 48,055 32,628 (47,168) (40,108) (26,544) (2,825) 7,947 6,084 527 62 1,181 (6,194) (5,862) (4,162) (765) (342) (3,065) (9,257) 1,805 38 (552) (552) (544) (9,809) 1,253 (506) – – (1,977) (9,809) 1,253 (2,483) – – – (9,809) 1,253 (2,483)	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 44,343 48,055 32,628 (47,168) (40,108) (26,544) (2,825) 7,947 6,084 527 62 1,181 (6,194) (5,862) (4,162) (765) (342) (3,065) (9,257) 1,805 38 (552) (552) (544) (9,809) 1,253 (506) – – (1,977) (9,809) 1,253 (2,483) – – – (9,809) 1,253 (2,483)	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 44,343 48,055 32,628 (47,168) (40,108) (26,544) (2,825) 7,947 6,084 527 62 1,181 (6,194) (5,862) (4,162) (765) (342) (3,065) (9,257) 1,805 38 (552) (552) (544) (9,809) 1,253 (506) – – (1,977) (9,809) 1,253 (2,483) – – – (9,809) 1,253 (2,483)
(2,825) 527 (6,194) (765) (9,257) (552) (9,809) – (9,809) –	7,947 62 (5,862) (342) 1,805 (552) 1,253 – 1,253 –	6,084 1,181 (4,162 (3,065
		38 (544
		(506 (1,977
		(2,483 –
(9,809)	1,253

– 240 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

2. STATEMENT OF FINANCIAL POSITION

As at 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 17,310 15,773 6,335 – – 374 1,205 1,178 1,151 6,595 5,485 3,040 25,110 22,436 10,900 27 27 27 13,337 12,429 12,643 538 912 1,435 18,099 – – – 16,204 27,185 – 1,011 1,016 846 4,457 780 32,847 35,040 43,086 17,845 16,261 13,367 – – 6,890 – – 1,977 (17,845) (16,261) (22,234) 15,002 18,779 20,852 40,112 41,215 31,752 (7,130) (6,980) – 32,982 34,235 31,752 30,000 30,000 30,000 2,982 4,235 1,752 32,982 34,235 31,752	As at 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 17,310 15,773 6,335 – – 374 1,205 1,178 1,151 6,595 5,485 3,040 25,110 22,436 10,900 27 27 27 13,337 12,429 12,643 538 912 1,435 18,099 – – – 16,204 27,185 – 1,011 1,016 846 4,457 780 32,847 35,040 43,086 17,845 16,261 13,367 – – 6,890 – – 1,977 (17,845) (16,261) (22,234) 15,002 18,779 20,852 40,112 41,215 31,752 (7,130) (6,980) – 32,982 34,235 31,752 30,000 30,000 30,000 2,982 4,235 1,752 32,982 34,235 31,752	As at 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 17,310 15,773 6,335 – – 374 1,205 1,178 1,151 6,595 5,485 3,040 25,110 22,436 10,900 27 27 27 13,337 12,429 12,643 538 912 1,435 18,099 – – – 16,204 27,185 – 1,011 1,016 846 4,457 780 32,847 35,040 43,086 17,845 16,261 13,367 – – 6,890 – – 1,977 (17,845) (16,261) (22,234) 15,002 18,779 20,852 40,112 41,215 31,752 (7,130) (6,980) – 32,982 34,235 31,752 30,000 30,000 30,000 2,982 4,235 1,752 32,982 34,235 31,752
25,110	22,436	10,900
27 13,337 538 18,099 – – 846	27 12,429 912 – 16,204 1,011 4,457	27 12,643 1,435 – 27,185 1,016 780
32,847	35,040	43,086
17,845 – –	16,261 – –	13,367 6,890 1,977
(17,845) 15,002 40,112 (7,130)	(16,261) 18,779 41,215 (6,980)	(22,234) 20,852 31,752 –
32,982	34,235
30,000 2,982	30,000 4,235	30,000 1,752
32,982	34,235

– 241 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

3. STATEMENT OF CHANGES IN EQUITY

Section B Note At 1 January 2007 Total comprehensive loss for the year At 31 December 2007 and 1 January 2008 Total comprehensive income for the year At 31 December 2008 and 1 January 2009 Total comprehensive loss for the year At 31 December 2009	Paid-up capital RMB’000 30,000 – 30,000 – 30,000 – 30,000	Retained profits RMB’000 12,791 (9,809) 2,982 1,253 4,235 (2,483) 1,752	Total RMB’000 42,791 (9,809) 32,982 1,253 34,235 (2,483) 31,752

– 242 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

4. STATEMENT OF CASH FLOWS

Section B Note OPERATING ACTIVITIES Profit/(loss) before taxation Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Amortisation of prepaid lease payments Loss on disposal of property, plant and equipment Loss on disposal of gold mines Interest income Interest expense OPERATING (LOSS)/PROFIT BEFORE WORKING CAPITAL CHANGES (Increase)/decrease in inventories Increase in other receivables, deposits and prepayments Decrease in amount due from immediate holding company Increase in amount due from a related company (Decrease)/increase in trade and other payables NET CASH GENERATED FROM/(USED IN) OPERATING ACTIVITIES	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (9,809) 1,253 (506) 2,378 2,071 1,395 1,110 1,110 884 27 27 27 2,145 – – – – 2,661 (3) (3) (8) 552 552 544 (3,600) 5,010 4,997 4,133 908 (6,366) (2,909) (374) (896) 8,749 18,099 – – (16,204) (1,642) (1,848) (2,136) 858 4,525 5,303 (3,049)	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (9,809) 1,253 (506) 2,378 2,071 1,395 1,110 1,110 884 27 27 27 2,145 – – – – 2,661 (3) (3) (8) 552 552 544 (3,600) 5,010 4,997 4,133 908 (6,366) (2,909) (374) (896) 8,749 18,099 – – (16,204) (1,642) (1,848) (2,136) 858 4,525 5,303 (3,049)	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (9,809) 1,253 (506) 2,378 2,071 1,395 1,110 1,110 884 27 27 27 2,145 – – – – 2,661 (3) (3) (8) 552 552 544 (3,600) 5,010 4,997 4,133 908 (6,366) (2,909) (374) (896) 8,749 18,099 – – (16,204) (1,642) (1,848) (2,136) 858 4,525 5,303 (3,049)
	(3,600) 4,133 (2,909) 8,749 – (1,848)	5,010 908 (374) 18,099 (16,204) (2,136)	4,997 (6,366 (896 – (1,642 858
	4,525	5,303

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ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (3,693) (534) (167) – – (374) – (1,011) (5) 3 3 8 (3,690) (1,542) (538) – (150) (90) – (150) (90) 835 3,611 (3,677) 11 846 4,457 846 4,457 780	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (3,693) (534) (167) – – (374) – (1,011) (5) 3 3 8 (3,690) (1,542) (538) – (150) (90) – (150) (90) 835 3,611 (3,677) 11 846 4,457 846 4,457 780	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (3,693) (534) (167) – – (374) – (1,011) (5) 3 3 8 (3,690) (1,542) (538) – (150) (90) – (150) (90) 835 3,611 (3,677) 11 846 4,457 846 4,457 780
(3,690) – – 835 11	(1,542) (150) (150) 3,611 846	(538
		(90
		(90
		(3,677 4,457
846	4,457

For the disposal of gold mines in April 2009, the consideration of RMB9,340,000 was received by a related company, , on behalf of Hongwen Gold.

– 244 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF HONGWEN GOLD

B. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

Hongwen Gold is a limited liability company established in PRC. The registered address and principal place of the business of Hongwen Gold is Zhong Xing Road West, Qinglong Town, Qinglong Manzu Autonomous County, Hebei Province, the PRC ( ).

Hongwen Gold’s principal operations are conducted in the PRC. The Financial Information is presented in Renminbi (“RMB”) which is the functional currency of Hongwen Gold and rounded to the nearest thousand.

The principal activity of Hongwen Gold is mining and selling of gold concentrates. During the Relevant Periods, Hongwen Gold hold four gold mines, namely Banbishan gold mine, Sanjia gold mine, Qingheyan gold mine and Xiang Shui Gou gold mine. on 16 April 2009, Hongwen Gold disposed of its mining right and other assets and liabilities of Xiang Shui Gou gold mine.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

(b) Basis of preparation of the Financial Information

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

(c) Property, plant and equipment and construction in progress

Property, plant and equipment are carried in the statement of financial position at cost less accumulated depreciation and impairment losses (see note 2(f)(ii)). The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition and location for its intended use.

– 245 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF HONGWEN GOLD

Building 20 years or over the lease term, if shorter Plant and machinery 10 years Motor vehicles 5 years

(d) Intangible assets

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and Hongwen Gold has sufficient resources and the intention to complete development. The expenditure capitalised includes the costs of materials, direct labour and an appropriate proportion of overheads. Capitalised development costs are carried at cost less accumulated amortisation and impairment losses (see note 2(f)(ii)). Other development expenditure is recognised as an expense in the period in which it is incurred.

Other intangible assets that are acquired by Hongwen Gold are carried in the statement of financial position at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 2(f)(ii)).

Mining rights 10 years

Both the period and method of amortisation are reviewed annually.

(e) Prepaid lease payments

Prepaid lease payments represent cost of acquisition of land use rights in the PRC. Land use rights are carried at cost less impairment losses (see note 2(f)(ii)) and are charged to the profit or loss on a straight-line basis over the respective periods of the rights of 50 years.

– 246 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF HONGWEN GOLD

(f) Impairment of assets

(i) Impairment of receivables

Receivables that are carried at cost or amortised cost are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of Hongwen Gold about one or more of the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

Impairment losses are written off against the corresponding assets directly.

(ii) Impairment of other assets

property, plant and equipment;
prepaid lease payments; and
intangible assets.

If any such indication exists, the asset’s recoverable amount is estimated.

Calculation of recoverable amount

The recoverable amount of asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e., a cash-generating unit).

– 247 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

Recognition of impairment losses

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

Reversals of impairment losses

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

(g) Leased assets

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

(i) Classification of assets leased to Hongwen Gold

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

(ii) Operating lease charges

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

(h) Inventories

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

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

– 248 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

(i) Other receivables, deposits and prepayments

Other receivables, deposits and prepayments are initially recognised at fair value and thereafter carried at amortised cost less allowance for impairment losses of bad and doubtful debts, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are carried at cost less allowance for impairment losses of bad and doubtful debts (see note 2(f)(i)).

(j) Cash and cash equivalents

(k) Interest-bearing borrowings

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

(l) Trade and other payables

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

(m) Employee benefits

(i) Short-term employee benefits

(ii) Contributions to defined contribution schemes

Obligations for contributions to defined contribution retirement schemes are recognised as an expense in profit or loss as incurred.

In accordance with the rules and regulations in the PRC, Hongwen Gold has arranged for its local employees to join defined contribution retirement plans organised by the PRC government. The PRC government undertakes to assume the retirement benefit obligations of all existing and future retired employees payable under the plans. The assets of these plans are held separately from those of Hongwen Gold in independent funds managed by the PRC government. Hongwen Gold is required to make monthly contributions to these plans at applicable rates with the base of their total salary subject to a certain ceiling. Hongwen Gold has no other obligations for the payment of retirement and other post-retirement benefits of employees or retirees other than the payments disclosed above.

– 249 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF HONGWEN GOLD

(n) Revenue recognition

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

(i) Sales of goods

Revenue from sales of goods 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.

(ii) Interest income

Interest income is recognised in profit or loss as it accrues using the effective interest method.

(o) Borrowing costs

(p) Income tax

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

– 250 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

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

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

in the case of current tax assets and liabilities, Hongwen Gold intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either;
the same taxable entity; or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(q) Provision and contingent liabilities

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

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

(r) Related parties

For the purposes of the Financial Information, a party is considered to be related to Hongwen Gold

if:

i) the party has the ability, directly or indirectly through one or more intermediaries, to control Hongwen Gold or exercise significant influence over Hongwen Gold in making financial and operating policy decisions, or has joint control over Hongwen Gold;
ii) Hongwen Gold and the party are subject to common control;
iii) the party is an associate of Hongwen Gold or a joint venture in which Hongwen Gold is a venturer;
iv) the party is a member of key management personnel of Hongwen Gold or Hongwen Gold’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;

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APPENDIX IIB ACCOUNTANTS’ REPORT OF HONGWEN GOLD

v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
vi) the party is a post-employment benefit plan which is for the benefit of employees of Hongwen Gold or of any entity that is a related party of Hongwen Gold.

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

(s) Segment reporting

Operating segments, and the amounts of each segment item reported in the Financial Information, are identified from the Financial Information provided regularly to Hongwen Gold’s chief operating decision maker for the purposes of allocating resources to, and assessing the performance of, Hongwen Gold’s various lines of business and geographical locations.

3. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2009

Up to the date of this report, the HKICPA has issued the following new and revised standards, amendments and interpretations which are not yet effective for the Relevant Periods.

HKFRSs (Amendments)	Amendment to HKFRS 5 as part of Improvements to
	HKFRSs in 2008 1
HKFRSs (Amendments)	Improvements to HKFRSs 2009 2
HKAS 24 (Revised)	Related Party Disclosures 6
HKAS 27 (Revised)	Consolidated and separate financial statements 1
HKAS 32 (Amendment)	Classification of Rights Issues 4
HKAS 39 (Amendment)	Eligible Hedged Items 1
HKFRS 1 (Amendment)	Additional Exemptions for First-time Adopters 3
HKFRS 2 (Amendment)	Group Cash-settled Share-based Payment Transactions 3
HKFRS 3 (Revised)	Business Combination 1
HKFRS 9	Financial Instruments 7
HK (IFRIC) – Int 14 (Amendment)	Prepayments of a Minimum Funding Requirement 6
HK (IFRIC) – Int 17	Distributions of Non-Cash Assets to Owners 1
HK (IFRIC) – Int 19	Extinguishing Financial Liabilities with Equity
	Instruments 5
HK – Int 4 (Amendment)	Leases – Determination of the length of Lease Term in
	respect of Hong Kong Land Leases3

Notes:

1 Effective for annual periods beginning on or after 1 July 2009.
2 Amendments that are effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate.
3 Effective for annual periods beginning on or after 1 January 2010.
4 Effective for annual periods beginning on or after 1 February 2010.
5 Effective for annual periods beginning on or after 1 July 2010.
6 Effective for annual periods beginning on or after 1 January 2011.
7 Effective for annual periods beginning on or after 1 January 2013.

– 252 –

APPENDIX IIB

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

Hongwen Gold is in the process of making an assessment of what the impact of these new and revised standards, amendments and interpretations is expected to be in the period of initial application. So far, it has concluded that the adoption of them is unlikely to have a significant impact on Hongwen Gold’s results of operations and financial position.

4. TURNOVER AND SEGMENT INFORMATION

Revenue represents the net amount received and receivable from sale of gold concentrates, less sales related tax, for the Relevant Periods.

Segment information

For the Relevant Periods, Hongwen Gold was principally engaged in mining and selling of gold concentrates in the PRC. The results, assets and liabilities of Hongwen Gold during the Relevant Periods were mainly related to holding of mining rights and mining and selling of gold concentrates, and the assets and revenue are located and generated in PRC.

Since Hongwen Gold is only engaged in one operating segment which is the mining and selling of gold concentrates and all of its revenue and assets are generated and located in PRC, no segment reporting information such as segment revenue, results, assets and liabilities is presented under HKFRS 8 “Operating Segments”.

Other segment information

Revenue from sale of gold concentrates to customers in PRC represents more than 10% of Hongwen Gold’s total revenue is shown as follows:

		Year	ended 31 December
		2007	2008	2009
		RMB’000	RMB’000	RMB’000
Customer	A	22,136	19,069	19,854
Customer	B	7,487	17,669	4,617

5. OTHER REVENUE

Bank interest income Total interest income on financial assets not at fair value through profit or loss Sundry income	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 3 3 8	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 3 3 8	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 3 3 8
	3 524	3 59	8 1,173
	527	62	1,181

– 253 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

6. (LOSS)/PROFIT BEFORE TAXATION

(Loss)/profit before taxation is arrived at after charging the following:

Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 552 552 544 552 552 544	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 552 552 544 552 552 544	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 552 552 544 552 552 544
		544

13,943 1,081	12,891 1,370	9,843 1,743
15,024 47,168 27 1,110 2,378 2,145 –	14,261 40,108 27 1,110 2,071 – –	11,586

		26,544 27 884 1,395 – 2,661

Notes:

(i) Cost of inventories includes approximately RMB16,583,000, RMB15,435,000 and RMB12,207,000 relating to staff costs and depreciation for the years ended 31 December 2007, 2008 and 2009 respectively, which amounts are also included in the respective total amounts disclosed separately above.

– 254 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

7. INCOME TAX IN THE STATEMENT OF COMPREHENSIVE INCOME

a) Income tax in the income statement represents:

				Year	ended 31 December	ended 31 December
				2007	2008	2009
				RMB’000	RMB’000	RMB’000
Current	tax
PRC	Enterprise	Income	Tax	–	–	1,977

PRC Enterprise Income Tax is calculated at the prevailing tax rate on taxable income determined in accordance with the relevant laws and regulations in the PRC. For the year ended 31 December 2007, Hongwen Gold was subject to PRC Enterprise Income Tax at 33% of taxable income. On 16 March 2007, the PRC government promulgated the Law of the People’s Republic of China on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulations of the New Law (the “Implementation Regulations”). The New Law and Implementation Regulations has changed the tax rate from 33% to 25% from 1 January 2008 onwards. The New Law imposes withholding tax upon the distribution of the profits earned by Hongwen Gold on or after 1 January 2008 to its shareholders.

b) Reconciliation between tax expense and accounting (loss)/profit at the applicable tax rate:

Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (9,809) 1,253 506	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (9,809) 1,253 506	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (9,809) 1,253 506

(3,237) 3,237 – –	313 – (313) –	(127) 2,104 – –
–	–	1,977

c) No provision for deferred taxation has been made as there were no temporary differences at the end of each reporting period.

8. DIRECTOR’S EMOLUMENTS

No director’s emoluments have been paid or are payable for the Relevant Periods.

No emoluments or discretionary bonus were paid by Hongwen Gold to the director as an inducement to join or upon joining Hongwen Gold or as compensation for loss of office during the Relevant Periods. No director of Hongwen Gold waived or agreed to waive any emoluments or discretionary bonus during the Relevant Periods.

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ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

9. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, none is a director for the years ended 31 December 2007, 2008 and 2009, whose emoluments are disclosed in note 8. The aggregate of the emoluments in respect of the five individuals for the years ended 31 December 2007, 2008 and 2009 are as follows:

Wages, salaries and other benefits Contributions to defined contribution retirement scheme	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 178 176 190 14 17 21 192 193 211	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 178 176 190 14 17 21 192 193 211
		211

10. PROPERTY, PLANT AND EQUIPMENT

Buildings RMB’000 17,066 5,399 (1,151) 21,314	Plant and machinery RMB’000 21,054 1,514 (2,121) 20,447	Motor vehicles RMB’000 2,637 – (1,411) 1,226	Total RMB’000 40,757 6,913 (4,683
			42,987

21,314 68 –	20,447 466 –	1,226 – –	42,987 534 –
21,382	20,913	1,226	43,521

21,382 – (8,660)	20,913 167 (5,681)	1,226 – –	43,521 167 (14,341
12,722 21,314 21,382 12,722	15,399 20,447 20,913 15,399	1,226 1,226 1,226 1,226	29,347

			42,987

			43,521

			29,347

– 256 –

APPENDIX IIB

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

Accumulated depreciation At 1 January 2007 Charge for the year Written back on disposals At 31 December 2007 At 1 January 2008 Charge for the year Written back on disposals At 31 December 2008 At 1 January 2009 Charge for the year Written back on disposals At 31 December 2009 Net book value At 31 December 2007 At 31 December 2008 At 31 December 2009	Buildings RMB’000 8,688 946 (636) 8,998 8,998 974 – 9,972	Plant and machinery RMB’000 16,338 1,078 (1,483) 15,933 15,933 907 – 16,840	Motor vehicles RMB’000 811 354 (419) 746 746 190 – 936	Total RMB’000 25,837 2,378 (2,538) 25,677 25,677 2,071 – 27,748 27,748 1,395 (6,131) 23,012 17,310 15,773 6,335
	9,972 696 (2,212)	16,840 535 (3,919)	936 164 –	27,748 1,395 (6,131
	8,456 12,316 11,410 4,266	13,456 4,514 4,073 1,943	1,100 480 290 126

Notes: All buildings in use by Hongwen Gold are situated on land in the PRC and held in the name of Qinglong Manzu Autonomous County Sanjia Gold Mine ( ) or Qinglong Manzu Autonomous County Banbishan Gold Mine ( ). In addition, Hongwen Gold does not have any real estate certificate issued in its own name in respect of the buildings owned and situated at the Qinglong Manzu Autonomous County Qianheyan Gold Mine ( ). Pursuant to the PRC legal opinion dated 24 June 2010, Hongwen Gold has obtained the risks and rewards of all the buildings was in the process of applying for the relevant real estate certificates as at 31 December 2009.

– 257 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

11. PREPAID LEASE PAYMENTS

Cost At 1 January 2007 and at 31 December 2007, 2008, 2009 Accumulated amortization At 1 January 2007 Amortisation for the year At 31 December 2007 At 1 January 2008 Amortisation for the year At 31 December 2008 At 1 January 2009 Amortisation for the year At 31 December 2009 Net book value At 31 December 2007 At 31 December 2008 At 31 December 2009	Land use rights RMB’000 1,341

	82 27
	109

	109 27
	136

	136 27
	163

	1,232

	1,205

	1,178

Notes:

(a) Analysed for reporting purposes as follows:

Non-current portion Current portion	As 2007 RMB’000 1,205 27 1,232	at 31 December 2008 2009 RMB’000 RMB’000 1,178 1,151 27 27 1,205 1,178	at 31 December 2008 2009 RMB’000 RMB’000 1,178 1,151 27 27 1,205 1,178
			1,178

(b) The prepaid lease payments comprise land use rights in the PRC as follows:

Between 10 to 50 years	As at 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 1,232 1,205 1,178

– 258 –

APPENDIX IIB

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

All land use rights held by Hongwen Gold are for land situated in the PRC and held in the name of Qinglong Manzu Autonomous County Sanjia Gold Mine ( ) or Qinglong Manzu Autonomous County Banbishan Gold Mine ( ). In addition, Hongwen Gold does not have any land use rights certificate in respect of the land situated at the Qinglong Manzu Autonomous County Qianhenyan Gold Mine ( ). Pursuant to the PRC legal opinion dated 24 June 2010, Hongwen Gold has obtained the risks and rewards of ownership of all the land at the Qinglong Manzu Autonomous County Qianhenyan Gold Mine and Hongwen Gold was in the process of applying for the relevant land use rights certificates as at 31 December 2009.

12. INTANGIBLE ASSETS

Cost:
At 1 January 2007 and at 31 December 2007 and 2008
At 1 January 2009
Disposals
At 31 December 2009
Accumulated amortization:
At 1 January 2007
Charge for the year
At 31 December 2007
At 1 January 2008
Charge for the year
At 31 December 2008
At 1 January 2009
Charge for the year
Write back on disposals
At 31 December 2009
Net book value:
At 31 December 2007
At 31 December 2008
At 31 December 2009

Mining
rights
RMB’000
11,096
11,096
(3,388)
7,708
3,391
1,110
4,501
4,501
1,110
5,611
5,611
884
(1,827)
4,668
6,595
5,485
3,040

– 259 –

APPENDIX IIB

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

Hongwen Gold’s mining rights are as follows:

==> picture [401 x 316] intentionally omitted <==

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||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Mine|Location|Expiry|date|
|Sanjia|Gold|Mine|Ma|Juan|Zi|Town,|Qinglong|Manzu|Autonomous|November|2012|
|(|)|County,|Heibei|Province,|PRC|
|(|)|
|Sanjia|Gold|Mine|
|Wangjiegou|Exploitation|Area|Wangjiegou,|Shen|Zhang|Zi|Village,|Ma|Juan|Zi|May|2011|
|(|)|Town,|Qinglong|Manzu|Autonomous|County,|
|Heibei|Province,|PRC|
|(|)|
|Banbishan|Gold|Mine|Banbishan|Village,|Shuang|Shun|Zi|Town,|June|2010|
|(|)|Qinglong|Manzu|Autonomous|County,|Heibei|
|Province,|PRC|
|(|)|
|Banbishan|Gold|Mine|Lengjingou|Banbishan|Village,|Shuang|Shun|Zi|Town,|March|2012|
|Exploitation|Area|Qinglong|Manzu|Autonomous|County,|Heibei|
|(|)|Province,|PRC|
|(|)|
|Qingheyan|Gold|Mine|Qinglong|Town,|Qinglong|Manzu|Autonomous|July|2012|
|Shuiquangou|Exploitation|Area|County,|Heibei|Province,|PRC|
|(|)|(|)|
|Qingheyan|Gold|Mine|Qinglong|Town,|Qinglong|Manzu|Autonomous|August|2010|
|Xiaodongyu|Exploitation|Area|County,|Heibei|Province,|PRC|
|(|)|(|)|

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

Notes:

(i) In September 2009, the certificate of the mining rights of Banbishan Gold Mine Lengjingou Exploitation Area expired and Hongwen Gold has made an application for an extension of the mining rights which was approved in April 2010.
(ii) The amortisation charge for the year ended 31 December 2007, 2008 and 2009 is included in “administrative expenses” in the statement of comprehensive income of Hongwen Gold.

13. INVENTORIES

==> picture [403 x 99] intentionally omitted <==

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

|||||||
|---|---|---|---|---|---|
|As|at|31|December|
|2007|2008|2009|
|RMB’000|RMB’000|RMB’000|
|Raw|materials|6,059|6,586|4,226|
|Work|in|progress|2,790|2,790|2,247|
|Finished|goods|4,488|3,053|6,170|
|13,337|12,429|12,643|

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

– 260 –

APPENDIX IIB

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

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

Carrying amount of inventories sold Write-down of inventories	As 2007 RMB’000 44,110 3,058 47,168	at 31 December 2008 2009 RMB’000 RMB’000 40,108 26,544 – – 40,108 26,544	at 31 December 2008 2009 RMB’000 RMB’000 40,108 26,544 – – 40,108 26,544
			26,544

14. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

Other receivables Loan and receivables Prepayments and deposits	As 2007 RMB’000 496	at 31 December 2008 2009 RMB’000 RMB’000 741 1,162	at 31 December 2008 2009 RMB’000 RMB’000 741 1,162
	496 42	741 171	1,162 273
	538	912	1,435

All of the other receivables, deposits and prepayments were expected to be recovered or recognised as expense within one year.

15. AMOUNT DUE FROM IMMEDIATE HOLDING COMPANY

The amount was unsecured, interest-free and repayable on demand.

16. AMOUNT DUE FROM A RELATED COMPANY

Particulars of advances to a related company, disclosed pursuant to section 161B of the Hong Kong Companies Ordinance, are as follows:

Name of related company:

Relationship: Common shareholder Mr. Sun Jingzu (“Mr. Sun”)

Balance as at 1 January Balance as at 31 December (note) Maximum outstanding balance during the year	2007 RMB’000 26,848 18,099 26,848	2008 RMB’000 18,099 16,204 18,099	2009 RMB’000 16,204

			27,185

			27,185

Note: The amount is unsecured, interest-free and repayable on demand.

– 261 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

17. CASH AND CASH EQUIVALENTS

Cash at bank and in hand Cash and cash equivalents in the statement of financial position and statement of cash flows	As 2007 RMB’000 846 846	at 31 December 2008 2009 RMB’000 RMB’000 4,457 780 4,457 780	at 31 December 2008 2009 RMB’000 RMB’000 4,457 780 4,457 780
			780

18. TRADE AND OTHER PAYABLES

Trade payables (note) Other payables and accruals Trade deposits received	As 2007 RMB’000 870 10,862 6,113 17,845	at 31 December 2008 2009 RMB’000 RMB’000 1,211 1,760 14,235 11,604 815 3 16,261 13,367	at 31 December 2008 2009 RMB’000 RMB’000 1,211 1,760 14,235 11,604 815 3 16,261 13,367
			13,367

Note: The following is an aged analysis of accounts payable presented based on the invoice date at the end of the reporting period:

0 to 30 days 31 days to 60 days 61 days to 90 days Over 90 days	As 2007 RMB’000 187 41 – 642 870	at 31 December 2008 2009 RMB’000 RMB’000 978 810 193 68 – 83 40 799 1,211 1,760	at 31 December 2008 2009 RMB’000 RMB’000 978 810 193 68 – 83 40 799 1,211 1,760
			1,760

19. OTHER BORROWINGS

Loans from a shareholder (note (b)) Loans from a shareholder/former shareholder (note (b))	As 2007 RMB’000 7,130 – 7,130	at 31 December 2008 2009 RMB’000 RMB’000 – – 6,980 6,890 6,980 6,890	at 31 December 2008 2009 RMB’000 RMB’000 – – 6,980 6,890 6,980 6,890
			6,890

– 262 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

Notes:

(a) Analysed for reporting purposes as follows:

Current portion Non-current portion	As 2007 RMB’000 – 7,130 7,130	at 31 December 2008 2009 RMB’000 RMB’000 – 6,890 6,980 – 6,980 6,890	at 31 December 2008 2009 RMB’000 RMB’000 – 6,890 6,980 – 6,980 6,890
			6,890

All of the other borrowings are carried at amortised cost. None of the non-current interest-bearing borrowings is expected to be settled within one year.

(b) The amount is unsecured, bearing interest at 7.75% per annum and repayable on 30 June 2010.

20. INCOME TAX IN THE STATEMENT OF FINANCIAL POSITION

Current taxation in the statement of financial position represents:

Provision for the year PRC Enterprise Income Tax 21. PAID-UP CAPITAL At beginning and the end of the year	2007 RMB’000 – As 2007 RMB’000 30,000	2008 2009 RMB’000 RMB’000 – 1,977 at 31 December 2008 2009 RMB’000 RMB’000 30,000 30,000	2009 RMB’000 1,977

Hongwen Gold was established on 19 March 2004 as a limited liability company with a registered capital of RMB30,000,000.

(a) Capital management

Hongwen Gold’s objective when managing capital are:

(i) To safeguard Hongwen Gold’s ability to continue as a going concern, so that it continues to provide returns and benefits for stakeholders;
(ii) To support Hongwen Gold’s stability and growth; and
(iii) To provide capital for the purpose of strengthening Hongwen Gold’s risk management capability.

Hongwen Gold actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of Hongwen Gold and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. Hongwen Gold currently does not adopt any formal dividend policy. Management regards total equity as capital, for capital management purpose.

– 263 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

(b) Distributability of reserves

At 31 December 2007, 2008 and 2009, the aggregate amount of reserves available for distribution to owners of Hongwen Gold was RMB2,982,000, RMB4,235,000 and RMB1,752,000 respectively.

22. FINANCIAL RISK MANAGEMENT AND FAIR VALUES

Hongwen Gold’s major financial instruments include amount due from immediate holding company, amount due from a related company, other receivables, trade and other payables and other borrowings. Details of the financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include credit risk, liquidity risk, currency risk, interest rate risk and other price risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(a) Credit risk

(i) As at 31 December 2007, 2008 and 2009, the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position after deducting any impairment allowance.
(ii) As at 31 December 2007, 2008 and 2009, Hongwen Gold had certain concentration of credit risk as nearly 98%, 96% and 96% of total receivables respectively was due from the immediate holding company / a related company of Hongwen Gold.
(iii) The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. Hongwen Gold monitors closely the credit ratings of these counterparties and will take appropriate action when their ratings change.

(b) Liquidity risk

Liquidity risk is the risk that Hongwen Gold will not be able to meet its financial obligations as they fall due. Hongwen Gold’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants to ensure that it maintains sufficient amount of cash and adequate committed lines of funding from major financial institutions to satisfy its contractual and reasonably foreseeable obligations as they fall due.

The following liquidity tables set out the remaining contractual maturities at the end of the reporting period of Hongwen Gold’s financial liabilities based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting periods) and the earliest date Hongwen Gold is required to pay:

Trade and other payables Other borrowings	Within 1 year or on demand RMB’000 17,845 – 17,845	More than 1 year but less than 2 years RMB’000 – – –	As at 31 December 2007 More than 2 years but less than 5 years More than 5 years Total contractual undiscounted cash flow RMB’000 RMB’000 RMB’000 – – 17,845 8,593 – 8,593 8,593 – 26,438	Carrying amount RMB’000 17,845 7,130
				24,975

– 264 –

APPENDIX IIB

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

Trade and other payables Other borrowings Trade and other payables Other borrowings	Within 1 year or on demand RMB’000 16,261 – 16,261 Within 1 year or on demand RMB’000 13,367 7,152 20,519	More than 1 year but less than 2 years RMB’000 – 7,807 7,807 More than 1 year but less than 2 years RMB’000 – – –	As at 31 December 2008 More than 2 years but less than 5 years More than 5 years Total contractual undiscounted cash flow RMB’000 RMB’000 RMB’000 – – 16,261 – – 7,807 – – 24,068 As at 31 December 2009 More than 2 years but less than 5 years More than 5 years Total contractual undiscounted cash flow RMB’000 RMB’000 RMB’000 – – 13,367 – – 7,152 – – 20,519	Carrying amount RMB’000 16,261 6,980
				23,241

				Carrying amount RMB’000 13,367 6,890
				20,257

– 265 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

(c) Interest rate risk

Hongwen Gold is exposed to cash flow interest rate risk in relation to variable-rate bank balances and deposits and fair value interest rate risk in relation to fixed-rate other borrowings.

(i) Interest rate profile

The following table details the interest rate profile of Hongwen Gold’s borrowings at the end of the reporting period:

	2007	2007	2008	2008	2009	2009
	Effective		Effective		Effective
	interest		interest		interest
	rates		rates		rates
	%	RMB’000	%	RMB’000	%	RMB’000
Fixed rate
borrowings:
Other borrowings	7.75	7,130	7.75	6,980	7.75	6,890
Total borrowings		7,130		6,980		6,890

Net fixed rate
borrowings as
a percentage of
total net
borrowings		100%		100%		100%

Variable rate
bank balances
and deposits	2.25%	3	2.25%	2,467	2.25%	1,393

(ii) Sensitivity analysis

All of the other borrowings of Hongwen Gold which are fixed rate instruments are insensitive to any change in interest rates. A change in interest rates at the end of each reporting period would not affect profit or loss.

At 31 December 2007, 2008 and 2009, it is estimated that a general increase/decrease of 50 basis points in interest rates, with all other variables held constant, would decrease/increase Hongwen Gold’s profit/loss after tax and retained profits by approximately RMBNil, RMB12,000 and RMB7,000 respectively. Other components of equity would not change in response to the general increase/decrease in interest rates.

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to the exposure to interest rate risk for variable rate interest bearing financial instruments in existence at that date. The 50 basis points increase or decrease represents management’s assessment of a reasonably possible change in interest rates over the period until the end of next annual reporting period. The analysis is performed on the same basis for the Relevant Periods.

(d) Currency risk

Hongwen Gold’s exposure to foreign currency risk is minimal as Hongwen Gold does not have any foreign currency sales and purchases and its monetary assets and liabilities are denominated in Renminbi. The exchange rate risk to Hongwen Gold is not significant and therefore, no sensitivity analysis is presented.

– 266 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

(e) Price risk

The principal operation of Hongwen Gold is mining and selling of gold concentrates. As gold markets are influenced by global as well as regional supply and demand conditions, any unexpected price changes could affect Hongwen Gold’s earnings and performance. To protect Hongwen Gold’s business from the impact of gold price fluctuations, Hongwen Gold closely monitors the net exposure and ensures that it is kept to an acceptable level.

(f) Fair values

The director considers that all financial instruments are carried at amounts not materially different from their fair values as at 31 December 2007, 2008 and 2009.

(g) Estimation of fair values

The following summarises the major methods and assumptions applied in determining the fair values of the following financial instruments:

(i) Interest-bearing borrowings

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

23. MATERIAL RELATED PARTY TRANSACTIONS

(a) Key management personnel remuneration

Remuneration for key management personnel, including amounts paid to Hongwen Gold’s director as disclosed in note 8 and certain of the highest paid employees as disclosed in note 9, is as follows:

Short-term employee benefits Post-employment benefits	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 178 176 190 14 17 21 192 193 211	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 178 176 190 14 17 21 192 193 211
		211

(b) Transactions with related parties

In addition to those disclosed elsewhere in the Financial Information, the following is a summary of significant related party transactions entered into in the normal course of business between Hongwen Gold and its related party during the Relevant Periods.

Name of related party Nature of transactions Terms and pricing policies Mr. Sun (note i) Interest expenses (ii)	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 552 552 544

Note:

(i) Mr. Sun is the major shareholder of Hongwen Gold until 21 December 2009.

– 267 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

(ii) agree by the parties concerned.

The outstanding balances at the end of the reporting period are as follows:

	As	at 31 December	at 31 December
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
Amount due from immediate holding company
(note 15)	18,099	–	–
Amount due from a related company (note 16)	–	16,204	27,185
Other borrowings (note 19)	7,130	6,980	6,890

24. PARENT AND ULTIMATE HOLDING COMPANY

At 31 December 2009, the director considers the immediate holding company of Hongwen Gold to be Shenzhen Wan Kai Sheng Trading Company Limited ( ), which is incorporated in PRC and does not produce financial statements available for public use.

25. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

a) Key sources of estimation uncertainty

In the process of applying Hongwen Gold’s accounting policies which are described in note 2, management has made certain key assumptions concerning the future, and other key sources of estimated uncertainty at the end of the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, as discussed below.

i) Impairment of property, plant and equipment and prepaid lease payments

The recoverable amount of an asset is the greater of its fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, which requires significant judgement relating to the level of revenue and amount of operating costs. Hongwen Gold uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in additional impairment charge or reversal of impairment in future periods.

ii) Impairment of receivables

Hongwen Gold maintains impairment allowance for doubtful accounts based upon evaluation of the recoverability of the accounts receivable and other receivables, where applicable, at the end of each reporting period. The estimates are based on the ageing of the accounts receivable and other receivables balances and the historical write-off experience, net of recoveries. If the financial condition of the debtors were to deteriorate, additional impairment allowance may be required.

iii) Valuation of inventories

Inventories are carried at the lower of costs and net realizable value at the end of the reporting period. Net realizable value is determined on the basis of the estimated selling price less the estimated costs necessary to make the sale. The director estimates the net realizable value for finished goods and work-in-progress based primarily on the latest invoice prices and current market conditions. In addition, the director performs an inventory review on a product-by-product basis regularly and assess the need for write down of inventories.

– 268 –

ACCOUNTANTS’ REPORT OF HONGWEN GOLD

APPENDIX IIB

iv) Taxation

Hongwen Gold is subject to various taxes in the PRC. Significant judgment is required in determining the provision for taxation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Hongwen Gold recognizes liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that are initially recorded, such differences will impact the tax provisions in the period in which such determination is made.

b) Critical accounting judgements in applying Hongwen Gold’s accounting policies

In determining the carrying amounts of some assets and liabilities, Hongwen Gold makes assumptions for the effects of uncertain future events on those assets and liabilities at the end of the reporting period. These estimates involve assumptions about such items as cash flows and discount rates used. Hongwen Gold’s estimates and assumptions are based on historical experience and expectations of future events and are reviewed periodically. In addition to assumptions and estimations of future events, judgements are also made during the process of applying Hongwen Gold’s accounting policies.

C. POST BALANCE SHEET EVENT

No significant events have taken place subsequent to 31 December 2009.

D. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Hongwen Gold in respect of any period subsequent to 31 December 2009.

– 269 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following are the unaudited pro forma financial information of the Enlarged Group and the text of a comfort letter thereon received from the reporting accountants, CCIF CPA Limited, Certified Public Accountants, Hong Kong, prepared for the purpose of inclusion in this circular:

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(I) Unaudited Pro Forma Statement of Financial Position of the Enlarged Group

The following table is an illustrative unaudited pro forma statement of financial position of the Enlarged Group which has been prepared on the basis set out below for the purpose of illustration as if the Completion had taken place at 31 December 2009.

The unaudited pro forma statement of financial position of the Enlarged Group is prepared as if the Completion had been taken place on 31 December 2009 and is based on:

(1) the consolidated statement of financial position of the Group as at 31 December 2009 extracted from the published annual report of the Group for the year ended 31 December 2009; and
(2) the combined statement of financial position as at 31 December 2009 as extracted from the accountants’ report of the Target Group, as set out in Appendix IIA to this Circular

and after making certain pro forma adjustments as set out below.

The unaudited pro forma statement of financial position of the Enlarged Group is prepared by the directors of the Company to provide unaudited pro forma financial information of the Enlarged Group as a result of the Completion. As it is prepared for illustrative purpose only, it does not purport to give a true picture of what the financial position of the Enlarged Group is on the Completion of the proposed Acquisition or, for any future financial periods.

– 270 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Non-current assets Exploration and evaluation assets Property, plant and equipment Construction in progress Intangible assets Interest in a jointly controlled entity Investment in a subsidiary Prepaid lease payments Deposit paid for potential investment Current assets Inventories Trade and other receivables Prepaid lease payments Restricted bank deposits Pledged bank deposits Cash and cash equivalents Current liabilities Trade and other payables Bank and other borrowings Obligation under finance leases Current taxation Provisions Net current assets Total assets less current liabilities Non-current liabilities Obligation under finance leases Deferred tax liabilities NET ASSETS	The Group as at 31 December 2009	Target Group as at 31 December 2009	Pro	forma adjustments		Unaudited pro forma statement of financial position of the Enlarged Group HK$’000 3,247,828 9,071 425 890,146 9,606 – 23,008 – 4,180,084 17,149 85,918 2,557 9,265 28,355 160,161 303,405 57,249 93,183 12 2,254 7,713 (160,411) 142,994 4,323,078 13 227,622 (227,635) 4,095,443
	HK$’000 3,247,828 1,885 – 3,246 9,606 – – 30,000 3,292,565 – 42,447 – 9,265 28,355 163,747 243,814 13,736 85,368 12 12 7,713 (106,841) 136,973 3,429,538 13 – (13)	HK$’000 – 7,186 425 91,152 – – 23,008 – 121,771 17,149 43,471 2,557 – – 30,414 93,591 74,610 7,815 – 2,242 – (84,667) 8,924 130,695 – 28,685 (28,685)	HK$’000 (note 1) – – – – – 568,903 – (30,000) 538,903 – – – – – (34,000) (34,000) (31,097) – – – – 31,097 (2,903) 536,000 – – –	HK$’000 (note 2) – – – 795,748 – – – – 795,748 – – – – – – – – – – – – – – 795,748 – 198,937 (198,937)	HK$000 (note 3) – – – – – (568,903) – – (568,903) – – – – – – – – – – – – – – (568,903) – – –	HK$’000 3,247,828 9,071 425 890,146 9,606 – 23,008 – 4,180,084 17,149 85,918 2,557 9,265 28,355 160,161 303,405 57,249 93,183 12 2,254 7,713 (160,411) 142,994 4,323,078 13 227,622 (227,635)
	3,429,525	102,010	536,000	596,811	(568,903)

– 271 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group as at 31 December 2009 HK$’000 551,000 2,880,889 3,431,889 (2,364)	The Group as at 31 December 2009 HK$’000 551,000 2,880,889 3,431,889 (2,364)	Target Group as at 31 December 2009	Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	Unaudited pro forma statement of financial position of the Enlarged Group
	)	HK$’000 11,342 78,451 89,793 12,217	HK$’000 (note 1) 158,824 377,176 536,000 –	HK$’000 (note 2) – 537,130 537,130 59,681	HK$000 (note 3) (11,342) (557,561) (568,903) –	HK$’000 709,824 3,316,085
3,431,889 (2,364						4,025,909 69,534
3,429,525		102,010	536,000	596,811	(568,903)	4,095,443

Notes:

The adjustment for the acquisition of the interest in 100% of the issued share capital of the Target Group and the assignment of Shareholder’s Loan. The consideration of HK$600,000,000 is to be satisfied in full by way of (i) cash as to the sum of HK$60,000,000; and (ii) the issue and allotment of shares as to the remaining balance of HK$540,000,000 at an issue price of HK$0.34 each. Partial cash consideration of HK$30,000,000 had already been paid upon signing of MOU on 8 December 2009 and reflected as “Deposit paid for potential investment” in the published annual report of the Group.

The estimated transaction costs of approximately HK$4,000,000 are directly attributable to the Acquisition.

The adjustment reflects the allocation of the cost of the acquisition to the provisional fair values of the identifiable assets and liabilities of the Target Group. All of the below figures are subject to change upon Completion of the Acquisition because variables that affect the fair value of the shares and intangible assets may have changed by that date.

Upon Completion of the Acquisition, the identifiable assets and liabilities of the Target Group will be accounted for in the consolidated financial statements of the Enlarged Group at fair value under the purchase method of accounting. The identifiable assets and liabilities of the Target Group are recorded in the unaudited pro forma consolidated statement of financial position of the Enlarged Group at their fair values estimated by the directors with reference to the valuation report prepared by LCH (Asia-Pacific) Surveyors Limited for this Circular. (A copy of this valuation report is presented in Appendix VII to this Circular). The pro forma adjustment represents the fair value adjustment to the intangible assets of HK$795,748,000 and the corresponding minority interest of HK$79,575,000. In addition, the pro forma adjustment also includes the recognition of deferred tax liability arising from the fair value adjustment provided at the PRC Enterprise Income Tax rate of 25% upon the Acquisition of the Target Group. Other than the intangible assets, other assets and liabilities of the Target Group approximate their carrying amounts.

The adjustment reflects elimination of investment in a subsidiary with the capital and reserves of the subsidiaries. Negative goodwill of approximately HK$58,020,000 was recognised in the income statement.

– 272 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

4. Reconciliation of negative goodwill Total equity attributable to equity shareholders of the Target Group Fair value adjustment, net of deferred tax Minority interest for fair value adjustment Consideration, net of assignment of Shareholder’s Loan Negative goodwill	HK$’000 89,793 596,811 686,604 (59,681) 626,923 (568,903) 58,020

– 273 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(II) Unaudited Pro Forma Income Statement of the Enlarged Group

The following table is an illustrative unaudited pro forma income statement of the Enlarged Group which has been prepared on the basis set out below for the purpose of illustration as if the Completion had taken place on 1 January 2009.

The unaudited pro forma income statement of the Enlarged Group is prepared as if the Acquisition had been completed on 1 January 2009 and is based on:

(1) the audited consolidated income statement of the Group for the year ended 31 December 2009, which has been extracted from the published annual report of the Company for the year ended 31 December 2009; and
(2) the combined statement of comprehensive income of the Target Group for the period from 24 September 2009 to 31 December 2009 as extracted from the accountants’ report of the Target Group, as set out in Appendix IIA to this Circular

and after making certain pro forma adjustments as set out below.

The unaudited pro forma income statement of the Enlarged Group is prepared by the directors of the Company to provide unaudited pro forma financial information of the Enlarged Group as a result of the Completion. As it is prepared for illustrative purposes only, it does not support to give a true picture of what the results of the Enlarged Group are on the Completion of the proposed Acquisition or, for any future financial periods.

– 274 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group for the year ended 31 December 2009 HK$’000 9,196 (9,150) 46 2,111 8,055 476 (28,501) (10,819) (28,632) (1,847) (5,522) (36,001) 27	The Group for the year ended 31 December 2009 HK$’000 9,196 (9,150) 46 2,111 8,055 476 (28,501) (10,819) (28,632) (1,847) (5,522) (36,001) 27	Target Group for the period from 24 September 2009 to 31 December 2009		Pro forma adjustments	Pro forma adjustments		Unaudited pro forma income statement of the Enlarged Group
	) ) ) ) ) ) )	HK$’000 – – – 1 79,353 – (780) – 78,574 – – 78,574 –	HK$’000 (note 1) 37,117 (30,196) 6,921 1,344 – – (4,735) (3,487) 43 (619) – (576) –	HK$’000 (note 2) (5,040) 4,805 (235) (190) – – 827 3,093 3,495 – – 3,495 –	HK$’000 (note 3) – – – – (21,333) – – – (21,333) – – (21,333) –	HK$’000 (note 4) – – – – – – (4,000) – (4,000) – – (4,000) –	HK$’000 41,273 (34,541
46 2,111 8,055 476 (28,501 (10,819							6,732 3,266 66,075 476 (37,189 (11,213
(28,632 (1,847 (5,522							28,147 (2,466 (5,522
(36,001 27							20,159 27
(35,974)		78,574	(576)	3,495	(21,333)	(4,000)	20,186

(31,934) (4,040)		78,574 –	(518) (58)	3,146 349	(21,333) –	(4,000) –	23,935 (3,749
(35,974)		78,574	(576)	3,495	(21,333)	(4,000)	20,186

Notes:

Other than Hongwen Gold, all the companies comprising the Target Group did not carry out any business, except for investment holding. Accordingly, the income statement of Hongwen Gold is also presented here in the preparation of the pro forma income statement of the Enlarged Group, for illustration purpose only. The financial information of Hongwen Gold is extracted from the accountants’ report as set out in Appendix IIB to this Circular and translated into HK$ at an exchange rate of RMB1 to HK$1.1376.

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The adjustment excludes the result and loss on disposal in relation to the gold mine disposed of during the year 2009.
Negative goodwill of approximately HK$58,020,000 was recognised in the income statement. In addition, the pro forma adjustment also includes the derecognition of negative goodwill of approximately HK$79,353,000 recognised in the Target Group.
The adjustment reflects the estimated transaction costs of approximately HK$4,000,000 which are directly attributable to the Acquisition.

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(III) Unaudited Pro Forma Cash Flow Statement of the Enlarged Group

The following is an illustrative unaudited pro forma cash flow statement of the Enlarged Group which has been prepared on the basis set out below for the purpose of illustration as if the Completion had taken place on 1 January 2009.

The unaudited pro forma cash flow statement of the Enlarged Group is prepared as if the Completion had been taken place on 1 January 2009 and is based on:

(1) the audited consolidated statement of cash flows of the Group for the year ended 31 December 2009, which has been extracted from the published annual report of the Company for the year ended 31 December 2009; and
(2) the combined statement of cash flows of the Target Group for the period from 24 September 2009 to 31 December 2009 as extracted from the accountants’ report of the Target Group, as set out in Appendix IIA to this Circular

and after making certain pro forma adjustments as set out below.

The unaudited pro forma cash flow statement of the Enlarged Group is prepared by the directors of the Company to provide unaudited pro forma financial information of the Enlarged Group as a result of the Completion. As it is prepared for illustrative purposes only, it does not purport to give a true picture of what the results of the Enlarged Group are on the completion of the proposed Acquisition or for any future financial periods.

The
Group for
the year
ended 31
December
2009
Target
Group for
the period
from 24
September
2009 to 31
December
2009
HK$’000
HK$’000
OPERATING ACTIVITIES
(Loss)/profit before taxation
(36,001)
78,574
Adjustments for:
Depreciation and amortisation
760
–
Finance costs
1,847
–
Interest income
(1,460)
(1)
Loss on early settlement of
promissory notes
10,817
–
Share of losses of a jointly
controlled entity
5,522
–
Waive of interest upon early
settlement of promissory
notes
(476)
–
Net fair value gain on financial
derivative instruments
(8,055)
–

Pro forma adjustments
Unaudited
pro forma
statement
of cash
flows of
the
Enlarged
Group
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(note 1)
(note 2)
(note 3)
(note 4)
(note 5)
(576)
3,495
–
(25,333)
–
20,159
2,624
(338)
–
–
–
3,046
619
–
–
–
–
2,466
(9)
–
–
–
–
(1,470)
–
–
–
–
–
10,817
–
–
–
–
–
5,522
–
–
–
–
–
(476)
–
–
–
–
–
(8,055)

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group for the year ended 31 December 2009 HK$’000 – 87 – (26,959) 23,700 – – (9,228) (12,487) (181) 1,460 (50) (11,258)	The Group for the year ended 31 December 2009 HK$’000 – 87 – (26,959) 23,700 – – (9,228) (12,487) (181) 1,460 (50) (11,258)	Target Group for the period from 24 September 2009 to 31 December 2009		Pro f	orma adjustments	orma adjustments		Unaudited pro forma statement of cash flows of the Enlarged Group
	) ) ) ) ) )	HK$’000 (79,353) 123 – (657) (11,010) – – 59,506 47,839 – 1 – 47,840	HK$’000 (note 1) – – 3,027 5,685 (1,019) (7,242) (1,868) 976 (3,468) – 9 – (3,459)	HK$’000 (note 2) – – (3,027) 130 – – – – 130 – – – 130	HK$’000 (note 3) – – – – – – – – – – – – –	HK$’000 (note 4) 21,333 – – (4,000) – – – – (4,000) – – – (4,000)	HK$’000 (note 5) – – – – – – – (31,097) (31,097) – – – (31,097)	HK$’000 (58,020) 210 –
(26,959 23,700 – – (9,228								(25,801) 11,671 (7,242) (1,868) 20,157
(12,487 (181 1,460 (50								(3,083) (181) 1,470 (50)
(11,258								(1,844)

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group for the year ended 31 December 2009	Target Group for the period from 24 September 2009 to 31 December 2009		Pro f	orma adjustments	orma adjustments		Unaudited pro forma statement of cash flows of the Enlarged Group HK$’000 (358) (620) (425) (30,000) (9,265) (28,361) (8,432) (77,461) 11,342 40,000 (12) 119,387 (120,300) (102) 50,315 (28,990) 159,155 (83) 130,082
HK$’000 (168) (620) – (30,000) (9,265) (28,355) 50,253 (18,155) – 40,000 (12) 119,387 (120,300) – 39,075 9,662 154,085 –	HK$’000 – – – – – – (28,685) (28,685) 11,342 – – – – – 11,342 30,497 – (83)	HK$’000 (note 1) (190) – (425) – – (6) – (621) – – – – – (102) (102) (4,182) 5,070 –	HK$’000 (note 2) – – – – – – – – – – – – – – – 130 – –	HK$’000 (note 3) – – – – – – (30,000) (30,000) – – – – – – – (30,000) – –	HK$’000 (note 4) – – – – – – – – – – – – – – – (4,000) – –	HK$’000 (note 5) – – – – – – – – – – – – – – – (31,097) – –	HK$’000
							(358) (620) (425) (30,000) (9,265) (28,361) (8,432)
							(77,461)
							11,342 40,000 (12) 119,387 (120,300) (102)
							50,315 (28,990) 159,155 (83)
163,747	30,414	888	130	(30,000)	(4,000)	(31,097)

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes:

Other than Hongwen Gold, all the companies comprising the Target Group did not carry out any business except for investment holding. Accordingly, the cash flow statement of Hongwen Gold is also presented here in the preparation of the pro forma cash flow statement of the Enlarged Group, for illustration purpose only. The financial information of Hongwen Gold is extracted from the accountants’ report as set out in Appendix IIB to this Circular and translated into HK$ at an exchange rate of RMB1 to HK$1.1376.
The adjustment excludes the cash flow in relation to the gold mine disposed of during the year 2009.
The adjustment represents the deposit payment of HK$30,000,000 as part of the consideration according to the sale and purchase agreement. An amount of HK$30,000,000 was paid prior to 31 December 2009 and was accounted for by the Group as a deposit at 31 December 2009.
The adjustment represents the payment for transaction cost of approximately HK$4,000,000 which are directly attributable to the Acquisition, the recognition of negative goodwill of HK$58,020,000 arising from the Acquisition and the derecognition of negative goodwill of approximately HK$79,353,000 recognised in the Target Group.
The adjustment respresents the elimination of Shareholder’s Loan.

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

B. COMFORT LETTER ON THE UNAUDITED PROFORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

==> picture [87 x 61] intentionally omitted <==

24 June 2010

The Directors New Times Energy Corporation Limited Room 1007-8, 10/F., New World Tower I 16-18 Queen’s Road Central, Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of New Times Energy Corporation Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed very substantial acquisition of Fortune Ease Holdings Limited (the “Target”) and its subsidiaries (hereinafter collectively referred to as the “Target Group”) might have affected the financial information presented, for inclusion in Appendix III of the Circular dated 24 June 2010 (the “Circular”). The basis of preparation of unaudited pro forma financial information is set out in Appendix III to this Circular.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF THE COMPANY AND REPORTING ACCOUNTANTS

It is responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with Rule 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

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APPENDIX III

BASIS OF OPINION

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The unaudited pro forma financial information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the financial position of the Enlarged Group as at 31 December 2009 or any future dates; or
the results and cash flows of the Enlarged Group for the year ended 31 December 2009 or any future periods.

OPINION

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully,

CCIF CPA Limited

Certified Public Accountants Hong Kong

Sze Chor Chun, Yvonne

Practising Certificate Number P05049

– 282 –

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP

For the year ended 31 December 2009

GENERAL REVIEW

Turnover of the Group for the year ended 31 December 2009 was about HK$9.20 million (31 December 2008: HK$33.02 million). The Group recorded a loss of approximately HK$35.97 million. (31 December 2008: loss of HK$42.15 million). Reduction in loss was mainly resulted from the disposal of non-core and loss-making operations during the year of 2008. As the Group has no discontinued operation in the year of 2009, loss for the year from discontinued operations dropped to zero in the year (31 December 2008: HK$15.02 million).

Administrative expenses of the Group for the year amounted to approximately HK$28.50 million (31 December 2008: HK$24.70 million), representing an increase of approximately HK$3.80 million. Administrative expenses mainly comprised legal and professional expenses, surety bond premium, staff’s salaries, and rental expenses.

Loss per share for the year from continuing and discontinued operations was HK1.10 cents (31 December 2008: HK5.40 cents) and from continuing operations was HK1.10 cents (31 December 2008: HK3.48 cents). In 2009, the Group has no discontinued operation. The Board does not recommend any final dividends for this financial year (31 December 2008: Nil).

DIVIDENDS

The directors do not recommend any payment of final dividend for the year ended 31 December 2009.

BONUS ISSUE OF WARRANTS

The Board intends to propose a bonus issue of new warrants to shareholders of the Company. The details of which will be disclosed in a separate announcement.

REVIEW OF BUSINESS OPERATIONS

Trading business

During the financial year, sales of trading business amounted to approximately HK$9.20 million (31 December 2008: HK$33.02 million), with a gross profit of approximately HK$0.05 million (31 December 2008: HK$1.01 million). In terms of the Group’s trading business, the Board considers 2009 a transitional year for the Group. A 72.1% decline in revenue signifies the Group’s shift of business focus: from the trading of general consumable goods, to trading in broader and more profitable areas within the energy

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

APPENDIX IV

and resources sector. During the year, the Board has identified various investment opportunities with high commercial value and significant growth potential in relation to the trading of a wide range of resources-related products. New projects will commence in the coming year, and are expected to provide stronger and steadier income inflow for the group in the near future. Significance of the current sales contribution under the existing trading business, therefore, would be reduced.

Oilfield exploration and exploitation business

In May 2009, the Group completed the acquisition of oil exploration and exploitation rights through the acquisition of the entire issued share capital of Jade Honest Limited. The principal assets of Jade Honest Limited is its wholly owned subsidiary, which has 60% interest in the Tartagal and Morillo concessions of hydrocarbon exploration and exploitation, in a surface area of approximately 7,065 square kilometers in the Tartagal area and approximately 3,518 square kilometers in the Morillo area in Salta Province of northern Argentina. Referring to the assessment of the unrisked potential original hydrocarbons-in-place and gross (100 Percent) prospective resources for the Tartagal and Morillo license areas located in the Chaco-Parana’ and Chaco-Tarija Basins, Salta Province, Argentina, as stated in the technical report dated 9 February 2009 (“Technical Report”) issued by Netherland, Sewell & Associates, Inc., the independent qualified technical adviser, the unrisked gross (100 percent) prospective oil and gas resources for the oilfield are as follows:

Prospect(1) EM Deep 1 EM Deep 2 EM Deep 3 EM Deep 4 PET North ZH South EQ East Probabilistic Total(2)	Oil Low Estimate Best Estimate High Estimate (Million of Barrels) 0.4 2.6 16.2 1.8 8.9 44.3 1.7 6.8 24.4 1.6 6.3 24.8 0.7 3.5 16.1 13.7 39.2 107.3 16.6 41.1 100.7 83.6 144.5 256.5	Gas Low Estimate Best Estimate High Estimate (Million of Cubic Feet) 22,162 135,654 820,614 91,755 459,065 2,281,286 88,461 351,294 1,214,154 81,431 322,479 1,222,154 38,527 175,296 817,560 11,246 34,281 101,999 13,190 35,470 90,762 1,115,954 2,342,209 5,089,858	Gas Low Estimate Best Estimate High Estimate (Million of Cubic Feet) 22,162 135,654 820,614 91,755 459,065 2,281,286 88,461 351,294 1,214,154 81,431 322,479 1,222,154 38,527 175,296 817,560 11,246 34,281 101,999 13,190 35,470 90,762 1,115,954 2,342,209 5,089,858
			5,089,858

(1) The 2007 PRMS defines a prospect as a project associated with a potential accumulation that is sufficiently well defined to represent a viable drilling target. The chance of geologic success for the seven identified prospects ranges from 5 to 16 percent, which equals 84 to 95 percent chance of failure and therefore represents moderate risk to very high risk exploration.
(2) The probabilistic total is based on combined portfolio sampling for all prospects and is not equal to the sum of the individual prospects.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

APPENDIX IV

Based on the information on the Technical Report, BMI Appraisals Limited, the independent qualified valuer, has estimated the market value of the 100% equity interest in the oilfield under the Tartagal and Morillo concession is US$1,500 million (equivalent to HK$11,700 million).

High Luck entered into a Temporary Union of Enterprises (the “UTE”) agreement with Maxipetrol – Petroleros de Occidente S.A. and JHP International Petroleum Engineering Limited, and is responsible for the arrangement of the required capital commitment, human resources and equipment for the exploration and exploitation projects in Tartagal and Morillo. A work plan was accepted by the Secretariat of Energy, Salta, and exploration works have been commenced. Geophysical survey work and further 3D seismic survey have been commenced in early 2010. Oil well drilling is expected to begin upon the completion of data analysis from the 3D seismic survey.

PROSPECTS

The Group’s strategy is to focus on the energy and natural resources industry and to further expand its business in the natural resources sector. The Group is proactively seeking investment opportunities with significant growth potential to broaden its revenue base, as well as to diversify its sources of income.

Throughout the year, the Board has identified a significant future growth opportunity in the gold mining industry. The Group entered an acquisition of 90% interest in a corporation with access to gold ore resources, mining facilities, and infrastructures in Hebei, PRC in December 2009. The total consideration for this acquisition is approximately HK$600 million, and may be adjusted to a total of approximately HK$700 million in the event that the confirmed gold resources of the Gold Mines attains or exceeds a certain level, which is agreed by the related parties, within two years from the completion of this acquisition. The principle assets of the said corporation primarily comprise three gold mines in operation, namely Banbishan Gold Mine, Sanjia Gold Mine, and Qingheyan Gold Mine (collectively the “Gold Mines”), and certain gold mining licenses, facilities, and infrastructures. The Gold Mines are located within the rich gold mineralization shear zones in Qinglong Manchu Autonomous County, Hebei Province, the PRC. Based on the respective gold mine resources investigation reports prepared by Hebei Province Geological Mining Bureau 5 Geology Team, the Gold Mines have an aggregate gold ore resource estimate of up to about 3.9 million tonnes (1.0 million, 0.9 million and 2.0 million tonnes categorized as Indicated, Inferred and Unclassified resource type under the JORC Code, respectively, with a reserve of gold metal of about 21,000 kilograms). The legitimate mining areas covered by the Gold Mines amount to 6.3549 square kilometers, and may be further expanded to 11.853 square kilometers upon the completion of the proposed integration of gold mines.

A sales and purchase agreement has been signed in February 2010. Upon the satisfaction of a number of conditions precedent stated in the above sales and purchase agreement, the acquisition of the Gold Mines will be completed soon. In order to explore the full potential of the Gold Mines, as well as to manage the business in an efficient and effective manner, the Group has recruited a management team with extensive experiences in

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

APPENDIX IV

the mining business. In addition, the Board is prepared to provide funding to the Gold Mines to support further exploration works and to seek professional advice and assistance from independent experts when need arise. With its strong financial and capital position, a management team with expertise in mining, and its excellent and established business networks in the PRC, the Group will take this opportunity to commence and expand its reach to the gold mining industry of the PRC.

In the coming year, the Group will seek to build its existing operations and, at the same time, to expand its business in the energy and natural resources sector, from oil to coal, non-ferrous metal, and precious metal business. The Group will continue its effort in searching for and capturing quality investment opportunities in different geographical locations, aiming to generate the best possible return for investors.

LIQUIDITY AND FINANCIAL RESOURCES

Capital structure, liquidity and financial resources

On 4 May 2009, the Company issued 93,750,000 new shares of HK$0.10 each and convertible notes for an aggregate principal amount of HK$1,832.4 million at a conversion price of HK$0.32 per share, pursuant to the agreement of acquisition of 100% interest in Jade Honest Limited. Upon full conversion of all the said convertible notes, the number of shares will be increased by 5,726,250,000. As at 31 December 2009, HK$1,354.97 million convertible notes were converted into 4,234,281,250 shares of the Company, and the remaining principal amount of the said convertible notes was HK$477.43 million.

On 20 November 2009, the Company issued convertible notes for an aggregate principal amount of HK$124 million at a conversion price of HK$0.31 per share, pursuant to the placing agreement to place the said convertible notes to independent third parties. As at 31 December 2009, the said convertible notes were exercised in full, and were converted into 399,999,990 shares of the Company.

As at 31 December 2009, the total equity of the Group was HK$3,429.53 million (31 December 2008: HK$311.70 million) and the net asset value per share was HK$0.62 (31 December 2008: HK$0.40). The debt ratio, calculated by total liabilities divided by total assets, was 3.02% as at 31 December, 2009 (As at 31 December 2008: 1.93%).

As at 31 December 2009, the total asset value of the Group is approximately HK$3,536.38 million (31 December 2008: HK$317.84 million) and the total cash and bank balances is approximately 201.37 million (31 December 2008: HK$154.09 million).

As at 31 December 2009, working capital, calculated by current assets minus current liabilities, was HK$136.97 million (As at 31 December 2008: HK$239.69 million).

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APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

The Group’s borrowings as at 31 December 2009 comprised an other borrowing of HK$40 million, bearing interest at 3.5% per annum, and bank borrowings totaling approximately HK$45.37 million, dominated in Renminbi, bearing interest at 4.779% per annum. As at 31 December 2009, the gearing ratio, calculated on the basis of interest bearing borrowings to total equity, was 2.49% (31 December 2008: nil).

Capital expenditure

The Group’s capital expenditure during the year amounted to approximately HK$3,251.89 million (31 December 2008: HK$4.06 million).

Charge on assets

As at 31 December 2009, a fixed deposit of approximately HK$28.36 million, dominated in Renminbi, of an indirect subsidiary of the Company in a PRC bank was pledged to secure banking facilities granted to its supplier. The financial guarantee was released on 6 April 2010.

Contingent liability

Details of contingent liabilities of the Group as at 31 December 2009 are set out in note 39 to the Annual Report for the year ended 31 December 2009.

Capital commitments

Details of capital commitments of the Group as at 31 December 2009 are set out in note 38(a) to the Annual Report for the year ended 31 December 2009.

Foreign exchange and interest rate exposure

Assets and liabilities of the Group are mainly denominated in Hong Kong dollar, Renminbi, United States dollar, and Argentine peso. The Group currently does not have a foreign currency hedging policy. However, the management will monitor the Group’s foreign exchange exposure on an ongoing basis and will consider hedging significant foreign currency exposure should the need arise. Details of the Group’s exposure to interest rate risk and currency risk are set out in note 34(c) and 34(d) to the financial statements.

Employees

As at 31 December 2009, the Group employed a total of 26 employees (31 December 2008: 10) in Hong Kong,the PRC, and Argentina. The cost of employees (including directors’ emoluments and benefits) amounted to HK$4.93 million (2008: HK$8.27 million). The Group provides its employees with competitive remuneration packages which were determined by their personal performance, qualifications, experience, and relevant market conditions in the respective geographical locations and businesses in which the Group operates.

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APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

Share Option Scheme

Detailed movements of the share option scheme in the year are set out in pages 25 to 26 of Annual Report for the year ended 31 December 2009.

– 288 –

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

For the year ended 31 December 2008

GENERAL REVIEW

Turnover of the Group for the year ended 31 December 2008 was about HK$33.02 million (31 December 2007: HK$155.45 million). The Group recorded a loss attributable to equity holders of the Company of approximately HK$42.15 million. (31 December 2007: HK$59.74 million). Reduction in loss was mainly due to decrease in (i) impairment for written down of inventory (31 December 2007: HK$15.91 million); (ii) provision for equity settled share-based payment expenses for options granted by the Company (31 December 2007: HK$12.84 million); and (iii) impairment for goodwill during the year under review (31 December 2007: HK$10.2 million).

Administrative expenses of the Group for the year amounted to approximately HK$25.29 million (31 December 2007: HK$17.48 million) representing an increase of approximately HK$7.81 million. The increase was mainly due to increase in directors’ remuneration, staff’s salaries and rental expenses in 2008.

Loss per share for the year from continuing and discontinued operations was HK5.40 cents (31 December 2007: HK9.32 cents) and from continuing operations was HK3.48 cents (31 December 2007: HK$4.81 cents). The Board does not recommend any final dividends for this financial year (31 December 2007: Nil).

REVIEW OF BUSINESS OPERATIONS

Trading business

During the year under review, sales of trading business amounted to approximately HK$33.02 million (31 December 2007: HK$154.26 million) with a gross profit of approximately HK$1.01 million compared with a gross loss of HK$2.07 million for the year ended 31 December 2007. In 2008, non-ferrous metal trading business was deeply influenced by the economic environment. Market price of non-ferrous metals was hugely volatile. Price of grade A copper and high grade zinc in London Metal Exchange declined after an upsurge in early 2008. Impact of the subprime mortgage crisis in U.S. has caused the global financial tsunami and the economic slowdown in late 2008. During the year under review, the Company diversified its trading business to other consumable goods. Management of the Company will continue to explore new business in various commodities to widen the Group’s income.

Discontinued Operations

The Group’s provision of financial service operations, property investments and development business were disappointed. Loss from these operations in the year under review was approximately HK$15.02 million (31 December 2007: HK$28.92 million). Accordingly, management of the Group decided to cease these operations and save further resources to focus on the Group’s investments in natural resources business.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

APPENDIX IV

Significant Disposal

In June 2008, the Group disposed the entire equity interest in Smart Wave Limited and its subsidiary, which engaged in property development business, to an independent third party and recorded a gain of approximately HK$4.80 million. Details were disclosed in circular of the Company dated 29 May 2008.

In December 2008, the Group disposed the entire equity interest in Elegant Pool Limited (“Elegant Pool”), which engaged property investment business, to an independent third party and recorded a gain of approximately HK$1.23 million. The only asset of Elegant Pool is two portions of shop spaces in a commercial podium of a 13-storey commercial and residential development. Details were disclosed in the circular of the Company dated 19 January 2009.

PROSPECTS

The Group’s strategy is to focus its business development in natural resources industry and is seeking investment opportunities to broaden the Group’s sources of income.

In October 2007 and November 2007, the Company entered into an intended contact and a supplemental agreement respectively to acquire 60% interest of the exploration and potential exploitation concessions of oil and natural gas granted by the Government of Argentina located in Tartagal and Morillo area (approximately 7,065 and 3,518 square kilometers respectively) in the province of Salta in northern Argentina. Netherland, Sewell & Associates, Inc, the Company’s independent technical adviser, after due care and taking into account of information and data from various sources, reported to the Company, in accordance with international recognized standards, the unrisked gross (100%) prospective resources of approximately 76.2 million tons of oil equivalent or 558.4 million barrels of oil equivalent for the Tartagal and Morillo Concessions (the “Concession”). A draft valuation of the Concession in the amount of approximately US$1.5 billion (equivalent to approximately HK$11.7 billion) received from the Company’s independent valuer. The Company re-negotiate the terms for the acquisitions with the vendors. The revised consideration of the Concession reduced to HK$2,100 million with a contingent consideration after completion. The acquisition was approved by the Company’s shareholders in the special general meeting on 18 March 2009 and will be completed shortly. The Company has begun the discussion with certain petroleum companies to pursue the exploration and exploitation and expects to contribute income for the Company in the near future.

In the coming year the Group will continue to seek for opportunity in natural resources business and exploitation projects to generate best possible return for our investors.

– 290 –

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

LIQUIDITY AND FINANCIAL RESOURCES

Capital structure, liquidity and financial resources

As at 31 December 2008, the total equity of the Group was HK$311.70 million (31 December 2007: HK$355.01 million) and the net asset value per share was HK$0.40 (31 December 2007: HK$0.46). The debt ratio, calculated by total liabilities divided by total assets, was 1.93% as at 31 December, 2008 (As at 31 December 2007: 32.58%).

As at 31 December 2008, the total asset value of the Group is approximately HK$317.84 million (31 December 2007: HK$526.55 million) and the total cash and bank balances is approximately HK$154.09 million (31 December 2007: HK$160.20 million).

As at 31 December 2008, working capital, calculated by current assets minus current liabilities, was HK$239.69 million (As at 31 December 2007: HK$226.36 million).

As at 31 December 2008, the gearing ratio, calculated on the basis of interest bearing borrowings to total equity, was zero (31 December 2007: 0.03).

Capital expenditure

The Group’s capital expenditure during the year amounted to approximately HK$4,062,000 (31 December 2007: HK$1,857,000).

Charge on assets

As at 31 December 2008, the Group had not charged any of its assets.

Contingent liability

Details of contingent liabilities of the Group as at 31 December 2008 are set out in note 34 to the Annual Report for the year ended 31 December 2008.

Capital commitments

Details of capital commitments of the Group as at 31 December 2008 are set out in note 33(a) to the Annual Report for the year ended 31 December 2008.

Foreign exchange and interest rate exposure

Certain bank balances, trade and other receivables, trade and other payables of the Group are denominated in foreign currencies. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arises. Details of the Group’s exposure to interest rate risk and currency risk are set out in note 30(c) and 30(d) to the Annual Report for the year ended 31 December 2008.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

APPENDIX IV

Employees

As at 31 December 2008, the Group had 9 employees in Hong Kong and 1 employee in the PRC. The cost of employees (including directors’ emoluments and benefits) amounted to HK$8.27 million (2007: HK$16.52 million). The Group provides its employees with competitive remuneration packages which were determined by their personal performance, qualifications, experience and relevant market trend.

Share Option Scheme

Details movements of share option scheme in the year is set out in pages 22 to 23 of the Annual Report for the year ended 31 December 2008.

For the year ended 31 December 2007

GENERAL REVIEW

Turnover of the Group for the year ended 31 December 2007 was about HK$155.45 million (nine-month ended 31 December 2006: 90.18 million). The Group recorded a loss attributable to equity holders of the Company of approximately HK$59.74 million. (nine-month ended 31 December 2006: HK$26.12 million) that is increased by HK$33.62 million. Increase in loss was mainly resulted from written down of inventory amount to HK$15.91 million (nine-month ended 31 December 2006: Nil). Fair value of options granted by the Company during the year under review for HK$12.84 million (nine-month ended 31 December 2006: Nil) and impairment of goodwill during the period under review amounted to HK$10.20 million (nine-month ended 31 December 2006: HK$6.52 million).

During the period under review, fair value of investment properties for the period under review decreased by 7.9 million (nine-month ended 31 December 2006: HK$1.2 million).

Administrative expenses for the year amounted to approximately HK$17.47 million (nine-month ended 31 December 2006: HK$4.11 million) representing an increase of approximately HK$13.36 million. The increase is mainly resulted from professionals, consultancy, due diligence and other relevant expenses for the Company’s feasibility study conducted to investment in mining, refinery plants in the PRC and oil field in Argentina during the period under review.

Loss per share for the year was HK9.32 cents (31 December 2006: HK5.66 cents) and the Board does not recommend any final dividends for this financial year (31 December 2006: Nil).

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

REVIEW OF BUSINESS OPERATIONS

Non-ferrous metal trading business

Turnover of zinc ore concentrate and ingots trading business for the year 2007 amounted to approximately HK$154.26 million (nine-month ended 31 December 2006: HK$85.94 million) with a gross loss for approximately HK$2.07 million which was resulted from decrease in zinc’s price from May 2007. Management of the Group will seek to widen income of the Company by diversifying its business to other non-ferrous metal such as copper.

Property Investments and Development

Gross rental income in certain commercial properties in Beijing, PRC for period under review was approximately HK$1.19 million (nine-month ended 31 December 2006: HK$3.49 million). Decrease in rental income was due to the properties were vacant for sale and the management of the Company is seeking for buyer to dispose the properties so as to release capital for further investments to strengthen the earning stream.

The wholly owned subsidiary in Shenzhen suffered a loss in last year. Development site in Guan Lan Jiedao was completed in 2007. Properties were sold at a low price because restriction on industrial property, which is effective from December 2006, that Certificate of Real Estate Ownership relating to the property can only be sold or transferred as one undivided lot. As a result, the Company recorded a loss from the project. Provision on the value of properties had been made in the year.

PROSPECTS

The Group diversified its business into natural resources in 2006 and have been seeking investment opportunities from time to time to broaden the Group’s sources of income. The Company entered into four memorandum of understanding in June 2007 in relating to the purchase of certain assets of mining rights over zinc mines; zinc refinery plant; exploration right over a zinc mine and to establish a zinc electrolysis factory but no definitive agreement had been entered and the MOUs lapsed after 24 December 2007.

On 31 October 2007 and 12 November 2007 the Company entered into an intended contract and a supplemental agreement to acquire from two independent third parties (the “Vendors”) 100% equity interest in High Luck Group Limited, at completion of the acquisition, will be the beneficial and registered owner of 60% interest in the exploration and potential exploitation concession granted by the Government of Argentina in Tartagal and Morillo, a surface area of approximately 7,065 square kilometers and 3,518 square kilometers respectively, in the province of Salta in northern Argentina. Based on the report issued by China National Petroleum Corporation and Bureau of Geophysical Propecting dated August 2007 in relation to the estimate resource potential in Tartagal block, by reviewing (i) geologic setting and characteristics in Argentina; (ii) geologic setting of basin where the Tartagal block is located; (iii) geologic setting and evaluation of Tartagal block;

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APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

(iv) the results of previous drillings, the estimated reserve of oil resource is approximately 0.81 billion tons, dissolved gas resource reserve is approximately 277.2 BCF and gas reserve is approximately 317.5 BCF. Recoverable reserve of oil is approximately 0.24 billion tons (representing the estimate of percentage of quoted reserve of oil by specialist) and dissolved gas is 83.2 BCF on 30% recover ratio (representing the estimate of percentage of quoted reserve of dissolved gas by specialist) and recoverable reserve of gas is 222.3 BCF on 70% recovery ratio (representing the estimate of percentage of quoted reserve of gas by specialist). Due diligence works have been commenced and the Company has appointed Netherland Sewell & Associates, Inc. (“NSAI”), a respectful firm of International independent reserve consultants based in Texas, U S A as technical adviser for the preparation of technical report. NSAI is currently collating the information and data on the Concessions sites. Due to the size and complication of the data gathered, a second supplemental agreement was signed with Vendors to extend the deadline for fulfillment of the conditions to the Acquisition to 31 August 2008.

In the view of the continued economic growth and accelerated industrialization and urbanization in certain parts of the world as well as the development of the global economy, petroleum and other natural resources will have its sustained demand. The consumption of petroleum and natural gas has been a global trend and is increasing every year, and for which there is a shortage of this irreplaceable form of energy, hence, price of petroleum and its related products have been rising over year. Directors of the Company believe that the new business strategy will generate reasonable returns in the future. The Group will continue to seek for opportunity in oil and natural gas exploitation and related business to strengthen the earning stream and above all, enhance shareholders’ return.

LIQUIDITY AND FINANCIAL RESOURCES

Capital structure, liquidity and financial resources

At 31 December 2007, the net asset value of the Group is approximately HK$355.01 million (31 December 2006: HK$144.28 million) and the total cash and bank balances is approximately HK$160.20 million (31 December 2006: HK$14.75 million).

At 31 December 2007, an unsecured and other borrowings loan of approximately HK$10.70 million were dominated in Renminbi (“RMB”), bearing interest at 7.56%-7.956% per annum. At 31 December 2007, the gearing ratio is 3% (total bank borrowings to shareholders’ equities) (31 December 2006: 7%) and interest expenses is about HK$0.43 million (nine months ended 31 December 2006: HK$0.80 million).

Contingent liability

Details of contingent liabilities of the Group at 31 December 2007 are set out in note 30 to the Annual Report for the year ended 31 December 2007 (31 December 2006: Nil).

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

APPENDIX IV

Capital investments and commitments

Details of capital investments and commitments of the Group at 31 December 2007 are set out in note 29 to the Annual Report for the year ended 31 December 2007 (31 December 2006: HK$60.30 million).

Foreign exchange and interest rate exposure

The Group does not currently have any hedging activities against its foreign exchange exposure nor does adopt any formal hedging policies. Revenue and incurred costs of the Group are mainly denominated in Hong Kong Dollar and Renminbi and the directors consider the impact of foreign exchange of the Group will be minimal and the management will closely monitor the fluctuation in this currency and take appropriate actions when condition arises.

Employees

At 31 December, 2007, the Group had 9 employees in Hong Kong and 11 employees in the PRC. The cost of employees (including directors’ emoluments) amounted to HK$16.52 million (nine month ended 31 December 2006: HK$1.09 million). The Group ensures that the pay levels of its employees are competitive according to market trend and its employees are rewarded on a performance related basis within the general framework of the Group’s salary and bonus system. During the year, 43,333,000 (nine month ended 31 December 2006: Nil) stock options were granted to certain employees at exercise price of HK$0.60 per share and the equity settled sharebased payments expenses amounted to HK$12.84 million (nine month ended 31 December 2006: Nil).

Share Option Scheme

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants include any director, or proposed director, including independent non-executive director, employee or proposed employee, secondee, any holder of securities issued by any member of the Group, any business or joint venture partner, contractor, agent or representative, any person or entity that provides research, development or other technology support or advisory, consultancy, professional or other services to the Group, any supplier, producer or licensor of goods or services to the Group, any customer, licensee or distributor of goods or services of the Group, or any landlord or tenant of the Group or any substantial shareholder or company controlled by a substantial shareholder, or any company controlled by one or more persons belonging to any of the above classes of participants. The Scheme became effective on 30 August 2002 and, unless otherwise terminated earlier by shareholders in a general meeting, will remain in force for a period of 10 years from that date.

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APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

Pursuant to the Scheme, the maximum number of share options may be granted under the scheme and any other share option schemes of the Company is an amount equivalent to, upon their exercise, in aggregate not exceeding 30% of the issued share capital of the Company from time to time, excluding any shares issued on the exercise of share options. As at 31 December 2007, the number of share issuable under the Scheme was 43,330,200. The maximum number of shares issuable under the Scheme to each eligible participant within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of such limit is subject to shareholders’ approval in a general meeting.

Pursuant to the Scheme, Share options granted to a director chief executive or substantial shareholder of the Company, or any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any grant of share options to a substantial shareholder or an independent non-executive director, or any of their associates, will result in the total number of shares issued and to be issued upon exercise of share options already granted and to be granted to such person under the New Scheme and any other share option schemes of the Company, including options exercised, cancelled and outstanding, in any 12-month period up to and including the date of grant representing in aggregate over 0.1% of the shares in issue, and having an aggregate value, based on the closing price of the Company shares at each date of grant, in excess of $5 million, such further grant of share options is required to be approved by shareholders in a general meeting in accordance with the Listing Rules.

The offer of a grant of share options under the Scheme may be accepted within 28 days from the date of the offer, upon payment of a nominal consideration of $1 in total by the grantee. The exercise period of the share options granted is determinable by the directors, and commences after a certain vesting period and ends on a date which is not later than 10 years from the date of the offer of the share options or the expiry date of the Scheme, if earlier. The exercise price of the share options under the Scheme is determinable by the directors, but may not be less than the higher of (i) the Stock Exchange closing price of the Company’s shares on the date of the offer of the share options; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of the shares.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

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APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

The following share options were outstanding under the Scheme during the year:

Category of grantees Date of grant Exercise period Exercise price Balance at beginning of the year Directors Mr. Tse On Kin 8.5.2007 8.5.2007– 7.5.2012 HK$0.60 – Mr. Wu Jian Feng 8.5.2007 8.5.2007 – 7.5.2012 HK$0.60 – Mr. Zhang Cheng Jie 8.5.2007 8.5.2007 – 7.5.2012 HK$0.60 – – Other employees in aggregate 8.5.2007 8.5.2007 – 7.5.2012 HK$0.60 – Other participants in aggregate 8.5.2007 8.5.2007 – 7.5.2012 HK$0.60 –	Number of share options Granted during the year Exercised during the year Lapsed during the year 4,333,000 – – 4,333,000 – – 4,333,000 – – 12,999,000 – – 12,999,000 4,333,000 – 17,332,000 – – 43,330,000 4,333,000 –	Balance at the end of the year 4,333,000 4,333,000 4,333,000
		12,999,000
		3,666,000 17,332,000
		38,997,000

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APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF HONGWEN GOLD AND THE TARGET GROUP

Set out below is the management discussion and analysis of the financial position of the Target Group and Hongwen Gold, which should be read in conjunction with the Accountants’ Reports of the Target Group and Hongwen Gold in Appendix IIA and IIB, respectively, to this circular.

2009 compared with 2008

Revenue

Hongwen Gold mainly derived its revenue from the sale of gold products. For year 2009, the revenue decreased by about 32.1%, or RMB15.5 million, from about RMB48.1 million for the year ended 31 December 2008 to about RMB32.6 million for the year ended 31 December 2009. The revenue decreased mainly due to the disposal of Xiang Shui Gou Gold Mine in April 2009 which caused the quantity of gold products sold reduced by about 36.6%. The total sales for Xiang Shui Gou Gold Mine for the year 2009 and 2008 amounted to about RMB3.5 million and about RMB19.0 million respectively. The impact of the decrease in total sales was partially offset by the increase in the average unit selling price of gold products in 2009.

Cost of sales

The cost of sales mainly represented (i) direct cost including direct labour cost, raw material and electricity and (ii) indirect cost such as indirect labour cost and overhead expenses. The total cost of sales decreased by about 33.8% from about RMB40.1 million for the year ended 31 December 2008 to about RMB26.5 million for the year ended 31 December 2009, which is consistent with the decrease in sale of gold products in 2009.

Gross profit

Gross profit decreased by about 23.4% from about RMB7.9 million for the year ended 31 December 2008 to about RMB6.1 million for the year ended 31 December 2009. The gross profit margin increased from about 16.5% for the year ended 31 December 2008 to about 18.6% for the year ended 31 December 2009, due to the increase in average unit selling price of gold products of about 7.2% (or equivalent to RMB367) and enhanced overall production efficiency.

Administrative expenses

Administrative expenses decreased by about 29.0% from about RMB5.9 million for the year ended 31 December 2008 to about RMB4.2 million for the year ended 31 December 2009. There were less administrative expenses incurred during the year 2009 as the total number of operating gold mines had decreased after the disposal of Xiang Shui Gou Gold Mine in April 2009.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

APPENDIX IV

Other operating expenses

Other operating expenses increased by about 796.2% from about RMB0.3 million for the year ended 31 December 2008 to about RMB3.1 million for the year ended 31 December 2009, mainly due to the loss on disposal of Xiang Shui Gou Gold Mine of about RMB2.7 million during the year ended 31 December 2009.

Profit/ (loss) for the year

Hongwen Gold’s net loss for the year ended 31 December 2009 was about RMB2.5 million, which turned from a net profit of about RMB1.3 million for the year ended 31 December 2008. The net loss position in 2009 was mainly attributable to the combined effects of (i) the increase in average unit selling price of the gold products by about 7.2% in 2009; (ii) the improvement in gross profit margin in 2009; (iii) the disposal of Xiang Shui Gou Gold Mine (which decreased the quantity of gold products sold in 2009); (iv) the increase in other operating expenses by about RMB2.7 million (mainly the loss on disposal of Xiang Shui Gou Gold Mine in 2009); and (v) the increase in tax provision of about RMB2.0 million in 2009.

2008 compared with 2007

Revenue

For year 2008, the revenue increased by about 8.4% from about RMB44.3 million for the year ended 31 December 2007 to about RMB48.1 million for the year ended 31 December 2008. The revenue increased mainly due to the increase in the average unit selling price of gold products by about 16.9% from the previous year. However, the total number of units sold has decreased by about 7.3% from 10,112 ounces in year 2007 to 9,373 ounces in year 2008.

Cost of sales

Cost of sales decreased by about 15.0% from about RMB47.2 million for the year ended 31 December 2007 to about RMB40.1 million for the year ended 31 December 2008, which is consistent with the decrease in sales of gold products in 2008.

Gross profit / (loss)

Gross profit in 2008 amounted to about RMB7.9 million, where there was a gross loss of about RMB2.8 million for the year ended 31 December 2007. The gross loss position in 2007 has turned to a gross profit margin of about 16.5% for the year ended 31 December 2008, mainly due to the increase in average unit selling price of the gold products during 2008.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

APPENDIX IV

Administrative expenses

Administrative expenses remained stable during the year 2008 and 2007 which amounted to about RMB6.2 million for the year ended 31 December 2007 and about RMB5.9 million for the year ended 31 December 2008.

Profit/(loss) for the year

Hongwen Gold was loss making in year 2007 for about RMB9.8 million, mainly due to the relatively low selling price of the gold products. For year 2008, Hongwen Gold started to be profit-making and recorded a net profit of RMB1.3 million, mainly due to the increase in average unit selling price of gold products and a more stringent approach on cost control.

Liquidity and financial resources

For each of the three years ended 31 December 2007, 2008 and 2009, Hongwen Gold and the Target Group financed the operations and capital expenditures with internally generated resources from sale of its gold products.

The cash and bank balances of Hongwen Gold were about RMB0.8 million, RMB4.5 million and RMB0.8 million as at 31 December 2007, 2008 and 2009 respectively. The cash and bank balances of the Target Group were about HK$30.4 million as at 31 December 2009.

The gearing ratio (being total liabilities divided by total assets) of Hongwen Gold as at 31 December 2007, 2008 and 2009 was about 43.1%, 40.4% and 41.2% respectively. The gearing ratio of the Target Group as at 31 December 2009 was about 52.6%.

As at 31 December 2007, 2008 and 2009, Hongwen Gold had an amount due from an immediate holding company / a related company of about RMB18.1 million, RMB16.2 million and RMB27.2 million which is unsecured, non-interest bearing and repayable on demand. As at 31 December 2009, the Target Group had an amount due from a related company of about HK$30.8 million which is unsecured, non-interest bearing and repayable on demand.

As at 31 December 2007, 2008 and 2009, Hongwen Gold had an amount due to an immediate holding company / a related company of about RMB7.1 million, RMB7.0 million and RMB6.9 million carried at amortized cost. The amount is unsecured and interest bearing at 7.75% per annum. As at 31 December 2009, the Target Group had amounts due to an immediate holding company and an intermediate holding company of about HK$31.1 million and HK$28.4 million, respectively, carried at amortized cost. As at 31 December 2009, the Target Group also had an amount due to a related company of about HK$7.8 million. The amount is unsecured and interest bearing at 7.75% per annum.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

APPENDIX IV

As Hongwen Gold and the Target Group’s business transactions are principally denominated in RMB, the exposure to foreign currency exchange risk is minimal. As at 31 December 2009, Hongwen Gold and the Target Group had no foreign exchange contracts, interest or currency swaps or other financial derivatives for hedging purposes.

Current assets / (liabilities)

Hongwen Gold has current assets of about RMB32.8 million, RMB35.0 million, RMB43.1 million, as of 31 December 2007, 2008 and 2009, respectively and current liabilities of about RMB17.8 million, RMB16.3 million and RMB22.2 million as of 31 December 2007, 2008 and 2009, respectively.

The Target Group has current assets of about HK$93.6 million and current liabilities of about HK$84.7 million as at 31 December 2009 respectively.

Hongwen Gold and the Target Group’s current assets have mainly consisted of inventories, amount due from related company, trade receivables, other receivables, pledged bank balances, cash and bank balances. Hongwen Gold and the Target Group’s current liabilities have mainly consisted of trade payables and amount due to related company.

Charge of assets

As at 31 December 2007, 2008 and 2009, Hongwen Gold did not pledge any of its assets. As at 31 December 2009, the Target Group did not pledge any of its assets.

Contingent liabilities

As at 31 December 2007, 2008 and 2009, Hongwen Gold had no material contingent liabilities. As at 31 December 2009, the Target Group had no material contingent liabilities.

Employees and remuneration policy

There were 574, 574 and 661 employees in Hongwen Gold as at 31 December 2007, 2008 and 2009, respectively. There were 661 employees for the Target Group as at 31 December 2009. Hongwen Gold and the Target Group remunerated their employees with respect to their employment terms, individual performance and the prevailing industry practice.

Segment information

No further segment information is presented as over 90% of the Hongwen Gold and the Target Group’s revenue is derived from sales of gold products in PRC.

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APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION OF THE GROUP AND THE TARGET GROUP

Material acquisition or disposals

Hongwen Gold had no material acquisitions or disposals of subsidiaries and affiliated companies during each of the three years ended 31 December 2007, 2008 and 2009. The Target Group had no material acquisitions or disposals of subsidiaries and affiliated companies in 2009, except for the acquisition of direct and indirect subsidiaries of the Target Company in forming part of the Target Group.

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PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

The following is the text of the letter, summary of values and valuation certificates, prepared for inclusion in this circular, received from Savills Valuation and Professional Services Limited, an independent property valuer, in connection with their valuations as of 31 May 2010 of the properties of New Times Energy Corporation Limited.

==> picture [72 x 72] intentionally omitted <==

Savills Valuation and Professional Services Limited 23/F Two Exchange Square Central, Hong Kong

T: (852) 2801 6100 F: (852) 2530 0756 EA Licence: C-023750 savills.com

24 June 2010

The Directors

New Times Energy Corporation Limited Units 1007 to 1008 10th Floor New World Tower I 18 Queen’s Road Hong Kong

Dear Sirs,

We refer to your instructions for us to value the properties (the “properties”) held by New Times Energy Corporation Limited (the “Company”) and its subsidiaries (hereinafter referred to as the “Group”) in the People’s Republic of China (the “PRC”), Hong Kong and Argentina respectively, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for providing you with our opinion of values of the properties as at 31 May 2010 (the “Valuation Date”) for inclusion in a circular issued by New Times Energy Corporation Limited.

Our valuation of each of the properties is our opinion of its market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

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PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, joint ventures, management agreements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of a property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

In valuing the properties which are rented by the Group in the PRC, Hong Kong and Argentina respectively, we have attributed no commercial value to these properties mainly due to the prohibitions against subletting and assignment or otherwise due to the lack of substantial profit rents.

We have been provided with copies of extracts of title documents relating to the properties. However, we have not inspected the original documents to ascertain the existence of any amendments which do not appear on the copies handed to us. We have relied to a very considerable extent on information given by you and your legal advisers, Guangdong Shunhui Law Firm and Brons & Salas Abogados, regarding the titles to the properties situated at the PRC and Argentina respectively.

We have relied to a very considerable extent on information given by you and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, ownership, identification of the properties, tenancy particulars, floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations. No on-site measurements have been made. We have had no reason to doubt the truth and accuracy of the information provided to us by you which is material to our valuation. We have also advised by you that no material facts have been omitted from the information provided.

We have inspected the exterior and where possible, the interior of the properties. During the course of our inspection, we did not note any serious defects. However, no structural survey has been made, we are therefore unable to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on any property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

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PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

Share Repurchase issued by the Securities and Futures Commission and the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Unless otherwise stated, all money amounts stated are in Renminbi. The exchange rates adopted in our valuation are USD1 = RMB6.8280, HK$1 = RMB0.8766 and Argentine Peso $1 = RMB1.7378.

Our summary of values and valuation certificate are attached.

Yours faithfully, For and on behalf of

Savills Valuation and Professional Services Limited

Charles C K Chan

MSc FRICS FHKIS MCIArb RPS(GP)

Managing Director

Note: Mr Charles C K Chan, chartered estate surveyor, MSc, FRICS, FHKIS, MCIArb, RPS(GP), has been a qualified valuer and has about 25 years experience in the valuation of properties in Hong Kong, about 20 years experience in the valuation of properties in the PRC and substantial experience in the valuation of properties in the South America.

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PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

SUMMARY OF VALUES

Group I – Properties rented by the Group in the PRC

No. Property 1. Unit 16A, Block C1, Xinghe Guoji Garden, Futian District, Shenzhen, Guangdong Province, PRC 2. Unit 1206, Yinhua Court, Fazhanxingyuan, Futian District, Shenzhen, Guangdong Province, PRC 3. Unit 1409, Zhuoyue Buidling, No. 98 Fuhua 1st Road, Futian District, Shenzhen, Guangdong Province, PRC

Market value in existing state as at 31 May 2010 No commercial value No commercial value

No commercial value

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PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

No. Property

Market value in existing state as at 31 May 2010

Unit 1410, Zhuoyue Building, No. 98 Fuhua 1st Road, Futian District, Shenzhen, Guangdong Province, PRC

No commercial value

Unit 1, Block B11, Guoji Yuqi City, Sihui Avenue, Shihui, Guangdong Province, PRC

No commercial value

Sub-total: Nil

Group II – Property rented by the Group in Hong Kong

Rooms 1007 to 1008, 10th Floor, No commercial New World Tower I, value Nos. 16 – 18 Queen’s Road Central, Hong Kong Sub-total: Nil

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PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

Group III – Properties rented by the Group in Argentina

			Market value
			in existing state as
No.	Property		at 31 May 2010
7.	Office No. 1, 2nd Floor,		No commercial
	Functional Unit 3-Q,		value
	Belgrano Street No. 1798,
	Edificio Santiago 1,
	Complex Jardines de Belgrano,
	Salta City,
	Salta Province,
	Argentina
8.	Department 6�B,		No commercial
	Tower Garden 1,		value
	General Guemes Street No. 1717,
	Complex Garden of Belgrano,
	Salta City,
	Salta Province,
	Argentina
		Sub-total:	Nil
		Grand Total:	Nil

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APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Group I – Properties rented by the Group in the PRC

Market value in Particulars of existing state as at No. Property Description and tenure occupancy 31 May 2010 1. Unit 16A, Block C1, The property comprises an As at the date of No commercial value Xinghe Guoji Garden, unit on the 16th level of a valuation, the property Futian District, high-rise residential building was occupied as a Shenzhen, of reinforced concrete dormitory. Guangdong Province, structure completed in 2003. PRC

The property has a gross floor area of approximately 163.52 sq.m. (1,760 sq.ft.).

The property is subject to a lease for a term of one year commencing on 10 July 2009 and expiring on 09 July 2010 at a monthly rental of RMB8,800 exclusive of management fee and utilities charges.

Notes:

The property is rented from an independent third party to Sihui Zhilai Chaocoal Enterprise Company Limited, an indirect 51%-owned subsidiary of the Company.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:

The tenancy agreement of the property is legal and valid. The lessor is entitled to lease the property to the lessee and the lessee can use the property legally.

– 309 –

APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

No. Property Description and tenure

Market value in Particulars of existing state as at occupancy 31 May 2010

Unit 1206, The property comprises an Yinhua Court, unit on the 12th level of a Fazhanxingyuan, high-rise residential building Futian District, of reinforced concrete Shenzhen, structure completed in 2005. Guangdong Province, PRC The property has a gross floor area of approximately 116.32 sq.m. (1,252 sq.ft.).

As at the date of No commercial value valuation, the property was occupied as a dormitory.

The property is subject to a lease for a term of one year commencing on 15 July 2009 and expiring on 14 July 2010 at a monthly rental of RMB6,500 exclusive of management fee and utilities charges.

Notes:

The property is rented from an independent third party to Sihui Zhilai Chaocoal Enterprise Company Limited, an indirect 51%-owned subsidiary of the Company.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:

The tenancy agreement of the property is legal and valid. The lessor is entitled to lease the property to the lessee and the lessee can use the property legally.

– 310 –

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

No. Property

Description and tenure

Market value in Particulars of existing state as at occupancy 31 May 2010

Unit 1409, The property comprises an Zhuoyue Building, unit on the 14th level of a No. 98 Fuhua 1st Road, 22-storey office building of Futian District, reinforced concrete structure Shenzhen, completed in 2003. Guangdong Province, PRC The property has a gross floor area of approximately 129.75 sq.m. (1,397 sq.ft.).

As at the date of No commercial value valuation, the property was occupied as an office.

The property is subject to a lease for a term of one year commencing on 25 April 2010 and expiring on 24 April 2013 at a monthly rental of RMB25,301.25 exclusive of management fee and utilities charges.

Notes:

The property is rented from an independent third party to Shenzhen Yuanxie Trading Company Limited, a wholly-owned subsidiary of the Company.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:

The tenancy agreement of the property is legal and valid. The lessor is entitled to lease the property to the lessee and the lessee can use the property legally.

– 311 –

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Description and tenure

No. Property

Unit 1410, The property comprises an Zhuoyue Building unit on the 14th level of a No. 98 Fuhua 1st Road, 22-storey office building of Futian District, reinforced concrete structure Shenzhen, completed in 2003. Guangdong Province, PRC The property has a gross floor area of approximately 123.5 sq.m. (1,329 sq.ft.).

Market value in Particulars of existing state as at occupancy 31 May 2010 As at the date of No commercial value valuation, the property was occupied as an office.

The property is subject to a lease for a term of one year commencing on 25 April 2010 and expiring on 24 April 2013 at a monthly rental of RMB24,082.50 exclusive of management fee and utilities charges.

Notes:

The property is rented from an independent third party to Shenzhen Zhilai Trading Company Limited, a 51%-owned subsidiary of the Company.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:

The tenancy agreement of the property is legal and valid. The lessor is entitled to lease the property to the lessee and the lessee can use the property legally.

– 312 –

APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

No. Property

Description and tenure

Market value in Particulars of existing state as at occupancy 31 May 2010

Unit 1, The property comprises an Block B11, unit on the 1st level of a Guoji Yuqi City, low-rise office building of Sihui Avenue, reinforced concrete structure Shihui, completed in 2006. Guangdong Province, PRC The property has a gross floor area of approximately 80.00 sq.m. (861 sq.ft.).

As at the date of No commercial value valuation, the property was occupied as an office.

The property is subject to a lease for a term commencing on 8 May 2009 and expiring on 8 May 2011 at a monthly rental of RMB1,800 exclusive of management fee and utilities charges.

Notes:

The property is rented from an independent third party to Sihui Zhilai Chaocoal Enterprise Company Limited, an indirect 51%-owned subsidiary of the Company.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:

The tenancy agreement of the property is legal and valid. The lessor is entitled to lease the property to the lessee and the lessee can use the property legally.

– 313 –

APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Group II – Property rented to the Group in Hong Kong

No. Property

Market value in Particulars of existing state as at Description and tenure occupancy 31 May 2010

Rooms 1007 to 1008, The property comprises two 10th Floor, units on the 10th floor of a New World Tower I, 41-storey office building of Nos. 16 – 18 reinforced concrete structure Queen’s Road Central, completed in 1977. Hong Kong

As at the date of No commercial value valuation, the property was occupied as an office.

The property has a gross floor area of approximately 138.52 sq.m. (1,491 sq.ft.).

The property is subject to a lease for a term of 3 years commencing on 12 December 2009 and expiring on 11 December 2012 at a monthly rental of HK$62,622 exclusive of management fee and utilities charges.

Notes:

The property is rented from an independent third party to Rich Result Limited, an indirect wholly-owned subsidiary of the Company.

– 314 –

APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Group III – Properties rented to the Group in Argentina

Market value in Particulars of existing state as at No. Property Description and tenure occupancy 31 May 2010 7. Office No. 1, 2nd Floor, The property comprises an As at the date of No commercial value Functional Unit 3-Q, unit on the 2nd floor of a valuation, the property Belgrano Street 8-storey office building of was occupied as an No. 1798, reinforced concrete structure office. Edificio Santiago 1, completed in 2001. Complex Jardines de Belgrano, The property has a gross floor Salta City, area of approximately 80.00 Salta Province, sq.m. (861 sq.ft.). Argentina The property is subject to a lease for a term commencing on 1 September 2009 and expiring on 30 August 2012 at a monthly rental of US$1,600 exclusive of management fee and utilities charges.

Notes:

The property is rented from an independent third party to Maxipetrol Petroleros de Occidente – UTE (the “UTE”) a 60%-owned subsidiary of the Company.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:
(i) the lease agreement was executed in compliance with Argentine law, and are valid and in full force and effect; and
(ii) the stamp tax applicable to both lease agreement was paid in due time and manner.

– 315 –

APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

No. Property

Description and tenure

Market value in Particulars of existing state as at occupancy 31 May 2010

Department 6[�] B, The property comprises an Tower Garden 1, unit on the 6th floor of a General Guemes Street 9-storey residential building of No. 1717, reinforced concrete structure Complex Garden of completed in 2007. Belgrano, Salta City, The property has a gross floor Salta Province, area of approximately 85.00 Argentina sq.m. (915 sq.ft.).

As at the date of No commercial value valuation, the property was occupied as a dormitory.

The property is subject to a lease for a term commencing on 1 September 2009 and expiring on 30 August 2011 at a monthly rental of Argentine Peso $3,500 exclusive of management fee and utilities charges.

Notes:

The property is rented from an independent third party to Maxipetrol Petroleros de Occidente – UTE (the “UTE”), a 60%-owned subsidiary of the Company.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:
(i) the lease agreement was executed in compliance with Argentine law, and are valid and in full force and effect; and
(ii) the stamp tax applicable to both lease agreement was paid in due time and manner.

– 316 –

APPENDIX V PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

The following is the text of the letter, summary of values and valuation certificates, prepared for inclusion in this circular, received from Savills Valuation and Professional Services Limited, an independent property valuer,, in connection with their valuations as of 31 May 2010 of the properties of the Target Group.

==> picture [72 x 72] intentionally omitted <==

Savills Valuation and Professional Services Limited 23/F Two Exchange Square Central, Hong Kong

T: (852) 2801 6100 F: (852) 2530 0756

EA Licence: C-023750 savills.com

24 June 2010

The Directors

New Times Energy Corporation Limited Units 1007 to 1008 10th Floor New World Tower I 18 Queen’s Road Hong Kong

Dear Sirs,

We refer to your instructions for us to value the properties (the “properties”) held by Fortune Ease Holdings Limited (the “Target Company”) and its subsidiaries (hereinafter referred to as the “Target Group”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for providing you with our opinion of values of the properties as at 31 May 2010 (the “Valuation Date”) for inclusion in a circular issued by New Times Energy Corporation Limited.

– 317 –

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

In valuing the properties in the PRC, unless otherwise stated, we have assumed that transferrable land use rights in respect of the properties for specific terms at nominal land use fee have been granted and that all requisite land premium payable has been fully settled. We have also assumed that the owners of the properties have enforceable titles to the properties and have free and uninterrupted rights to use, occupy or assign the properties for the whole of the unexpired terms as granted.

In valuing the properties which is held and occupied by the Target Group, due to the specific purpose for which the buildings of properties have been constructed, there are no readily available market comparables of the same kind of the properties and thus the buildings of these properties cannot be valued on the basis of direct comparison. They have been valued on the basis of the depreciated replacement cost (“DRC”). We would define “DRC” for these purposes to be our opinion of the land value in its existing use and an estimate of the new replacement costs of the buildings, including fees and finance charges, from which deductions are then made to allow for physical, functional and environmental obsolescence. While in valuing the land, we have adopted the Direct Comparison Approach by making reference to the comparable market transactions as available in the relevant market assuming sales with vacant possession.

We have been provided with copies of extracts of title documents relating to the properties. However, we have not inspected the original documents to ascertain the existence of any amendments which do not appear on the copies handed to us. We have relied to a very considerable extent on information given by you and your legal advisers, Dehanglaw Office, regarding the titles to the properties.

We have relied to a very considerable extent on information given by you and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, ownership, identification of the properties, site and floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations. No on-site measurements have been made. We have had no reason to doubt the truth and accuracy of the information provided to us by you which is material to our valuation. We have also advised by you that no material facts have been omitted from the information provided.

– 318 –

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

In valuing the properties, we have complied with the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by the Stock Exchange of Hong Kong Limited and Rule 11 of the Code on Takeovers and Mergers and Share Repurchase issued by the Securities and Futures Commission and the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Unless otherwise stated, all money amounts stated are in Renminbi.

Our summary of values and valuation certificate are attached.

Yours faithfully, For and on behalf of

Savills Valuation and Professional Services Limited

Charles C K Chan

MSc FRICS FHKIS MCIArb RPS(GP)

Managing Director

Note: Mr Charles C K Chan, chartered estate surveyor, MSc, FRICS, FHKIS, MCIArb, RPS(GP), has been a qualified valuer and has about 20 years experience in the valuation of properties in the PRC.

– 319 –

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX V

SUMMARY OF VALUES

Properties held and occupied by the Target Group

			Market value
			in existing state as
No.	Property		at 31 May 2010
1.	Land, various buildings and structures		RMB205,000
	located at Banbishan Village (“Banbishan Gold Mine”),
	Shuangzi Town,
	Qinglong Manzu Autonomous County,
	Hebei Province,
	PRC
2.	Land, various buildings and structures		No commercial
	located at Majuanzi Town (“Sanjia Gold Mine”),		value
	Qinglong Manzu Autonomous County,
	Hebei Province,
	PRC
3.	Land, various buildings and structures		No commercial
	located at Qinglong Town (“Qingheyan Gold Mine”),		value
	Qinglong Manzu Autonomous County,
	Hebei Province,
	PRC
		Total:	RMB205,000

– 320 –

APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Properties held and occupied by the Target Group

Market value in
Particulars of existing state as at
No. Property Description and tenure occupancy 31 May 2010 1. Land, various buildings The property comprises 7 The property is RMB205,000 and structures parcels of land with a total occupied by the Target located at Banbishan site area of approximately Group for production, (Please refer to Village (“Banbishan Gold 52,490.68 sq.m. (565,010 dormitory and notes (2) and (4)) Mine”), sq.ft) on which constructed ancillary purposes. Shuangzi Town, with 68 buildings and Qinglong Manzu ancillary structures completed Autonomous County, in various stages between Hebei Province, 1980 and 2008. As advised by PRC the Company, the property is names as Banbishan Gold Mine ( ).

The buildings of the property mainly include workshops, office buildings, warehouses and dormitories and structures mainly comprises boundary fences and wall, sheds, water ponds, water towers, wells and roads and have a total gross floor area of approximately 11,472.64 sq.m. (123,491 sq.ft.). The land use rights of a parcel of land with a site area of approximately 1,898 sq.m. have been granted for a term of 40 years commencing on 6 June 1996 for yard uses. The land use rights of remaining parcels of land are allocated for undefined term for mine, factory, and road uses respectively.

Notes:

Pursuant to the State-owned Land Use Rights Certificate No. Qing Guo Yong (1996) Zi Di 0012 ( (1994) 0012 ), the land use rights of a parcel of land with a site area of 1,898 sq.m. have been granted to Banbishan Gold Mine ( ) for a term of 40 years commencing on 6 June 1996 for yard uses.
Pursuant to six State-owned Land Use Rights Certificates Nos. Qing Guo Yong (1994) Zi Di 0008 to 0011, 0494 and Qing Guo Yong (1996) Zi Di 0010 ( (1994) 0008 0011 0494 (1996) 0010 ), the land use rights of six parcels of land with a site area of 50,592.68

sq.m. have been allocated to Banbishan Gold Mine for undefined term for mine, factory, and road uses respectively.

– 321 –

APPENDIX V PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

As the land use rights of the said 6 parcels of land are not transferrable, we have not attribute any commercial value to these land.

Pursuant to two Building Ownership Certificates Nos. Qing Fang Zi Di 000528 and 000529 ( 000528 000529) both issued on 11 December 1989, the building ownership of various buildings with a total gross floor area of approximately 5,702.76 sq.m. is vested in Banbishan Gold Mine.
As all the buildings and structures of the property are erected upon the 6 parcels of land as stated in note (2), we have not attribute any commercial value to the buildings and structures of the property.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:
(i) portions of the property as stated in Notes 1 to 3 are free from any mortgages, charges, liens or any form of securities;
(ii) portions of the property as stated in Note 1 to 3 are in the process of changing the name of owner from Banbishan Gold Mine to Hongwen Gold. There is no legal impediment for the Target Group to apply this process;
(iii) the Target Group is applying for the Building Ownership Certificates of portion of the buildings of the property with a total gross floor area of approximately 5,769.88 sq.m. There is no legal impediment for the Target Group to obtain these Building Ownership Certificates.

– 322 –

APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

No. Property

Description and tenure

Market value in Particulars of existing state as at occupancy 31 May 2010

Land, various buildings and structures located at Majuanzi Town (“Sanjia Gold Mine”), Qinglong Manzu Autonomous County, Hebei Province, PRC
The property comprises two parcels of land with a total site area of approximately 123,461.82 sq.m. (1,328,943 sq.ft) on which constructed with 134 buildings and various ancillary structures completed in various stages between 1974 and 2006. As advised by the Company, the property is names as Sanjia Gold Mine ( ).

The property is No commercial value occupied by the Target Group for production, dormitory and ancillary purposes.

The land use rights of the property are allocated for undefined term for industrial uses.

Notes:

Pursuant to two State-owned Land Use Rights Certificates Nos. Qing Guo Yong (1996) Zi Di 0032 and 0033 ( (1996) 0032 0033 ), the land use rights of two parcels of land with a site area of 11,917.00 sq.m. have been allocated to Sanjia Gold Mine ( ) for undefined term for industrial uses.

As the land use rights of the said two parcels of land are not transferrable, we have not attribute any commercial value to these land.

Pursuant to two Building Ownership Certificates Nos. Qing Fang Zi Di 000857 and 000859 ( 000857 000859) both issued on 5 May 1992, the building ownership of the portion of the property with a total gross floor area of approximately 6,636.445 sq.m. is vested in Sanjia Gold Mine.

As advised by the Target Company, some buildings as stipulated in the said Building Ownership Certificates have been demolished. There are 44 buildings remained with a total gross floor area of approximately 6,136 sq.m.

As all the buildings and structures of the property are erected upon the two parcels of land as stated in note (1), we have not attribute any commercial value to the buildings and structures of the property.

– 323 –

APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:
(i) portions of the property as stated in Notes 1 and 2 are free from any mortgages, charges, liens or any form of securities;
(ii) portions of the property as stated in Note 1 and 2 are in the process of changing the name of owner from Sanjia Gold Mine to Hongwen Gold. There is no legal impediment for the Target Group to apply this process; and
(iii) the Target Group is applying for the Building Ownership Certificates of portion of the buildings of the property with a total gross floor area of approximately 6,759.00 sq.m. There is no legal impediment for the Target Group to obtain these Building Ownership Certificates.

– 324 –

APPENDIX V

PROPERTY VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

No. Property

Description and tenure

Market value in Particulars of existing state as at occupancy 31 May 2010

Land, various buildings and structures located at Qinglong Town (“Qingheyuan Gold Mine”), Qinglong Manzu Autonomous County, Hebei Province, PRC

The property comprises two parcels of land with a total site area of approximately 3,780 sq.m. (40,688 sq.ft) on which constructed with 13 buildings and various ancillary structures completed in various stages between 1995 and 2009. As advised by the Company, the property is names as Qingheyan Gold Mine ( ).

The property is No commercial value occupied by the Target Group for production and ancillary purposes.

The buildings of the property mainly include workshops, warehouses, plant rooms and dormitories and have a total gross floor area of approximately 1,421.00 sq.m. (15,296 sq.ft.).

The structures mainly comprises boundary fences and wall.

Notes:

We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:
(i) the Target Group is applying for the Land Use Rights Certificates of the property with a site area of approximately 3,780.00 sq.m., there is no legal impediment for the Target Group to obtain the Land Use Rights Certificates; and
(ii) the Target Group is applying for the Building Ownership Certificates of the property. Upon the relevant Land Use Rights Certificates have been obtained and the relevant legal procedures have been completed, there is no legal impediment for the Target Group to obtain these Building Ownership Certificates.

– 325 –

TECHNICAL REPORT

APPENDIX VI

Technical Assessment Report of Qinglong Hongwen Gold Projects in Qinglong of Hebei Province, P.R. China

Report prepared for New Times Energy Corporation Ltd

Prepared by

March 2010

– 326 –

TECHNICAL REPORT

APPENDIX VI

Technical Assessment Report of Qinglong Hongwen Gold Projects in Qinglong of Hebei Province, P.R. China

For

New Tomes Energy Corporation Ltd. Room 1007-8, New World Tower I, 16-18 Queen’s Road Central Hong Kong

SRK Project Number SHK086 SRK Consulting China Ltd B1205, COFCO Plaza, 8 Jianguomennei Dajie Dongcheng District, Beijing 100005

Contact: Dr. Yiefei Jia Telephone No.: +86 10 8512 0365 Email: [email protected] URL: www.srk.cn

March 2010

Compiled by:

Peer reviewed by:

Dr. Yiefei Jia, MAusIMM Principal Consultant (Geologist)

Dr Anson Xu, MAusIMM Principal Consultant (Geologist)

Authors:

Pengfei Xiao, Liqin Yu, Qiuji Huang, Lanliang Niu, Andrew Lewis and Dr Yiefei Jia

Peer Reviewer:

Dr Anson Xu

– 327 –

TECHNICAL REPORT

APPENDIX VI

EXECUTIVE SUMMARY

New Times Energy Corporation Ltd. (“New Times” or “the Company”) commissioned SRK Consulting China Limited (“SRK”) to review the Qinglong Hongwen gold mines (“Qinglong Hongwen Gold Project”), which is located in Qinglong Manzu Autonomous County (“Qinglong County”) of Hebei Province, the People’s Republic of China (“P.R. China”). SRK was required to provide an Independent Expert Report (“Report”) including reviews on the geology and resources, mining technology, processing and metallurgy, as well as environmental permitting and compliances. The Qinglong Hongwen Project, including three gold mines, six valid mining licenses, one expired mining license, and two processing plants and other supporting facilities, is wholly owned by Qinglong Hongwen Gold Ltd (“Qinglong Hongwen”). The Report is intended to enable potential equity investors and possible future shareholders to review the Company’s operations.

SUMMARY OF PRINCIPAL OBJECTIVES

The principle objective of this Report is to provide existing New Times shareholders and The Stock Exchange of Hong Kong Limited (“HKEx”) with an Independent Expert Report suitable for inclusion in documents that the Company plans to submit to HKEx in relation to a proposed acquisition.

Outline of Work Program

The work program involved three phases:

Phase 1: review of information available provided by the Company;

Phase 2: site visit to the mine sites in Qinglong County, Hebei Province, inspect Qinglong Hongwen’s projects, interviews with the representatives of the Company and various mine staff, and the Geological brigade who conducted the exploration.

Phase 3: analyse the provided data, preparing a draft report and provide it to the Company for comments. Review additional data and finalise this Report.

RESULTS

Overall

Regionally, the project area is located in Qinglong River depression area of eastern part of East Hebei Uplift, in Yanshan Fold Belt of North China Platform. It has been extensively explored previously by Chinese Geological brigades since 1960s. A number of gold deposits in the Qinglong County, Hebei province have discovered. The Qinglong had been called the Second City of Ten Thousands Liang (312.5kg) Gold. And 300 out of 396 villages of Qinglong have the history of gold mining.

Qinglong Hongwen Project has three operating mines named Sanjia, Banbishan and Qingheyan with valid six mining licences with a total area of 6.3549 square kilometres (“km[2] ”) and one expired mining license called Miaozhangzi Gold Mining Permit with an

– 328 –

APPENDIX VI

TECHNICAL REPORT

area of 0.7119km[2] to be consolidated. The total permitted area is about 11.85km[2] after the approval of consolidation. Among the three operating mines, Sanjia Gold mine is an underground mine, it has a mining and processing capacity of 200tonne per day (“t/d”), Banbishan, another underground mine has the same capacity of 200t/d of mining and concentrating, while Qingheyan Gold mine was mainly using heap-leaching processes to treat about 100,000 to 200,000t of oxidized gold ores per year during its operation time.

No. 5 Geological Brigade of Hebei Bureau of Geology and Mineral Resources (“No. 5 Geological Brigade”) has estimated and reported the mineral resources at the mining licence areas for the three gold mines at 1.06 million tonnes (“Mt”) of 122b (similar to Indicated Resource) category at average grade of 5.53g/t Au; 981,903t of 333 (similar to Inferred Resource) category at average grade of 6.25g/t Au; and 2.36Mt of 334 category with average grade of 4.82g/t Au, respectively. For the 334 category resource, it will need more exploration work to upgrade the resource confidence similar to JORC resource category.

Combined declined-shaft with blind declines was used to connect different levels of the underground mines of Sanjia and Banbishan Gold mines. The short-hole shrinkage mining method and small-scaled Room and Pillar method have been adopted. The mines relatively have a mining loss rate of about 10%, mining dilution rate of 10 to 20%. A conventional ore processing flow sheet including crushing, grinding, flotation, and drying has been used in the processing plants to produce gold concentrates. The ore processing plant at Sanjia Gold mine has achieved a gold recovery rate of around 90%. Banbishan processing plant has a lower recovery rate of about 75 to 78% due to micro-sized gold particles, however, it can be improved to over 90% after some technical renovations. Hongwen Gold is planning to increase the mining and processing capacity to 500,000 tonnes per year under its mid-term development plan, and further increase to 860,000 tonnes per year with a three-year development plan.

In SRK’s opinion, the estimated resources comply with Chinese standards, and 122b category resources can be used as mining reserves for mining design and mine planning in China. The reserves are economically and technically mineable under the current favourable market and operational conditions, the mining recovery factor could be 90% or more. The permitted areas also have potential to host gold mineralization. The mining operations may currently feed the existing ore processing plants. SRK recommends that a comprehensive study of all available geological, geophysical and geochemical data regarding the project be conducted in order to design an exploration plan for upgrading the resources in the mining licences’ areas, defining more mineral resources in the extensions of defined mineralised bodies, and in the exploration permits’ areas. A feasibility study should be conducted for the proposed expansions of the mines and the ore processing plants.

Geology and Mineralogy

Qinglong Hongwen Project is situated in the east extension of Yinshan latitude (west-east orientated) complex structural zone which is one of the major tectonic zones in north China. Regionally the faults well developed; there is a major west-east striking fault belt namely Xinglong-Xifengkou crossing the whole mine area.

– 329 –

TECHNICAL REPORT

APPENDIX VI

Regional strata are dominated by pre-Sinian metamorphic rock system, and also locally represented by Sinian system, Cambrian system and Carboniferous-Permian system, as well as volcanic rock – coal measure strata. There are two major stages of regional igneous and intrusive activities. One is the Luliang Stage before Sinian and the other is the Yanshanian Stage. In the earlier period of the Luliang Stage, mafic magma intruded; meanwhile there occurred regional metamorphism and migmatization. Felsic magma intruded in later period of the Stage. Mineralization of copper, gold, silver, lead and zinc are closely related to the orogeny emplaced in the stage of Yanshanian. In this stage, intrusive activities in the area of Qianxi and Qinglong counties were frequent and intensive.

Qinglong Hongwen’s gold mines are within one of main gold production districts in China. The main characters of these mineralized bodies are selectively described below.

Qingheyan Gold Mine

Qingheyan gold mine involves Xiaodongyu and Shuiquangou mining permit areas, and in the licences area, three major areas (sections), namely Daxiyu, Furenshan and Gezifang are divided for exploration. The main orebody (or mineralized body) characters in the three areas are summarised in the following table.

				Dip
	Orebody	Strike	Length (m)	Azimuth	Dip	Angle	Thickness (m)		Grade (g/t)
Area	No.	Surface	Underground	(˚)		(˚)	Surface Underground		Surface Underground
Daxiyu	I	135	106	175-220		79	2.33	1.23	5.92	8.12
	II-2	94	/	210		66	6.70	/	3.64	/
Furenshan	I-1	40	/	320	near 90		5.52	/	3.77	/
	I-4	170	/	220		59	2.36	/	4.08	/
	II	106	76	35		80	17.45	2.75	5.70	3.29
Gezifang	I	40	/	120-140	near 90		14.97	/	11.60	/

Banbishan Gold Mine

Two major zones of orebodies are discovered in Banbishan mine area, namely M1 and M2. The main parameters in the two orebody zones are summarised in the following table.

	Strike
	Length (m)			Average
	Surface	Dip	Dip	Thickness	Average
Zone	Extension	Azimuth (˚)	Angle (˚)	(m)	Grade (g/t)
M1	1300	300	50	2.20	1.95 – 5.41
M2	550	310	55	1.75	3.17

Miaozhangzi Gold Mine

According to the geological characters and the distribution of orebodies (or vein-like mineralised bodies), two major ore zones with 18 orebodies (mineralised bodies) are classified in Miaozhangzi mine, namely Mizhangzi zone in the north and Ciyugou zone in the south. The orebodies and mineralised bodies are all shaped as vein-like, recognised as

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TECHNICAL REPORT

“ore veins”. There are 23 orebodies defined in 8 “ore veins”, among which there are 15 orebodies located in Miaozhangzi zone and 2 orebodies in Yucigou zone, and the other 6 orebodies are located outside of the license boundary. The main parameters in the two orebody zones are summarised in the following table.

					Average				Occurrence		Orebody
Orebody			Scale (m)		Grade		Ore			Dip	Elevation
ID	Block ID	Location	Length Thickness		(g/t)	Shape	Category	Strike	Dip to	Angle	(m)	Area
(2)-1	C-1 to C-3	Line 5-25	370	1.26	6.54	Vein like	Industrial	30˚	SE	55-83˚	255-111
	D-1 to D-9
(2)-2	D-1-1 to	Line 11-15	85	1.14	2.26	Lens like	Sub-industrial	30˚	SE	70˚	227-190
	D-2-2
(2)-3	D-1-1 to	Line 11-15	40	1.94	4.55	Lens like	Industrial	30°	SE	55°	120-80
	D-1-2
(2)-4	D-1	Line 13-15	40	0.86	2.76	Lens like	Sub-industrial	30°	SE	71°	-29~-59
(2)-5	D-1	Line 15-19	40	0.76	4.54	Lens like	Industrial	30°	SE	79°	23~-15
(2)-6	D-1	Line 21-23	40	1.54	7.64	Lens like	Industrial	25°	SE	84°	190-150
(2)-7	D-1	Line 21-27	120	0.61	8.26	Lens like	Industrial	30°	SE	78°	273-205
(2)-8	D-1-1 to	Line 31-35	60	1.23	12.33	Lens like	Industrial	30°	SE	89°	245-151
	D-2-2
(2)-9	D-1-1 to	Line 27-35	120	1.35	5.74	Lens like	Industrial	30°	SE	79°	90-20	Miaozhangzi
	D-2-2											Zone
(2)-10	D-1-1 to	Line 31-37	115	1.09	9.36	Lens like	Industrial	15°	SE	72°	231-198
	D-2-2
(2-1)-11	D-1-1 to	Line 7-9	25	1.1	13.2	Lens like	Industrial	30°	SE	89°	218-188
	D-2-2
(2-1)-12	D-1-1 to	Line 25-37	195	0.7	6.60	Vein like	Industrial	30°	SE	82°	233-188
	D-2-2
(2-1)-13	D-1-1 to	Line 11-15	40	1.71	1.69	Lens like	Sub-industrial	30°	SE	62°	138-96
	D-2-2
(1)-14	D-1-1 to	Line 5-9	65	0.6	3.17	Lens like	Sub-industrial	40°	NW	63°	245-202
	D-2-2
(1)-15	D-1	Line 13-17	125	0.84	10.68	Lens like	Industrial	40°	NW	68°	260-213
(14)-16	D-1-1 to	Line 38-50	260	1.22	4.46	Vein like	Industrial	30°	SE	72°	275-197
	D-2-2
(14)-17	D-1-1 to	Line 26-30	75	0.81	3.60	Lens like	Sub-industrial	30°	SE	81°	230-168	Yucigou
	D-2-3											Zone
(6)-18	(6)-18-D-1	Line 2-0	40	1.15	4.18	Lens like	Industrial	35°	NW	44°	210-115
(6)-19	(6)-19-D-1	Line 0-1	40	0.83	2.04	Lens like	Sub-industrial	35°	NW	40°	104-64
(6)-20	(6)-20-D-1	Line 0-1	40	0.85	3.09	Lens like	Sub-industrial	35°	NW	41°	95-55	Outside of
(5)-21	(5)-21-D-1	Line 5-9	36	0.54	6.57	Lens like	Industrial	25°	NW	60°	210-186	License
(8)-22	(8)-22-D-1	Line 9-13	40	1.54	4.74	Lens like	Industrial	30°	NW	50°	251-210	Boundary
(7)-23	(7)-23-D-1	Line	40	0.97	4.50	Lens like	Industrial	30°	NW	54°	242-209
		17-21

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Sanjia Gold Mine

Totally twenty orebodies (mineralized veins) and mineralized bodies were defined. Among all the discovered orebodies, the No. 3 vein holds the largest scale, which is about 1,300m long and 600m deep along dipping. The veins are distributed nearly in parallel with spacing about 30-50m, and some of the veins (i.e. Nos. 2, 3, 4, and 5) are more than one hundred metres, the thickness of orebodies are at the range of 0.2-0.6m with an average of about 0.3m.

Resource/Reserve Estimation

SRK inspected a number of mineralized body’s exposures underground at the three gold mines. SRK reviewed the sampling method and analytical methodologies and quality assurance and quality control procedures used by the No. 522 and No. 5 Geological Brigades, showing all samples were assayed following standard analytical procedures in China. SRK reviewed the properties discussed in relevant section of this Report. The following resource statements are basically based on various geological reports prepared by qualified Chinese geological brigades, who are qualified and approved Chinese independent geological consultants.

SRK has carried out a very detailed and high-level review of the resources and reserves as provided by Qingling Hongwen for all its fully owned gold properties and that to be consolidated with relevant approvals. The current gold resources estimated by previous geological brigades are shown in the following table. Resources are estimated at 0.5g/t (Au) cut-off grade at Qingheyan and Miaozhangzi mines and 1.0g/t for Sanjia and Banbishan mines.

No. 5 Geological Brigade has estimated and reported the mineral resources at the mining licence areas for the three gold mines (Sanjia Gold Mine: Sanjia Mining Permit with an area of 1.174km[2] , and Wangjiagou Mining Permit with an area of 0.209km[2] ; Banbishan Gold Mine: Banbishan Mining Permit with an area of 1.06km[2] and Lengjingou Mining Permit with an area of 0.1319km[2] , as well as expired Miaozhangzi Mining Permit with an area of 0.7119km[2] ; and Qingheyan Gold Mine: Shuiquangou Minig Permit with an area of 2.0km[2] and Xiaodongyu Mining Permit with an area of 1.78km[2] ) at 1.06Mt of 122b category

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at average grade of 5.53g/t Au; 981,903t of 333 category at average grade of 6.21g/t Au; and 2.36Mt of 334 category with average grade of 4.82g/t Au, respectively, as shown in the following summary table.

Properties Resource type Sanjia Gold Mine Sanjia and Wanjiagou Mining Permits: (1.383km2) 122b 333 122b+333 Banbishan Gold Mine Banbishan and Lengshuigou Mining Permits (1.1919 km2) 122b 333 334 122b+333+334 Qingheyan Gold Mine Shuiquangou and Xiaodongyu Mining Permits (3.78km2) 333 334 333+334 Banbishan Gold Mine Miaozhangzi Mining permit (0.7119 km2) 122b 333 334 122b+333+334 Total By Category 122b 333 334 Total	Resource tonnage (t) 358,251 312,345 670,596 596,257 507,792 1,524,289 2,628,338 120,733 465,525 586,258 102,952 41,033 372,210 516,195 1,057,460 981,903 2,362,024 4,401,387	Average grade Au (g/t) 11.36 9.16 10.34 1.91 5.02 4.80 4.19 4.86 4.81 4.82 6.21 2.46 4.92 4.98 5.53 6.21 4.82 5.30	Contained Metal Au (kg) 4,070.99 2,862.43 6,933.42 1,138.85 2,549.29 7,319.76 11,007.90 586.62 2,236.99 2,823.61 638.92 101.08 1,832.93 2,572.93 5,848.76 6,099.42 11389.68
			23,337.86

The resource in the above table may comply with Chinese standard; however, the Chinese system is different from the criteria used in defining a resource under the Australian Joint Ore Reserves Committee (JORC) code. The comparison of the Chinese and JORC systems is provided in Appendix II. In general, Category 122b can refer to Indicated Resource, and Category 333 is similar to Inferred Resource. Category 334 may not be classified as a JORC resource, and it is a prediction depending on the types of the geological setting and mineralization of the deposits, and the understandings to the properties. SRK notes that the resources can be considered as the potential of the deposits, and should be used with caution.

The resources and reserves estimates were reported in accordance with requirements of the Chinese system and are one of the input parameters used to prepare this Report. SRK is satisfied that the resources have been estimated in adherence to requirements prescribed by the governing state committee for resources at particular stages of project development. It is SRK’s opinion that current individual estimates are reliable. The comparison of the Chinese and JORC systems is provided in Appendix II.

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SRK’s Recommendations for Future Exploration

SRK noticed there are abundant resources of Category 333 and Category 334 estimated by No. 5 Geological Brigade in the exploration area, which may suggest more exploration work including in-fill drilling should be carried out in the all mining licensed areas to verify them and upgrade the resources category.

SRK recommends that the QA/QC protocol should be well organized by the Company in future exploration, which involves drilling, sampling, sample preparation, assaying, internal and external check, insertion of control samples i.e. blanks, standards and duplicates. Also it’s better for the Company to keep the sample rejects and pulps for further check.

Mining Assessment

The three gold mines owned by Qinglong Hongwen have produced in a certain capacity. After many years mining, there is no much reserve being reserved to ensure future sustainable development. But these three gold mines have good resource potential. If a certain amount of investment would be available, supported with global planning and modernized upgrade of techniques based on exploration results, production capacities and economic returns of these three mines would be substantially increased.

Also the three mines are different in its grade, ore type and other mining and mineral processing conditions, the parameters used for each mine are different. Generally, a cut-off grade of 1.0g/t; ore loss rate of 10% and mining dilution rate of 10 to 20% are used. Due to higher gold prices, the cut-off grade is also considered as of 0.5g/t for some easy-treated gold ores.

For the narrow and vertical orebodies, the mining method employed at the mines is the traditional shrinkage stoping with or without bottom-pillars, i.e., without bottom-pillars for gold ore bodies thicker than 4m without, otherwise, with bottom-pillars. The mining stopes are normally 40 to 60m long and 40m high. Mined stopes are partially backfilled to increase their stability, and at the same time reducing underground operating cost by reducing waste rocks sent to the surface. Hand-held airlegs are used to tunnel and develop stopes. The mining method delivers acceptable broken ore to chute fronts with timber flow control, which are operated manually to load ore into side tipping rail trucks of 0.9m3 capacity. Waste rocks are generally removed from the mine by the same locomotive and rail cars as used for ore transport. The waste-rock cars are tipped by hand onto the waste rock dump. The cars containing ore are tipped onto the ore dumping site which allows manual selection of larger waste rocks.

A modified small scaled Room & Pillar mining method is mostly used at the mines, because large part of the gold ore bodies of the three gold mines are not vertically positioned, and the shrinkage mining method is not suitable for extracting these ores.

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Ore Processing

Each of the three gold mines of Qinglong Hongwen has its own characteristics in mineralization, mineral combination and metallurgy. Gold ore from Sanjia mine is higher in grade and easy to be treated, i.e. relatively free-milling. The flowsheet of Sanjia concentrator uses a simple flotation scheme without regrinding and is low in reagent consumption. Currently the recovery rate is generally over 86% to 89%, and the cost for treatment of one tonne of ore is about RMB 70 Yuan. It is projected that the recovery rate could reach to 95% if the current aged equipment to be replaced during the renovation or rebuilding of this concentrator. The current processing capacity is 200t/d, which is to be expanded to 350t/d and further expanded to 500t/d within a three-year development time along with the projected exploration programs of the Company.

The gold ore from Banbishan Gold mine is a micro-sized type with lower content of arsenic (As). The treatment of Banbishan gold ores is relatively difficult. The process of Banbishan gold concentrator includes gravity concentration, two stages of crushing, one stage of milling, and flotation. The gravity concentrating and the flotation of the process can recover about 20%, and 55% of gold respectively, which makes the overall recovery rate of 75%. The micro-sized (minus 400” mesh) gold is accounting for 30%, which is the major factor of losing gold into tailings. To achieve a better recovery rate in the future, some advanced techniques and equipment are needed for technical renovation in the future. Due to its high potential (mainly because of its wide ore bodies) of increasing mining capacity, the Banbishan Mine is to increase its processing capacity from current 200t/d to 500t/d, and further to 1000t/d according to the company’s three-year development plan.

Gold ores from Qingheyan Gold mine has a famous name of “Great Wall Type”. The heap-leaching processing is normal method to recover the gold from this type of gold deposit. Previous production records showed the recovery rate of 70%. Cyanide leaching techniques have been used for over 30 years in the mining world, it is recommended as an efficient method for extracting gold from low grad oxidation ores. The gold ores of Qingheyan Mine are mostly oxidation ores that are suitable for heap-leaching. However, it should be taken extremely caring of the ground water and surface water where use cyanides as the agent of extracting gold.

Safety

The company has had a good reputation in safety management in Hebei province. There is a Safety Management and Monitoring Department at head office, and each mine has a safety management division leading directly by the mine manager. Each mine including mine and plant has a certain number of workers responsible for the safety of mining, processing plants and tailing dams. Each mine or an operating division has a safety committee and written safety goals are required. A monthly, seasonal, half-year, and an annual review of safety responsibilities for each mine or division is conducted by the safety officers from the Safety Management and Monitoring Department of the company.

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SRK noted that safety signage and personal protective equipment (PPE) were provided to employees. However, SRK notes that improved utilisation of PPE and other strategies can be employed to reduce health and safety risks to the workforce. Accordingly, however, the company has indicated a desire and intention to improve the appropriate use by employees of PPE.

Operating Costs

Sanjia Gold Mine

The total operation cost of Sanjia Gold mine is RMB251.94 per tonne ore mined and processed including administration and maintenance costs.

The total unit operation cost is calculated based on the grade of the ore mined, mining dilution rate, and plant recovery rate. Sanjia has the highest grade among the three, which is about 8.0 to 14.0g/t, and the average grade is estimated as 8.39g/t, the dilution rate is 15%, and recovery rate is about 90% so that the unit operation cost is calculated as:

Each tonne of gold ore produces gold of: 8.39g(1-15%)90% = 6.4g;

The unit cost in RMB/g is 251.94/6.4 = RMB39.4/g and the unit cost in USD/oz is USD 180/oz .

Banbishan Gold Mine

The total operation cost of Sanjia Gold mine is RMB154.2 per tonne ore mined and processed.

The total unit operation cost is calculated based on the average grade of the ore mined, dilution rate, and the total plant recovery rate, which are about 2.49g/t, 20%, and 85% reviewed from the production records, respectively.

Each tonne of gold ore produces gold of: 2.49g(1-20%)85% = 1.69g;

The unit cost in RMB/g is 154.2/1.69 = RMB91.24/g and the unit cost in USD/oz is USD 416/oz . Given that the average Au grade at Banbishan Gold Mine is about 4.18g/t based on the reported resource estimation, and thus the unit cost could be reduced to RBM 54.35/g and in USD is about USD247/oz.

Qingheyan Gold Mine

The total operation cost of Qingheyan Gold mine is about RMB60/tonnes of ore mined and processed by heap-leaching.

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APPENDIX VI

Total Unit Operation Cost:

The total unit operation cost is calculated based on the average grade of the ore mined, dilution rate and overall recovery rate, which are 1.3g/t, 10% and 90% respectively.

Each tonne of gold ore produces gold of: 1.39g(1-10%)90% = 1.126g;

The unit cost in RMB/g is 60/1.126 = RMB 53.3/g and the unit cost in USD/oz is USD 243/oz .

In summary, the operation costs of the three gold mines of Qinglong Hongwen are about RMB 40 to 55 per gram gold produced, and in terms of US dollars, it is to cost about USD 180 to 250 for one ounce gold produced, which is very competitive under the current strong gold market environment.

Capital Costs

According to the Development Plan of the Company, Qinglong Hongwen will invest for rebuilding and expansion of its production capacity and more explorations as the following details:

Three-Stage Development

Stage 1: investment of RMB 15 million Yuan for renovation of current operation capacities of Sanjia, Banbishan and Qingheyan gold mines, i.e. Sanjia’s 200t/d mining and processing capacity, Banbishan’s 200t/d mining and processing capacity and Qingheyan’s 50,000tpa mining and heap-leaching capacity in 2010;

Stage 2: another RMB 15 million Yuan investment to increase Sanjia’s capacity to 350t/d, increase Banbishan’s capacity to 500t/d, build a new 350t/d concentrator at Qingheyan mine, and additional 100,000tpa of heap-leaching treatment at Qingheyan mine in 2011;

Stage 3: further investment of RMB 20 million Yuan for expansion mining and treatment capacity, Sanjia 500t/d, Banbishan 1,000t/d, and Qingheyan 500t/d concentrator and 200,000tpa heap-leaching in 2012.

Two Exploration Programs:

Qinglong Hongwen plans to invest a total of RMB 63.5 million in the period of April 2010 to March 2013 (three years) to upgrade the current gold resources to a minable reserve standard. The planned drilling is 38,000m, and tunnelling is over 40,000m. This is called Hongwen Exploration Program-1.

After the projected consolidations of Banbishan gold mines, the total mining license area including Sanjia, Banbishan and Qingheyan mines will be increased dramatically. The company is also planning to invest for a comprehensive geological investigation and exploration within the permitted area. The target is to identify more

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gold deposits and to increase the company’s total gold resources and reserves. This is called Hongwen Exploration Program-2. The budget for Exploration Program-2 is about RMB 100 million according to the management of the company.

The Company is planning to spend RMB 30 million to expand and improve the mines and the concentrators to a capacity of 1200t/d and further spending of RMB 20 million to 2000t/d at the end of the three-year plan after the acquisition. The detailed capital costs plan including mine development, plant expansion and Hongwen Exploration Program-1 and Program-2 is shown in the relevant sections of this report.

Environmental

Business Licence No.130321000000823 was issued to Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd (Hongwen Gold Ltd) by Industrial and Commercial Administration Bureau of Qinglong Manchu Autonomous County on 19 March 2004 (valid till 11 March 2024). The licensed business activities for Hongwen Gold Ltd are to mine, process and supply/sell gold ore.

Mining Licence No.1303000820050 for the Sanjia Gold Mine was issued by the Land and Resources Bureau of Qinhuangdao City on 18 November 2008 (valid until November 2012). The approved mining licence area is 1.147km[2] . The approved mining production is underground gold ore mining at 11,000tpa.

Mining Licence No.C1300002009054120020185 for Wangjiagou area of Sanjia Gold Mine was issued by the Land and Resources Bureau of Qinhuangdao City on 14 May 2009 (valid until May 2011). The approved mining licence area is 0.209km[2] . The approved mining production is underground gold ore mining at 500tpa.

Mining Licence No. 1300000520273 for Banbishan Gold Mine was issued by the Land and Resources Department of Hebei Province on 17 June 2005 (valid until June 2010). The approved mining licence area is 1.06km[2] . The approved mining production is underground gold ore mining at 9,000tpa.

Mining Licence No. 1300000720191 for Xiaodongyu Mining Area of Qingheyan Gold Mine was issued by the Land and Resources Department of Hebei Province on 2 July 2007 (valid until August 2010). The approved mining licence area is 1.78km[2] . The approved mining production is underground gold ore mining at 12,000tpa.

Mining Licence No. 1303000820038 for Shuiquangou Mining Area of Qingheyan Gold Mine was issued by the Land and Resources Department of Hebei Province on 12 September 2008 (valid until July 2012). The approved mining licence area is 2km[2] . The approved mining production is underground gold ore mining at 5,000tpa.

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though for the Sanjia and Banbishan mines and no EIA has been produced for the Qingheyuan Gold Mine and Heap Leach operation and as such no EIA approvals or conditions of approval are available for review.

Hongwen Gold Ltd though provided SRK with a notice from the Qinlong Manchu Autonomous County EPB (dated 13 Jan 2010) stating, “Sanjia Gold Mine, Banbishan Gold Mine and Qingheyan Gold Mine owned by Qinglong Manchu Autonomous County Hongwen Gold Co Ltd. used to be a State owned enterprises and they were reformed to be private enterprise in Dec 2003. For the old mining enterprises, EIA are not compulsorily required by the local county government. As the implementation of “State Environment Protection Law of People’s Republic of China”, we will standardize the mining enterprises that do not have EIA to make their production activities meeting the environment protection requirements”.

The following table summarises the status of approvals and permitting for the Qinlong Hongwen Project, where the ‘Y’ denotes the report is completed or the permit is granted, and ‘N’ means the report/permit has not been completed or is not available, ‘NYR’ means that report/permit is not yet required for the current operation, ‘NS’ denotes that the permit has not been sighted and ‘n/a’ indicates that it is not applicable.

		Banbishan	Qingheyuan
	Sanjia Mine &	Mine &	Mine & Heap
Project Document	Concentrator	Concentrator	Leach
Business License	Y	Y	Y
Mining Licences	Y	Y	Y
Environmental Impact	Y (only	Y (only	N
Assessment Report (EIA)	Concentrator)	Concentrator)
Approval for EIA	NS	NS	N
Water and Soil Conservation	N	N	N
Plan (WSCP)
Approval for WSCP	N	N	N
Water Resources Augmentation	N	N	N
Report (WRAR)
Approval for WRAR	N	N	N
Final Checking and Acceptance	N	N	N
Approval (environmental
approval to start formal
operation)
Land Use Permit (operational	Y	Y	NS (has Land
permit)			Acquisition
			Agreement)
Water Use Permit	Y	Y	Y
Pollutant Discharge Permit	Y	Y	N

The main compliance issue for the Qinlong Hongwen Project is that no WSCP, WRAR or Final Check Acceptance have been conducted/completed and that there are no associated governmental approvals for these project assessments. No EIA report (and no EIA approval)

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has been conducted for the Qingheyuan Mine/Heap Leach operation. This represents the greatest environmental (licensing/permitting) liability for the Qinlong Hongwen Project and should be addressed as soon as possible. Concurrently, operating without these project assessments reduces the operational/procedural information required to operate in compliance with other Chinese environmental laws and standards.

SRK was provided with a notice for the Qinlong Hongwen Project’s operations from the local Qinlong Manchu Autonomous County EPB stating that because the mine was old and EIA is not required. SRK cannot comment on the legality of this letter and recommends the issue be referred to an appropriately experienced lawyer. Therefore, SRK cannot confirm the status of the project’s compliance in relation to China’s National Mining Law (1996), Environmental Protection Law (1989) and the Environmental Impact Assessment (EIA) Law (2002) until an EIA has been undertaken and approved by the administering Environmental Protection Bureau (EPB).

Of the above listed items, the most significant environmental risks (operational) for the Qinlong Hongwen Project are associated with potential surface/groundwater and dust impacts. In addition, storage and handling of hazardous materials/wastes, including fuels and reagents and the potential for generating contaminated sites and operational closure liabilities through management of waste rock, hydrocarbons and general waste also presents high environmental risks. In particular, the Qinlong Hongwen Project has no structured process in place for undertaking contaminated sites assessment and for broader closure planning. The lack of characterisation of process wastes and the potential for acid rock drainage and metal leaching (e.g. significant amounts of pyrite were observed within ore from the Sanjia Mine) may also be of concern.

The environmental risks associated with surface and ground water management, dust generation, waste rock disposal, hazardous materials management and land rehabilitation can be generally managed if Chinese National environmental standards and regulatory requirements are met.

Social

The Qinlong Hongwen Project is located in Qinglong Manchu Autonomous County in the northeast boundary of Hebei Province, north of the Great Wall of Ming Dynasty and east side of Yanshan Mountains. The Qinlong Hongwen Project is owned and operated by Qinglong Manchu Autonomous County Hongwen Gold Company Limited (Hongwen Gold Ltd).

The land use for the general surrounding area is agricultural with a number of other mining activities. Hongwen Gold Ltd has stated that the population of the surrounding area is mainly Manchu (90%) and the rest is made up of Han Chinese. Hongwen Gold Ltd also reported that there are no significant cultural heritage sites, within or surrounding the Qinlong Hongwen Project site.

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Hongwen Gold Ltd stated, the positive effects to the surrounding local communities are mainly direct employment of local contractors and use of local suppliers/service providers where practical. No records of public complaints in relation to the activities of at the Qinlong Hongwen Project were sighted as part of this review.

A public participation/community consultation program was undertaken for the Sanjia and Banbishan operations as part of the project EIA. The results detailed in the EIA reported 54 people took part in the survey on project location and construction, and all 54 people agreed with the project, 100% of those who participated. No one objects the project location and construction.

Hongwen Gold Ltd reported to SRK that the government and local community believe, with little previous industry developed in the area, the local government/community felt that the project would be advantageous to the area’s development. No non-compliance notices and or other notices of breach of environmental/social conditions for the Qinlong Hongwen Project have been sighted as part of this review.

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TECHNICAL REPORT

TABLE OF CONTENTS	TABLE OF CONTENTS
	Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	328
	List of Tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	347
	List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	349
	Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	351
	List of Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	352
1	Introduction and Scope of Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	355
2	Background and Brief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	355
	2.1 Background of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	355
	2.2 Scope of Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	355
3	Program Objectives and Work Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	355
	3.1 Program Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	355
	3.2 Purpose of the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	356
	3.3 Reporting Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	356
	3.4 Limitations Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	356
	3.5 Work Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	356
	3.6 Project Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	357
	3.7 Statement of SRK Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	359
	3.8 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	359
	3.9 Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	359
	3.10 SRK Experience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	360
	3.11 Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	361
4	Location, Access, Climate and Mining License . . . . . . . . . . . . . . . . . . . . . . . . .	362
	4.1 Location and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	362
	4.2 Climate and Physiography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	363
	4.3 Local Economy and Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	363
	4.4 Mining License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	363

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5	Geological and Mineral Inventory Assessment . . . . . . . . . . . . . . . . . . . . . . . . .	Geological and Mineral Inventory Assessment . . . . . . . . . . . . . . . . . . . . . . . . .	365
	5.1	Data Collection and Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	365
	5.2	Resource Categories and Resource/Reserve Estimates. . . . . . . . . . . . . . . .	365
	5.3	Sampling, Analytical Method and Quality Control . . . . . . . . . . . . . . . . . .	366
	5.4	Regional Geology and Minerals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	367
	5.5	Deposit and Orebody Geology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	368
		5.5.1 Qingheyan Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	369
		5.5.2 Banbishan Gold Mine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	372
		5.5.3 Miaozhangzi Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	374
		5.5.4 Sanjia Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	379
	5.6	Mineralogy and Ore Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	382
		5.6.1 Qingheyan Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	382
		5.6.2 Banbishan Gold Mine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	383
		5.6.3 Miaozhangzi Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	386
		5.6.4 Sanjia Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	387
	5.7	Sampling, Analytical Procedures and Quality Control. . . . . . . . . . . . . . . .	390
		5.7.1 Previous Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	390
		5.7.2 Sampling and Assaying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	393
		5.7.3 SRK Checking Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	395
	5.8	Resource/Reserve Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	395
		5.8.1 Qingheyan Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	395
		5.8.2 Banbishan Gold Mine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	400
		5.8.3 Miaozhangzi Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	403
		5.8.4 Sanjia Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	407
	5.9	SRK’s Recommendations for Further Exploration. . . . . . . . . . . . . . . . . . .	410
6	Mining	Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	411
	6.1	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	411
	6.2	Mining License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	412
	6.3	Mining Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	412
		6.3.1 Hydro-geological Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . .	412
		6.3.2 Geotechnical and Mining Condition . . . . . . . . . . . . . . . . . . . . . .	414

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	6.4	Mine Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	415
	6.5	Mine Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	415
	6.6	Mining Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	416
	6.7	Mining Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	418
	6.8	Ventilation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	419
	6.9	Compressed Air . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	419
	6.10	Water and Electricity Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	419
	6.11	Mine Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	419
	6.12	Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	420
7	Ore	Processing Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	421
	7.1	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	421
	7.2	Sanjia Gold Mine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	421
		7.2.1 Ore Amenability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	421
		7.2.2 Processing Procedure and Equipment . . . . . . . . . . . . . . . . . . . . .	422
		7.2.3 Technical Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	424
		7.2.4 Tailings Storage Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	425
	7.3	Banbishan Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	426
		7.3.1 Processing Procedure and Equipment . . . . . . . . . . . . . . . . . . . . .	427
		7.3.2 Technical Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	429
		7.3.3 Tailings Storage Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	430
	7.4	Qingheyan Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	431
		7.4.1 Heap-leaching Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	431
		7.4.2 Technical Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	433
	7.5	Potential to Expand Throughout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	433
	7.6	Expansion Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	433
	7.7	Conclusions and Suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	434
8	Workforce. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		435
	8.1	Workforce Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	435
	8.2	Assessment of Workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	436

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TECHNICAL REPORT

9	Occupational Health and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Occupational Health and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	436
	9.1	Safety Approvals and Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	436
	9.2	Historical Safety Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	436
	9.3	Workforce Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	437
10	Production, Operating and Capital Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		438
	10.1	Historical Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	438
	10.2	Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	439
	10.3	Capital Costs and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	444
11	Utilities and Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		445
	11.1	Road . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	445
	11.2	Electrical Power Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	445
	11.3	Water Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	446
	11.4	Accommodation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	446
	11.5	Workshops and Repair Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	446
12	Environmental Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		447
	12.1	Environmental Review Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	447
	12.2	Environmental Review Process, Scope and Standards . . . . . . . . . . . . . . . .	447
	12.3	Status of Environmental Approvals and Permits . . . . . . . . . . . . . . . . . . . .	448
	12.4	Environmental Compliance and Conformance. . . . . . . . . . . . . . . . . . . . . .	450
	12.5	Land Disturbance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	451
	12.6	Flora and Fauna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	452
	12.7	Waste Rock and Tailings Management . . . . . . . . . . . . . . . . . . . . . . . . . . .	452
		12.7.1 Waste Rock Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	452
		12.7.2 Tailings Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	453
	12.8	Water Aspects and Impacts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	453
	12.9	Air Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	454
	12.10	Noise Emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	455
	12.11	Hazardous Materials Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	456

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	12.12	Waste Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	456
		12.12.1 Waste Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	456
		12.12.2 Solid Wastes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	457
		12.12.3 Sewage and Oily Waste Water . . . . . . . . . . . . . . . . . . . . . . . . . .	457
	12.13	Contaminated Sites Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	457
	12.14	Environmental Protection and Management Plan . . . . . . . . . . . . . . . . . . .	458
	12.15	Emergency Response Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	459
	12.16	Site Closure Planning and Rehabilitation . . . . . . . . . . . . . . . . . . . . . . . . .	460
	12.17	Evaluation of Environmental Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	461
13	Social Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		463
	13.1	Social and Community Interaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	463
	13.2	Public Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	463
	13.3	Relationship with Local Government . . . . . . . . . . . . . . . . . . . . . . . . . . . .	464
References		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	465
Appendices		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	470
	Appendix I: Mining Licence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		470
	Appendix II: Chinese Resource and Reserve Standards . . . . . . . . . . . . . . . . . . .		476
	Appendix III: Chinese Environmental Legislative Background . . . . . . . . . . . . . .		479
	Appendix IV: World Bank/International Finance Corporation (IFC)
		Environmental Standards and Guidelines . . . . . . . . . . . . . . . . .	484

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APPENDIX VI

LIST OF TABLES

Table	3-1: SRK Project Team. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	357
Table	3-2: Recent Reports by SRK for Chinese Companies . . . . . . . . . . . . . . . . . . . . .	360
Table	4-1: Summary of Mining Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	363
Table	4-2: Vertices Coordinates of Qingheyan Mine . . . . . . . . . . . . . . . . . . . . . . . . . . .	364
Table	4-3: Vertices Coordinates of Banbishan Mine . . . . . . . . . . . . . . . . . . . . . . . . . . .	364
Table	4-4: Vertices Coordinates of Sanjia Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	365
Table	5-1: Main Orebody Parameters discovered in Qingheyan Mine Area . . . . . . . . . .	370
Table	5-2: Main Orebody Parameters discovered in Banbishan Mine Area . . . . . . . . . .	373
Table	5-3: Main Parameters of “Ore Veins” in Miaozhangzi Mine Area . . . . . . . . . . . .	376
Table	5-4: Main Characters of Orebodies in Miaozhangzi Mine Area . . . . . . . . . . . . . .	377
Table	5-5: Grades of Benefit Compositions in Miaozhangzi Gold Mine . . . . . . . . . . . .	386
Table	5-6: Workload Completed by No. 5 Geological Brigade – Qingheyan Mine. . . . .	390
Table	5-7: Workload Completed by No. 2 Geological Brigade – Banbishan Mine . . . . .	391
Table	5-8: Workload Completed by No. 5 Geological Brigade – Banbishan Mine . . . . .	391
Table	5-9: Exploration Workload Completed by No. 2 Geological
	Brigade-Miaozhangzi Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	392
Table	5-10: Workload Completed by No. 5 Geological Brigade – Miaozhangzi Mine . .	392
Table	5-11: Workload Completed by No. 522 Geological Brigade – Sanjia Mine . . . . .	393
Table	5-12: Workload Completed by No. 5 Geological Brigade – Sanjia Mine . . . . . . .	393
Table	5-13: Results of SRK Check Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	395
Table	5-14: Estimated Resources of Qingheyan Gold Mine. . . . . . . . . . . . . . . . . . . . . .	399
Table	5-15: Details of Resources in Banbishan Mine . . . . . . . . . . . . . . . . . . . . . . . . . .	402
Table	5-16: Estimated Resources at Banbishan Gold Mine . . . . . . . . . . . . . . . . . . . . . .	403
Table	5-17: Estimated Resources of Miaozhangzi Gold Mine . . . . . . . . . . . . . . . . . . . .	406

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APPENDIX VI TECHNICAL REP	ORT
Table 5-18: Estimated Resources of Sanjia Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . .	410
Table 6-1: Details of Renewed Mining License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	412
Table 6-2: Existing Parameters of Engineering Geology . . . . . . . . . . . . . . . . . . . . . . . .	414
Table 6-3: Summary of Development System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	415
Table 7-1: Main Equipments of Sanjia Processing Plant . . . . . . . . . . . . . . . . . . . . . . . .	424
Table 7-2: Production Indexes of Sanjia Processing Plant. . . . . . . . . . . . . . . . . . . . . . .	424
Table 7-3: Main Equipments of Banbishan Processing Plant . . . . . . . . . . . . . . . . . . . . .	429
Table 7-4: Production Indexes of Banbishan Processing Plant. . . . . . . . . . . . . . . . . . . .	429
Table 7-5: Heap-Leaching Indexes of Qingheyan Gold Mine . . . . . . . . . . . . . . . . . . . .	433
Table 7-6: Exploration Plans of Qinglong Hongwen . . . . . . . . . . . . . . . . . . . . . . . . . . .	434
Table 8-1: Workforce Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	435
Table 9-1: Qinglong Hongwen Accident Statistics, July 2006 to 31 Dec 2009. . . . . . . .	437
Table 10-1: Historical Production Records of Sanjia Gold Mine* . . . . . . . . . . . . . . . . .	438
Table 10-2: Historical Production Records of Banbishan Gold Mine. . . . . . . . . . . . . . .	438
Table 10-3: Historical Production Records of Qingheyan Gold Mine* . . . . . . . . . . . . .	439
Table 10-4: Sanjia Gold Mine, Mining Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	440
Table 10-5: Sanjia Gold Mine, Mineral Processing Costs . . . . . . . . . . . . . . . . . . . . . . .	440
Table 10-6: Banbishan Gold Mine, Mining Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	441
Table 10-7: Banbishan Gold Mine, Mineral Processing Costs . . . . . . . . . . . . . . . . . . . .	442
Table 10-8: Qingheyan Gold Mine, Mining and Heap-Leaching Costs . . . . . . . . . . . . .	443
Table 10-9: Forecast Capital Investments, 2010 to 2013 (RMB million) . . . . . . . . . . . .	444

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APPENDIX VI

List of Figures
Figure 4-1: Project Location of Qinglong Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	362
Figure 5-1: Regional Geological Setting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	367
Figure 5-2: Deposit Geology of Qingheyan Mine – Furenshan Area . . . . . . . . . . . . . . .	369
Figure 5-3: Cross Section of Exploration Line 0# in Daxiyu Area . . . . . . . . . . . . . . . .	371
Figure 5-4: Cross Section of Exploration Line 0# in Furenshan Area . . . . . . . . . . . . . .	371
Figure 5-5: Cross Section of Exploration Line 11 in Banbishan Mine. . . . . . . . . . . . . .	373
Figure 5-6: Deposit Geology of Miaozhangzi Gold Mine . . . . . . . . . . . . . . . . . . . . . . .	375
Figure 5-7: Cross Section of Line 13 in Miaozhangzi Mine . . . . . . . . . . . . . . . . . . . . .	377
Figure 5-8: Deposit Geology of Sanjia Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	379
Figure 5-9: Cross Section of Exploration Line 6#. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	381
Figure 5-10: Cross Section of Exploration Line 10# . . . . . . . . . . . . . . . . . . . . . . . . . . .	382
Figure 5-11: Longitudinal Projection of Orebody I-4 – Qingheyan . . . . . . . . . . . . . . . .	398
Figure 5-12: Longitudinal Projection of Orebody II-4 – Qingheyan . . . . . . . . . . . . . . .	399
Figure 5-13: Ore Blocks for Resources Estimation in Banbishan Mine . . . . . . . . . . . . .	402
Figure 5-14: Resource Categories in Longitudinal Projection – Miaozhangzi Mine . . . .	406
Figure 5-15: Resource Blocks and Categories in Longitudinal Projection
– Sanjia Mine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	409
Figure 6-1: Typical Shallow-Hole Shrinkage Mining Method . . . . . . . . . . . . . . . . . . . .	417
Figure 6-2: Shallow-Hole Room & Pillar Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	418
Figure 6-3: Ventilation System of Sanjia Gold Mine. . . . . . . . . . . . . . . . . . . . . . . . . . .	419

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Figure 7-1: An Overview of Sanjia Processing Plant . . . . . . . . . . . . . . . . . . . . . . . . . .	421
Figure 7-2: Sanjia Processing Plant Flowsheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	422
Figure 7-3: Overview of Sanjia Tailings Storage Facility . . . . . . . . . . . . . . . . . . . . . . .	425
Figure 7-4: An Overview of Banbishan Processing Plant . . . . . . . . . . . . . . . . . . . . . . .	426
Figure 7-5: Banbishan Processing Plant Flowsheet . . . . . . . . . . . . . . . . . . . . . . . . . . . .	427
Figure 7-6: An Overview of Banbishan TSF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	430
Figure 7-7: An Overview of the Heap-Leaching Yard at Qingheyan Gold Mine . . . . . .	431

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DISCLAIMER

The opinions expressed in this report have been based on information supplied to SRK Consulting China Ltd (“SRK”) by New Times Energy Corporation Limited (“New Times”, or “the Company”) and Qinglong Hongwen Gold Ltd (“Qinglong Hongwen”). The opinions in this Report are provided in response to a specific request from New Times. SRK has exercised all due care in reviewing the supplied information. While SRK has compared key supplied data with expected values, the accuracy of the results and conclusions from the review are entirely reliant on the accuracy and completeness of the supplied data. SRK does not accept responsibility for any errors or omissions in the supplied information and does not accept any consequential liability arising from commercial decisions or actions resulting from them.

Opinions presented in this Report apply to the site’s conditions and features as they existed at the time of SRK’s investigations, and those reasonably foreseeable. These opinions do not necessarily apply to conditions and features that may arise after the date of this Report, about which SRK have had no prior knowledge nor had the opportunity to evaluate.

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LIST OF ABBREVIATIONS

% Percent ˚ Degrees, either of temperature or angle of inclination ASL Above sea level AusIMM Australasian Institute of Mining and Metallurgy CNGS China Non-ferrous Metals Resource Geological Survey, a China domestic organisation Cu The chemical symbol for copper E East EP’s Exploration Permits Fe The chemical symbol of iron g gram g/t gram per tonne HKEx Stock Exchange of Hong Kong Limited Indicated Mineral Resource That of a resource for which densities,

That part of a resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed

Inferred Mineral Resource

That part of a resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes which may be limited or of uncertain quality and reliability

IP (Induced Polarisation)

An exploration technique whereby an electrical current is pulsed through the ground and the response from the sub surface measured in order to identify minerals of interest. Strong IP responses may be a result of sulphide which may be associated with gold mineralisation

JORC Code Joint Ore Reserves Committee Code

JORC Committee

Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia

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kg kilogram, equivalent to 1,000 grams km kilometres, equivalent to 1,000 metres km[2] square kilometres kV kilovolts – equivalent 1,000 volts kW Kilowatt, equivalent to 1,000 watt Late Triassic a time period of approximately 18 million years from 228 million to 210 million years ago m metre/s m[2] square metre m[3] cube metre M Million Measured Mineral Resource That part of a resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes Micron 1/1,000 of a millimetre Middle Triassic A time period of approximately 14 million years from 242 million to 228 million years ago MLR Ministry of Land and Resources mm Millimetre/s Mt Million tonne (s) Mtpa Million tonnes per annum MW Megawatt, equivalent to 1,000,000 watt N North, also the chemical symbol for Nitrogen NE North East NEE North East East NE-NNE North East-North North East NQ size core 47.6mm diameter, approximately 70% of the core taken NW North West oz troy ounce, equivalent to 31.1035 grams pH A measure of the acidity or alkalinity of a solution, numerically equal to 7 for neutral solutions, increasing with increasing alkalinity and decreasing with increasing acidity. The pH scale commonly in use ranges from 0 to 14 PPE personal protective equipment

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ppm parts per million, equivalent to grams per tonne (g/t) PQ size core 85mm diameter PRC People’s Republic of China

Probable Ore Reserve The economically mineable part of an indicated, and in some circumstances measured, resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and government factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified
Proved Ore Reserves The economically mineable part of a measured resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and government factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Also referred to as recoverable proved reserve
QA/QC Quality Assurance/Quality Control
RC (Reverse Circulation) A percussion-drilling technique in which the cuttings are recovered
RL see mRL
S South, also the chemical symbol for sulphur SE South East t Tonne Te tellurium tpa tonnes per annum tpd tonnes per day Triassic A time period, approximately 250 million to 210 million years ago

Valmin Code Code for Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports

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1 INTRODUCTION AND SCOPE OF REPORT

New Times Energy Corporation Ltd (“New Times” or “the Company”) is a public company listed in the Stock Exchange of Hong Kong Limited (“HKEx”). The Company plans to acquire the ownership of the three gold mines from the Qinglong Hongwen Gold Ltd (“Qinglong Hongwen”). SRK Consulting China Ltd (“SRK”) was retained to undertaken an independent technical assessment report on all the relevant technical aspects including the geology and resources, mining technology, processing and metallurgy, as well as environmental permitting and compliances of Qinglong Hongwen’s three gold mines (“Qinglong Hongwen Project”). SRK was required to provide an Independent Expert Report (“Report”) to the HKEx and the shareholders of the New Times.

Qinglong Hongwen Project includes three gold mines: the Sanjia gold mine holding two mining licenses and one processing plant; the Banbishan gold mine including two mining licenses and one processing plant; and the Qingheyan gold mine covering two mining licenses. All the properties are located in Qinglong Manzu Autonomous County (“Qinglong County”) of Hebei Province, the People’s Republic of China (“P.R. China”).

2 BACKGROUND AND BRIEF

2.1 Background of the Project

New Times commissioned SRK to review and report the Qinglong Hongwen’s three gold mines in Qinglong County of Hebei Province, PRC. The six valid mining licenses and one expired mining license are currently owned by Qinglong Hongwen. Copies of the original mining licenses are shown in Appendix 1.

2.2 Scope of Work

The scope of work included SRK travelling to Qinglong County and visiting the Qinglong Hongwen’s properties, which includes review of the sampling and assaying methods being adopted, checking the original borehole location and logs, and evaluations of resource category and resource estimate of the three gold deposits, review of detailed mining design, processing and metallurgical technology and environmental aspects, and preparation of an independent expert report (“Report”) summarizing the findings of the Qinglong Hongwen Project for the transaction in the HKEx.

3 PROGRAM OBJECTIVES AND WORK PROGRAM

3.1 Program Objectives

The objectives of the program were to review the data available, participate in a site visit and provide the Company with both verbal feedback and a written report.

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3.2 Purpose of the Report

The purpose of the Report is to provide potential equity investors, potential shareholders and the HKEx with Report which:

Provides potential investors with an unbiased views on the risks and opportunities associated with the project, and
Is suitable to be included in the circular that the Company plans to submit to HKEx in relation to a proposed acquisition of Qinglong Hongwen’s properties.

3.3 Reporting Standard

This Report has been prepared to the standard of and is considered by SRK to be a Technical Assessment Report under the guidelines of the Valmin Code. The Valmin Code is the code adopted by the Australasian Institute of Mining and Metallurgy and incorporates the Joint Ore Reserves Committee (“JORC”) Code for the reporting of Mineral Resources and Ore Reserves. The standard is binding upon all and is binding upon all Australasian Institute of Mining and Metallurgy (“AusIMM”) members.

This Report is not a valuation report and does not express an opinion as to the value of mineral asset. SRK does not express an opinion regarding the specific value of asset and tenement involved.

3.4 Limitations Statement

SRK is not professionally qualified to opine upon and/or confirm that Qinglong Hongwen has 100% control of the underlying tenements and/or has any unresolved legal matters relating to any transfer of ownership or associated fees and royalties. SRK has therefore assumed that no legal impediments regarding the relevant tenements exist and that Qinglong Hongwen has legal rights to all underlying tenements as purported. Assessing the legal tenure and right to prospects of Qinglong Hongwen is the responsibility of legal due diligence conducted by entities other than SRK.

3.5 Work Program

The work program consisted of a review of data provided by New Times and Qinglong Hongwen, travel to the Qinglong Hongwen’s office and sites of the mining tenements from January 12 to January 16, 2010 in Qinglong County of Hebei Province; inspection of the operating mines including the geology and resource, the trial production sites as well as the processing plants; discussions with Qinglong Hongwen’s staff; collection and review of relevant documents; and preparation of this Report, which was provided to the Company as a draft for review of factual content. SRK will finalise the report after feedbacks and comments have been considered.

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3.6 Project Team

The SRK project team, title and responsibility within this Report are shown in Table 3-1 below.

Table 3-1: SRK Project Team

Consultant

Title and Responsibility

Dr Yiefei Jia Principal Consultant, geology and resource estimates, project manager, report compilation
Pengfei Xiao Senior Geologist, geology and resource review
Lanliang Niu Senior Processing & Metallurgical Engineer, processing review
Quiji Huang
Senior Mining Engineer, mining review
Andrew Lewis
Senior Environmental Engineer, environmental & permit review
Liqing Yu Geologist/assisting geological data collection, drawing & charting
Bob Song Technical Interpreter for Peter and John and project coordinator
Dr Anson Xu Principal Consultant/peer review and quality control

Dr Yiefei Jia, PhD, MAusIMM , is a principal consultant (geology) with a specialty of exploration of mineral deposits. He has more than 18 years experience in the field of exploration, development, and resources estimate of precious (gold, sliver, and PGE) and base metal (lead, zinc, copper, vanadium, titanium, and iron as well as other metal ore deposits in different geological settings in China, Australia, and North America. He also has essential skills including exploration project management and design; petrological and geochemical analysis; lithological and geotechnical logging; and scientific research. He has recently completed several technical review projects including HKEx technical reports. Dr Jia is the project manager of this project.

Pengfei Xiao, MSc, (Geophysics) of Chinese Academy of Sciences, is a Geologist of SRK. In the past years, Pengfei has joined a number of training on Petrology, Tectonics, and Geophysical exploration; also he has taken part in geological mapping. As a main participant, he has worked on Geophysical exploration and Geological survey in some metal minerals and coal projects, including a key project sponsored by National Nature Science Foundation of China. Mr Xiao will assist Dr Jia to collect data and review geology and resource.

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TECHNICAL REPORT

Huang Qiuji, B.Eng., Senior Mining Engineer with SRK Consulting China, graduated from Central South University of Mining and Metallurgy in 1982. He used be mining directors for a few gold mines in the southwest region of China. After that he joined the Gold Administration Bureau of Guangxi province in charge of the supervision and direction of mine construction mine planing and mining technology developing. Mr Huang is an expert on mine construction, mining technology, mine production and mine planning. He will be responsible for mining review.

Lanliang Niu, BEng, Senior Mineral Processing Engineer , graduated from Beijing University of Science and Technology in 1987. After graduation, he had been working in Henan Rock and Ore Testing Centre and the Zhengzhou Mineral Exploitation Researching Institute of China Academy of Geological Sciences. He has more than 20 years’ experience in metallurgical testing and other mine technical service – 10 years in metallurgical testing research and another 10 years in the mine operational practice. He had been in the metallurgical study of precious metal minerals including: Pt, Au, Ag; non-ferrous metal minerals including: Pb, Zn, Cu, Mo; ferrous metals minerals including: Fe, Mn, Ti, and other non-metal minerals like Kyanite, Fluorite, Barite, Rutile, and Graphite. He is an expert in the precious metal wet-type metallurgy and sulfide ore flotation. He has received a second and a third prizes (KJ-91-49-5, KJ-94-3-6-3) from the National Geology and Mine Ministry for his outstanding achievements in this area. After joining SRK, he is responsible for the ore processing and metallurgical scope of work and involved in many key projects. He will review the processing aspects of the project for this report.

Andrew Lewis, BSc (Environmental Science), MAusIMM is a Senior Environmental Engineer with SRK Consulting China. He has worked extensively in China and Asia for a decade as well as projects in Australia and Africa. He has worked on a wide variety of projects ranging from technology transfer to environmental health and safety and community consultation programmes. His current focus is on environmental compliance, permitting, auditing and impact assessments on mining, mineral processing, refining, smelting and infrastructure projects in China and Mongolia. He also works on environmental management systems, pollution prevention/ mitigation, remediation of contaminated sites and site closure planning. He will be responsible for environmental review. Mr Lewis is responsible for the review of environmental issues.

Liqin Yu , GIS engineer, graduated from Chang’an University. He is engaged in drawing all kinds of maps of geology by computer. He is skilled in applications of MapInfo, MapGIS, CorelDRAW, ArcGIS, AutoCAD, Photoshop softwares. He took part in several exploration projects and assisted the Senior Geologist or Principal on some due diligence studies, such as Mongolian Mo project and Inner Mongolian Fluorite Project etc.

Dr Anson Xu, PhD, MAusIMM, is a principal consultant with a specialty in exploration of mineral deposits. He has more than 20 years experience in exploration and development of various types of mineral deposits including copper-nickel sulphide deposits related to ultrabasic rocks, tungsten and tin deposits, diamond deposits, and in particular, various types of gold deposits, vein-type, fracture-breccia zone type,

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alteration type, Carlin type. He was responsible for resource estimations of several diamond deposits, and review of resource estimations of several gold deposits. He has recently completed several due diligence jobs for clients in China, including gold, silver, lead-zinc, iron, bauxite, and copper projects, and several technical review projects, as well as HKEx technical reports. Dr Xu provided peer review to ensure the quality control of the report.

3.7 Statement of SRK Independence

Neither SRK nor any of the authors of this Report has any material, present or contingent interest in the outcome of this Report, nor do they have any pecuniary or other interest that could be reasonably regarded as being capable of affecting their independence or that of SRK.

SRK’s fee for completing this Report is based on its normal professional daily rates plus reimbursement of incidental expenses. Payment of that professional fee is not contingent upon the outcome of the Report.

None of SRK or any authors of this report have any direct or indirect interest in any assets which had been acquired, or disposed of by, or leased to any member of the Company or any of the Company or any of its subsidiaries within the two years immediately proceeding the issue of this transaction.

None of SRK or any authors of this report has any shareholding, directly or indirectly in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

3.8 Warranties

New Times has represented to SRK that full disclosure has been made of all material information and that, to the best of its knowledge and understanding, such information is complete, accurate and true. SRK has no reason to doubt this representation.

3.9 Consent

SRK consents to this Report being included in full in the application for the transaction of Qinglong Hongwen’s three gold mines on the HKEx, in the form and context in which the technical assessment is provided, and not for any other purpose.

SRK provides this consent on the basis that the technical reviews expressed in the summary and in the individual sections of this Report are considered with, and not independently of, the information set out in the complete Report and the cover letter.

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APPENDIX VI

3.10 SRK Experience

SRK Consulting is an independent, international consulting group with extensive experience in preparing independent technical reports for various stock exchanges around the world (see www.srk.com for a review). SRK is a one-stop consultancy offering specialist services to mining and exploration companies for the entire life cycle of a mining project, from exploration through to mine closure. Among SRK’s more than 1,500 clients are most of the world’s major and medium-sized metal and industrial mineral mining houses, exploration companies, banks, petroleum exploration companies, agribusiness companies, construction firms and government departments.

Formed in Johannesburg, South Africa, in 1974 SRK now employs more than 900 professionals internationally in 38 permanent offices on six continents. A broad range of internationally recognized associate consultants complements the core staff.

SRK Consulting employs leading specialists in each field of science and engineering. Its seamless integration of services, and global base, has made the company a world’s leading practice in due diligence, feasibility studies and confidential internal reviews.

The SRK Group’s independence is ensured by the fact that it holds no equity in any project and that its ownership rests solely with its staff. This permits the SRK Group to provide its clients with conflict-free and objective recommendations on crucial judgment issues.

SRK China was established in early 2005, and is mainly working on Chinese mining projects independently or together with SRK’s other offices, mainly SRK Australasia (see www.srk.cn and www.srk.com.au for a review). We have prepared dozens of independent technical reports on mining projects for various companies who acquired Chinese projects or went public listings on overseas stock exchanges with a summary list as showing in Table 3-2.

Table 3-2: Recent Reports by SRK for Chinese Companies

Company	Year	Nature of Transaction
Yanzhou Coal Limited (company	2000	Sale of Jining III coal mine by
listed on the Stock Exchange		parent company to the listed
of Hong Kong Limited)		operating company
Chalco (Aluminium Corporation	2001	Listing on the Stock Exchange of
of China)		Hong Kong Limited and New
		York Stock Exchange
Fujian Zijin Gold Mining	2004	Listing on the Stock Exchange of
Company		Hong Kong Limited
Lingbao Gold Limited	2005	Listing on the Stock Exchange of
		Hong Kong Limited

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APPENDIX VI

Company	Year	Nature of Transaction
Yue Da Holdings Limited	2006	Proposed acquisition of
(company listed on the Stock		shareholding in mining projects
Exchange of Hong Kong		in PRC
Limited)
China Coal Energy Company	2006	Listing on the Stock Exchange of
Limited (China Coal)		Hong Kong Limited
Sino Gold Mining Limited	2007	Dual listing on the Stock
		Exchange of Hong Kong
		Limited
Xinjiang Xinxin Mining	2007	Listing on the Stock Exchange of
Industry Company Limited		Hong Kong Limited
Espco Technology Holdings	2008	An acquisition of shareholding in
Limited		Tongguan Taizhou Gold-Lead
		projects in PRC
Kiu Hung International Holdings	2008	An acquisition of shareholding in
Limited		coal projects in inner
		Mongolia, PRC
China Shenzhou Mining and	2008	Listing (SHZ) on the American
Resources Inc		Stock Exchange

3.11 Forward-looking Statements

Estimates of mineral resources are inherently forward looking statements. Being projections of future performance, they will differ from actual performance. The errors in such projections result from inherent uncertainties in interpretation of geologic data, variations in the execution of mining and processing plans, the ability to meet construction and production schedules, availability of necessary equipment and supplies, fluctuating prices and changes in regulations.

Possible sources of error in the forward looking statements are addressed in more detail in the appropriate sections of this Report.

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4 LOCATION, ACCESS, CLIMATE AND MINING LICENSE

4.1 Location and Access

The Qinglong Hongwen Gold Project involves seven licenses distributed in three areas, namely Qingheyan, Banbishan, and Sanjia mines (see Figure 4-1). Generally the project area is located in the administrated area of Qinglong Manzu Autonomous County, northeast of Hebei Province, north of the Peoples Republic of China.

==> picture [353 x 254] intentionally omitted <==

Figure 4-1: Project Location of Qinglong Project

Accesses to the mines are via paved roads. The mines operated by Qinglong Hongwen are not far from Qinglong county town; the distances between mine sites and county town are about 50km, 20km and 15km, respectively for Qingheyan, Banbishan and Sanjia mines. Shown as Figure 4-1, Qinglong County town shears a comparative convenient traffic condition. There are railways passed by the nearby areas, and it is easy to access to the county from neighbouring cities/counties. In addition, Qinglong County is administrated by Qinhuangdao city, which is an important port city in Bohai sea area, about 130km to the southeast of Qinglong. The area is very close to main city centres, such as Beijing, Tianjin, and Tangshan.

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4.2 Climate and Physiography

The project area is seated in the east of Yanshan Mountain, where low to medium mountains and hills compose the typical local landforms. The elevation in the region ranges from about 170 to 850 meters (m) above sea level (ASL), and in most mine areas the elevation are at the range of 250-550m ASL.

The region shares a semiarid continental climate with four distinct seasons. The annual temperatures range varies from minus 26.3 (-26.3) to 38.7 degrees Celsius (°C) with annual average temperature of 9°C. The annual precipitation is 731.2 millimeters (mm), mainly concentrated in the period from July to September. The annual evaporation is about 1504mm. The frost seasons are from November to March of next year.

4.3 Local Economy and Infrastructure

Local economy is heavily based on agriculture and mining industries. The main crops are represented as sorghum, corn, peas and potatoes, and apple is the local specialty. Mining industry involves gold, iron and construction materials.

Qinglong Hongwen Gold Project is basically serviced by local infrastructure related to goods transportation and mobile communication. Water resource is abundant in the region as there are several rivers flows all year round, among which Qinglong River is the biggest and stretches about 180km long. Power supply can satisfy the industrial requirement.

4.4 Mining License

Qinglong Hongwen wholly owns three gold mines and two concentrators. There are currently six valid mining licenses issued for the three operating gold mines and one expired mining license. Table 4-1 lists the six (6) mining licenses and one (1) expired mining license.

Table 4-1: Summary of Mining Licenses

	Licence	Expiry
Property Name	No.	Date	Area
			(km2)
Sanjia Gold Mine
Sanjia mining permit	1303000820050	November 2012	1.174
Wangjiagou mining permit	C1300002009054120020185	May 2011	0.209
Banbishan Gold Mine
Banbishan mining permit*	1300000520273	June 2010	1.060
Miaozhangzi mining permit*	1303000120220	Expired	0.7119
Lengjingou mining permit*	C1300002010044120061430	March 2012	0.1319
Qingheyan Gold Mine
Shuiquangou mining permit	1303000820038	July 2012	2.00
Xiaodongyu mining permit	1300000720191	August 2010	1.78

* To be consolidated to 6.69km[2] with Lengjinggou and Miaozhangzi mining permits

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Details of these mining licenses are described below:

Qingheyan mine: It is located in Qinglong Town of Qinglong County, which involves two mining permits of Shuiquangou and Xiaodongyu areas. Vertices coordinates of the two areas are shown in Table 4-2.

Table 4-2: Vertices Coordinates of Qingheyan Mine

Shuiquangou Permit Area	Shuiquangou Permit Area	Shuiquangou Permit Area	Xiaodongyu Permit Area	Xiaodongyu Permit Area	Xiaodongyu Permit Area
No.	X	Y	No.	X	Y
1	4,460,200	40,381,000	1	4,463,000	40,379,220
2	4,459,200	40,381,000	2	4,462,000	40,379,220
3	4,459,200	40,383,000	3	4,462,000	40,381,000
4	4,460,200	40,383,000	4	4,463,000	40,381,000

Banbishan mine: It is located in Shuangshanzi Town of Qinglong County, which involves three mining permits for Banbishan, Miaozhangzi and Lengjingou areas. Vertices coordinates of the three areas are shown in Table 4-3.

Within Banbishan mining district, there was a mining permit called Miaozhangzi mining field was valid for mining to Qinglong Hongwen, however, a consolidation application applied by Hongwen to extend and consolidate Banbishan Gold mine Banbishan Permit, Banbishan Gold mine Lengjingou Permit and Miaozhangzi Permit to a proposed permit area of 6.69 km[2] . The application has been accepted by Qinghuangdao City level, and is currently approving by the provincial government of Hebei, which makes the Banbishan to having a single mining license only within the district. After the consolidation, the total mining area of Qinglong Hongwen will be 11.853 km[2] .

Table 4-3: Vertices Coordinates of Banbishan Mine

	Banbishan	Banbishan		Miaozhangzi	Miaozhangzi		Lengjingou	Lengjingou
No.	X	Y	No.	X	Y	No.	X	Y
1	4,470,600	40,426,100	1	4,472,400	40,427,140	1	4,462,517	40,444,952
2	4,470,800	40,426,100	2	4,472,600	40,427,140	2	4,462,483	40,445,310
3	4,470,800	40,426,300	3	4,472,600	40,427,200	3	4,462,286	40,445,335
4	4,471,800	40,426,300	4	4,478,000	40,427,400	4	4,462,290	40,445,082
5	4,472,100	40,426,600	5	4,473,200	40,427,600	5	4,462,000	40,445,020
6	4,472,100	40,426,900	6	4,473,400	40,427,800	6	4,462,000	40,444,892
7	4,471,200	40,426,900	7	4,473,960	40,428,000	7	4,462,320	40,444,892
8	4,470,800	40,426,770	8	4,474,400	40,428,270
9	4,470,200	40,426,400	9	4,474,230	40,428,500
10	4,470,200	40,426,100	10	4,474,000	40,428,380
11	4,470,300	40,426,100	11	4,473,700	40,428,112
12	4,470,300	40,425,900	12	4,473,400	40,428,000
13	4,470,600	40,425,900	13	4,473,000	40,427,800
			14	4,472,600	40,427,800
			15	4,472,400	40,427,600

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Sanjia mine: It is located in Maquanzi Town of Qinglong County, which involves two mining permits for Sanjia and Wangjiagou areas. Vertices coordinates of the two areas are shown in Table 4-4.

Table 4-4: Vertices Coordinates of Sanjia Mine

	Sanjia Wangjiagou	Sanjia Wangjiagou		Sanjia
No.	X	Y	No.	X	Y
1	4,485,200	40,417,600	1	4,483,620	40,416,730
2	4,485,200	40,418,000	2	4,483,730	40,416,642
3	4,484,654	40,418,000	3	4,483,676	40,416,323
4	4,484,666	40,417,852	4	4,484,334	40,416,344
7	4,484,926	40,417,498	5	4,484,460	40,416,344
			6	4,484,934	40,417,396
			7	4,484,678	40,417,718
			8	4,484,507	40,417,550
			9	4,484,400	40,417,549
			10	4,484,400	40,417,615
			11	4,484,611	40,417,802
			12	4,484,540	40,417,896
			13	4,483,800	40,417,200
			14	4,483,790	40,416,782

The nature and extent of each mining right will be discussed in mining section of this report. SRK should point out that some of the mining licenses were issued by Land and Resources Bureau (LRB) of Hebei Province, whereas the others were issued by LRB of Qinhuangdao City (see copies of mining licenses in Appendix I).

5 GEOLOGICAL AND MINERAL INVENTORY ASSESSMENT

5.1 Data Collection and Methods

SRK assessed the Qinglong Hongwen gold project by reviewing sampling, analytical procedures and quality control methods, showing the amount of sampling of drill holes, trenching, mapping and geochemical sampling. In SRK’s opinion, general exploration techniques which have been used for sampling of the mineralisation are acceptable being of industry standard. These techniques include drilling, trenching, and geological surveying of the exploration project. Samples of mineralisation collected from the deposit site are assayed internally and sent to other laboratories for external analysis.

5.2 Resource Categories and Resource/Reserve Estimates

The resource of the Qinglong project reported in the section was estimated by a Chinese company using Chinese resource classification according to the Chinese National Standard for Solid Mineral Resources/Reserves Classification (GB/

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TECHNICAL REPORT

T17766-1999). This is a three-digit system, where the last digit indicates the geological certainty, 1 stands for measured mineral resource, 2 for indicated mineral resource, 3 for inferred resource and 4 for predicated resource. However, this system is different from the criteria used in defining a resource under the JORC code. Comparison between different systems is provided in Appendix II.

SRK reviewed methods used by the Company to estimate resources of Qinglong gold project and is satisfied that No. 522 Geological Brigade of North China Metallurgy and Geology Exploration Company (“No. 522 Geological Brigade”) and No. 5 Geological Brigade of Hebei Provincial Bureau of Geology and Mineraal Resources (“No. 5 Geological Brigade”), who are qualified and approved Chinese independent geological consultant, has used methods and procedures complying with Chinese standards for resource estimation. SRK notes that the resources and reserves estimation report has been recognised by the relevant Chinese authority.

Resources and reserves estimates are one of the input parameters used in the preparation of this Report. The Company’s resources and reserves estimates were reported in accordance with the requirements of the Chinese system. SRK is satisfied that the resources and reserves have been estimated in adherence to requirements as prescribed by the governing state committee for resources at particular stages of project development. These conventional methods have generally been applied conservatively and to the required standard of diligence. It is SRK’s opinion that current individual estimates are reliable and represent a reasonable global estimate of relevant mineral resources, although they may not in full compliance with the JORC code.

SRK reviewed resources and reserves estimates provided by the Company and, wherever possible, reassigned the resources and reserves estimates to compare them with categories similar to those used by the JORC code. This was conducted in order to standardise the categorisation.

5.3 Sampling, Analytical Method and Quality Control

China has its own system and requirements for quality assurance and quality control (QA/QC) for different stages of exploration of various types of mineral deposits. The Geological Brigade, which has the qualifications for conducting exploration, followed the prescribed procedures for QA/QC, complying with Chinese regulations. However, as current Chinese mineral reserve codes or regulations are not fully recognised in Western countries, the QA/QC procedures used at the Company’s projects are not necessarily compliant with the JORC code. The main differences between Chinese resource standards and the JORC code are in the areas of sampling and assaying. The JORC code is stricter on drill core recovery, the qualification of the assaying laboratory and insertions of control samples into assaying programs.

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APPENDIX VI

5.4 Regional Geology and Minerals

The project area is located in Qinglong River depression area of eastern part of East Hebei Uplift, in Yanshan Fold Belt of North China Platform. The regional geological settings are shown as Figure 5-1.

==> picture [357 x 436] intentionally omitted <==

Figure 5-1: Regional Geological Setting

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This region is also situated in the east extension of Yinshan latitude (west-east orientated) complex structural zone which is one of the major tectonic zones in north China. Regionally the faults well developed; there is a major west-east striking fault belt namely Xinglong-Xifengkou crossing the whole mine area.

Regional strata are dominated by pre-Sinian (Sinian Era is about 800-570 million annuals (Ma) ago) metamorphic rock system, and also locally represented by Sinian system, Cambrian system and Carboniferous-Permian system as well as volcanic rock – coal measure strata. Shown as Figure 5-1, outcropped strata in the region are mainly Qianxi Group (Ar2) of Lower-Middle Archaean, Proterozoic Zhuzhangzi Group (Pt1) and Proterozoic Greatwall Group (Pt12). The lithology is largely represented by biotitic plagioclase gneiss, biotitic hornblende plagioclase gneiss, amphibolite, and lens of magnetite quartzite; while locally there are some other migmatites such as biotitic migmatite and gneissic granite.

There are two major stages of regional igneous and intrusive activities. One is Luliang Stage before Sinian, and the other is Yanshan Stage (the orogeny era between early Jurassic and late Cretaceous). In the earlier period of Luliang Stage, basic magma (content of SiO2 in magma between 45% and 52%) intruded; meanwhile there occurred regional metamorphism and migmatization. Acidic magma (content of SiO2 in magma greater than 65%) intruded in later period of the Stage. Some regional minerals i.e. copper, gold, silver, lead and zinc are closely related to the orogeny emplaced in the stage of Yanshan. In this stage, intrusive activities in the area of Qianxi and Qinglong counties were frequent and intensive.

Regional minerals are widely distributed for gold, iron, copper, silver, lead and zinc. There are several iron and gold mines in operating.

5.5 Deposit and Orebody Geology

The deposit geology and orebodies of Qingheyan, Banbishan and Sanjia mines is discussed in the following subsections.

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5.5.1 Qingheyan Gold Mine

The description of property and orebody geology includes stratigraphy, tectonics (structure), plutonic and intrusive rocks (magmatism), metamorphism and alteration, and ore body characteristics. Figure 5-2 shows the deposit’s geological settings from the view in Furenshan area of Qingheyan gold mine.

==> picture [352 x 186] intentionally omitted <==

Figure 5-2: Deposit Geology of Qingheyan Mine – Furenshan Area

Stratigraphy

Shown as in Figure 5-2, strata of Qingheyan mine area are all recognised from Gaoyuzhuang Formation of Greatwall Group.

The third and fourth sections of Gaoyuzhuang Formation are represented by layered banding dolomite, with small portion of chert banding, which is the dominated lithological feature in the mine area. Occurrence of the strata is as dipping to SW (210˚-260˚) with dip angle 40˚-70˚.

Structure

The main structure in the mine area is fault, whereas the folds in the mine area are in small scale and are usually controlled by faults. There are three groups of structures classified based on the occurrences, namely NE orientated structure, NW orientated structure and third for near EW orientated structure.

Magmatism

Generally there is not too many magmatic activities occurred in Qingheyan mine area, besides of some volcanic eruption features discovered along Lengkou fault belt and some diorite intrusion along fracture fissures. Discovered by previous and current mining activities, some dykes or veins of lamprophyre and Diabase with small scale developed locally. According to available exploration

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results and geological researches, there is no evidence to show the magmatism in Qingheyan mine has any close relationship to the mineralization (metallogeny) of gold deposit.

Metamorphism and Alteration

There is little geological study on the metamorphic conditions for Qingheyan mine. The stratigraphy in the property area is characterized by dolomite and some chert banding, and some alterations such as pyrite, chlorite and chert.

Orebody and Mineralized Body Characters

Table 5-1: Main Orebody Parameters discovered in Qingheyan Mine Area

				Dip
	Orebody	Strike	Length (m)	Azimuth	Dip	Angle	Thickness (m)			Grade (g/t)
Area	No.	Surface	Underground	(˚)		(˚)	Surface Underground		Surface	Underground
Daxiyu	I	135	106	175-220		79	2.33	1.23	5.92	8.12
	II-2	94	/	210		66	6.70	/	3.64	/
Furenshan	I-1	40	/	320	near 90		5.52	/	3.77	/
	I-4	170	/	220		59	2.36	/	4.08	/
	II	106	76	35		80	17.45	2.75	5.70	3.29
Gezifang	I	40	/	120-140	near 90		14.97	/	11.60	/

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The main orebodies are distributed in Daxiyu and Furenshan area, while in Gezifang area the mineralized breccia is well developed. Figure 5-2 and Figure 5-3 show the typical cross sections in Daxiyu and Furenshan area respectively.

==> picture [341 x 203] intentionally omitted <==

Figure 5-3: Cross Section of Exploration Line 0# in Daxiyu Area

==> picture [343 x 305] intentionally omitted <==

Figure 5-4: Cross Section of Exploration Line 0# in Furenshan Area

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APPENDIX VI

5.5.2 Banbishan Gold Mine

Banbishan gold mine is located in the east wing of Qinglonghe Synclinorium. The north extension of Banbishan mine is Miaozhangzi area, to the south is Xigou area, and the length of the mine area is about 3,200m in south-north direction. The west part of the mine area is next to Dawanzigou and the east extension is at the bank of Qinglong River, with a width around 800m in west-east direction.

Outcropped strata in Banbishan mine area are mainly metamorphic rock series form Zhangjiagou Formation and Shangbaichengzi Formation of Zhuzhangzi Group. Igneous rocks are represented by dyke intrusions from different periods. The tectonics in the area is characterised faults.

Stratigraphy

Outcrops are represented by metamorphic rock series from formations of Zhangjiagou and Shangbaichengzi from Zhuzhangzi Group, and the Quaternary system.

Zhangjiagou Formation belongs to Zhuzhangzi Group, Proterozoic, composed by biotite leptynite, metamorphic conglomerate, and amphibole-biotite-leptynite. Zhangjiagou Formation is distributed in the eastern part of the mine, discovered with outcrops locally.

Shangbaichengzi Formation is also from Zhuzhangzi Group, represented by biotite leptynite, biotite-muscovite and conglomerate-containing biotite leptynite. Quaternary system is marked by alluvium, proluvium and slope washes.

Structure

The main structure in the mine area is fault, whereas the folds in the mine area are in small scale and are usually controlled by faults. In the mine area, the occurrences of strata are as: strike 15-30o, dip azimuth 285-300o with dip angle at 40-60o. There are four groups of faults categorised in the mine area based on the different direction, namely NNE, NE, NEE and NW.

Magmatism

Igneous rocks are represented by dyke intrusions from different periods. In the mine area, dykes of granite porphyry, diorite, dioritoid, lamprophyre and quartzite are discovered and researched.

Metamorphism and Alteration

There were metamorphism and alteration occurred on the wall rocks, as well as the igneous rocks formed in earlier period. Gold mineralization is mainly hosted in the altered rocks and some quartz veins. The alteration is represented by chlorite-alteration and silicfication.

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Orebody and Mineralized Body Characters

Two major zones of orebodies are discovered in Banbishan mine area, namely M1 and M2. The main parameters in the two orebody zones are summarised in the following table (see Table 5-2).

Table 5-2: Main Orebody Parameters discovered in Banbishan Mine Area

	Strike
	Length (m)
	Surface	Dip		Average	Average
Zone	Extension	Azimuth	Dip Angle	Thickness	Grade
		(˚)	(˚)	(m)	(g/t)
M1	1300	300	50	2.20	1.95 – 5.41
M2	550	310	55	1.75	3.17

The exploration results show that average grade of gold mineralisation in deeper zones (below 100m ASL) is commonly higher than on the surface.

Figure 5-5 shows the typical cross section defined by the drilling programs; orebody discovered in the cross section is a subsidiary one of M1 Zone.

==> picture [352 x 233] intentionally omitted <==

Figure 5-5: Cross Section of Exploration Line 11 in Banbishan Mine

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5.5.3 Miaozhangzi Mine

In Miaozhangzi mine area, gold mineralization is hosted in tectonic altered rocks, characterised by granite, and biotite leptynite from Poluotai Formation, Zhuzhangzi Group of lower Proterozoic (see Figure 5-6).

Stratigraphy

Stratigrphy is characterised by Poluotai Fprmayion of Zhuzhangzi Group, lower Proterozoic, which is mainly represented by biotite leptynite. Quaternary system is marked by alluvium, proluvium and slope washes.

Structure

The main structure in the mine area is fault. The orebody shapes are controlled or limited by faults.

Magmatism

Igneous rocks are represented by vein intrusions from different periods. In the mine area, veins or dykes of granite porphyry, diorite, dioritoid, lamprophyre and quartzite are discovered.

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Metamorphism and Alteration

==> picture [352 x 439] intentionally omitted <==

Figure 5-6: Deposit Geology of Miaozhangzi Gold Mine

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Orebody and Mineralized Body Characters

According to the geological characters and the distribution of orebodies (or vein-like mineralised bodies), two major ore zones with 18 orebodies (mineralised bodies) are classified in Miaozhangzi mine, namely Mizhangzi zone in the north and Ciyugou zone in the south (Figure 5-6). As the orebodies and mineralised bodies are all shaped as vein-like, are recognised as “ore veins”.

The geological settings of orebodies (“ore veins”) in both zones are summarised in the following Table 5-3.

Table 5-3: Main Parameters of “Ore Veins” in Miaozhangzi Mine Area

					Scale			Occurrence
Orebody	Ore	Vein	Orebody			Inclined			Dip
Zone	ID		ID	Length	Width	Extension	Strike	Dip	Angle	Mineralisation	Remark
				(m)	(m)	(m)
Miaozhangzi	1		14 to 15	440	0.5-1.2		30-35°	120-125°	50-80°	Orebody
	2		1 to 10	900	1.0-8.0	120	30-35°	120-125°	75-88°	Orebody
	2-1		11 to 13	560	0.6-2.0		35-40°	125-130°	66-80°	Orebody
	3			155	0.5-2.0			4.-50°	310-320°	45-50°	Mineralised
	4			800	1.0-6.0		20-25°	295°	60°	Mineralised
	5		21	100	0.5-1.0		35°	275-305°	50°	Orebody	Outside of
	6		18 to 20	120	1.0-3.0		5-35°	300°	50°	Orebody	License
	7		23	500	1.0-8.0		30°	300°	50°	Orebody	Boundary
	8		22	150	1.0-4.0		30°	120°	76°	Orebody
	9			200	1.0-2.0		30°	120-125°	76°	Mineralised
	10			100	1.0-2.0		30°	300°	60-83°	Mineralised
Yucigou	14		16 to 17	800	0.5-5.0	60	30°	300°	50-60°	Orebody
	15			30	1.2		30°	300°	50-60°	Mineralised
	16			280	0.9		30°	300°	50-60°	Mineralised
	17			160	0.7		30°	300°	50-60°	Mineralised
	18			80	0.6		30°	300°	50-60°	Mineralised
	19			100	0.6		30°	300°	50-60°	Mineralised
	20			120	1.0-3.0		30°	300°	50-60°	Mineralised
	19			100	0.6		30°	300°	50-60°	Mineralised
	20			120	1.0-3.0		30°	300°	50-60°	Mineralised

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Shown as in Table 5-3, there are 23 orebodies defined in 8 “ore veins”, among which there are 15 orebodies located in Miaozhangzi zone and 2 orebodies in Yucigou zone, and the other 6 orebodies are located outside of the license boundary. The characters of all orebodies discovered are shown in Table 5-4. The typical cross section as in Exploration Line 13 is shown in Figure 5-7.

==> picture [310 x 195] intentionally omitted <==

Figure 5-7: Cross Section of Line 13 in Miaozhangzi Mine

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Table 5-4: Main Characters of Orebodies in Miaozhangzi Mine Area

					Average				Occurrence		Orebody
Orebody			Scale (m)		Grade		Ore			Dip	Elevation
ID	Block ID	Location	Length Thickness		(g/t)	Shape	Category	Strike	Dip to	Angle	(m)	Area
(2)-1	C-1 to C-3	Line 5-25	370	1.26	6.54	Vein like	Industrial	30°	SE	55-83°	255-111
	D-1 to D-9
(2)-2	D-1-1 to	Line 11-15	85	1.14	2.26	Lens like	Sub-industrial	30°	SE	70°	227-190
	D-2-2
(2)-3	D-1-1 to	Line 11-15	40	1.94	4.55	Lens like	Industrial	30°	SE	55°	120-80
	D-1-2
(2)-4	D-1	Line 13-15	40	0.86	2.76	Lens like	Sub-industrial	30°	SE	71°	-29~-59
(2)-5	D-1	Line 15-19	40	0.76	4.54	Lens like	Industrial	30°	SE	79°	23~-15
(2)-6	D-1	Line 21-23	40	1.54	7.64	Lens like	Industrial	25°	SE	84°	190-150
(2)-7	D-1	Line 21-27	120	0.61	8.26	Lens like	Industrial	30°	SE	78°	273-205
(2)-8	D-1-1 to	Line 31-35	60	1.23	12.33	Lens like	Industrial	30°	SE	89°	245-151
	D-2-2
(2)-9	D-1-1 to	Line 27-35	120	1.35	5.74	Lens like	Industrial	30°	SE	79°	90-20	Miaozhangzi
	D-2-2											Zone
(2)-10	D-1-1 to	Line 31-37	115	1.09	9.36	Lens like	Industrial	15°	SE	72°	231-198
	D-2-2
(2-1)-11	D-1-1 to	Line 7-9	25	1.1	13.2	Lens like	Industrial	30°	SE	89°	218-188
	D-2-2
(2-1)-12	D-1-1 to	Line 25-37	195	0.7	6.60	Vein like	Industrial	30°	SE	82°	233-188
	D-2-2
(2-1)-13	D-1-1 to	Line 11-15	40	1.71	1.69	Lens like	Sub-industrial	30°	SE	62°	138-96
	D-2-2
(1)-14	D-1-1 to	Line 5-9	65	0.6	3.17	Lens like	Sub-industrial	40°	NW	63°	245-202
	D-2-2
(1)-15	D-1	Line 13-17	125	0.84	10.68	Lens like	Industrial	40°	NW	68°	260-213
(14)-16	D-1-1 to	Line 38-50	260	1.22	4.46	Vein like	Industrial	30°	SE	72°	275-197
	D-2-2
(14)-17	D-1-1 to	Line 26-30	75	0.81	3.60	Lens like	Sub-industrial	30°	SE	81°	230-168	Yucigou
	D-2-3											Zone
(6)-18	(6)-18-D-1	Line 2-0	40	1.15	4.18	Lens like	Industrial	35°	NW	44°	210-115
(6)-19	(6)-19-D-1	Line 0-1	40	0.83	2.04	Lens like	Sub-industrial	35°	NW	40°	104-64
(6)-20	(6)-20-D-1	Line 0-1	40	0.85	3.09	Lens like	Sub-industrial	35°	NW	41°	95-55	Outside of License
(5)-21	(5)-21-D-1	Line 5-9	36	0.54	6.57	Lens like	Industrial	25°	NW	60°	210-186	Boundary
(8)-22	(8)-22-D-1	Line 9-13	40	1.54	4.74	Lens like	Industrial	30°	NW	50°	251-210
(7)-23	(7)-23-D-1	Line 17-21	40	0.97	4.50	Lens like	Industrial	30°	NW	54°	242-209

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5.5.4 Sanjia Gold Mine

The description of property and orebody geology includes stratigraphy, tectonics (structure), plutonic and intrusive rocks (magmatism), metamorphism and alteration, and ore body characteristics. Figure 5-8 shows the deposit’s geological settings of Sanjia gold mine (boundary of mining license is provided with blue lines).

==> picture [352 x 270] intentionally omitted <==

Figure 5-8: Deposit Geology of Sanjia Mine

Stratigraphy

The stratigraphy discovered in the mine area is represented firstly by Santunying Formation of Shuangshanzi Group (Figure 5-8) and secondly by scattering other formations, including quartzite from Sinian Changzhoucun Formation, sandstone and shale from Chuanlinggou Formation, marble and dolomitic limestone from Wumishan Formation.

Santunying Formation is separated into two parts according to the different lithological features. The lower part consists of migmatized grantitic gneiss, whereas the upper part is occupied mainly by biotitic-hornblende-plagioclase gneiss and hornblende-plagioclase gneiss, occasionally by plagioclase– amphibolite and lens of magnetite-quartzite. The wall rocks of orebodies are mainly from the upper part of Santunying Formation.

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Structure

The main structure in the mine area is fault. Impacted by regional stress field, the structural line appears near NE to NNE orientation (Figure 5-8). There are three groups of structures classified according to their period and the relationship to gold mineralization, namely pre-mineralization structure, during-mineralization structure and post-mineralization structure.

The first group of structure was formed in front of the metallogenic period with a largest scale among the three groups, striking near EW to NNE, dipping to NW with angle greater than 50o. The second group of structure was formed in Yanshan and Sinian Era, which was the subsidiary compound structure of the first one. The occurrence of the second group of structure is as striking near EW to NNE, dipping to NW with dip angle from 20o up to 40o, which is the main ore-bearing structure in Sanjia mine. The third group was formed after the period of mineralizing with a small scale. The strike of this group of structure is approximately SN trending or NNE/NNW. It is discovered with local and weak mineralization in the third group of structure.

Magmatism

The magma activities mainly taken placed in the orogenic stage of Yanshan. A considerable scale of granite intrusion occurred in Sandaohe area outside of the mine area, and in Sanjia gold mine area, the intrusion is characterized by dyke or veins, which are mostly intermediate-acidic. The veins are discovered as granite porphyry, syenite porphyry aplite-diorite and lamprophyre veins. Vein length varies from dozens of meters up to more than 1,000 meters, and the width is usually from 0.5m to more than 10m. According to the isotopic dating results, the absolute age of the intrusive rocks is at the range of 154Ma-226Ma, from Indo-Chinese Epoch to Yanshan Stage. Magmatism in Yanshan Stage is closely related to the metallogeny.

Metamorphism and Alteration

As the wall rocks of ores are metamorphic rocks, there were ever regional dynamic metamorphism and migmatitization happened on the wall rocks. The metallogenic hydrothermal metamorphism occurred in several stages.

Alteration in Sanjia gold mine is characterized by silicification, sericitization, potash feldspathization, pyritization, chloritization and carbonation. Along the two sides of orebodies, there is intensive alteration, and normally the width of altered zones are within 2 centimetres (cm). Ore-bearing alteration is primarily represented by silicification and pyritization, and the extent of mineralization is positive correlated to the intensity of alteration

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Orebody and Mineralized Body Characters

For Sanjia mine, the wall rocks are mainly represented by biotitic-hornblende-plagioclase gneiss, hornblende-plagioclase gneiss, and granitic gneiss with local migmatization. Gold mineral is hosted firstly in the sulphide quartz veins and secondly in silicified rocks and other altered rocks. Orebody or mineralized body discussed in the report refers the minimized vein or minimized zone (belt).

According to the previous geological exploration report prepared by No. 522 Brigade in November 1981, there are totally twenty (20) orebodies (mineralized veins) and mineralized bodies defined. Among all the discovered orebodies, the No. 3 vein holds the largest scale, which is about 1,300m long and 600m wide along dipping. Shown as cross-sections of Exploration Lines 6 and 10 (Figure 5-9 and Figure 5-10), the veins are distributed nearly in parallel with spacing about 30-50m, and some of the veins (i.e. Nos. 2, 3, 4, and 5) are more than one hundred metres, the thickness of orebodies are at the range of 0.2-0.6m with an average number about 0.3m.

Most of the orebodies (veins) are with strike in NE or NEE direction, dipping to NW with angles varying from 40o to 50o, and has a lateral trending to the east.

Usually better mineralization is discovered in the locations of intersections of faults (or fractures), vein-turning points, and occurrences-changing places, which indicate that the gold grade is associated with the intrusions of veins. The coefficient of gold grade variation is 106%-204%, which suggests a type of very uneven minimization. The coefficient of thickness variation is at 53%-70%, showing a stable thickness among all the orebodies and mineralized bodies.

==> picture [330 x 189] intentionally omitted <==

Figure 5-9: Cross Section of Exploration Line 6#

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==> picture [330 x 198] intentionally omitted <==

Figure 5-10: Cross Section of Exploration Line 10#

5.6 Mineralogy and Ore Characteristics

5.6.1 Qingheyan Gold Mine

Mineral Components of the Ore

The upmost main type of ores in Qingheyan mine is the brecciated oxidised ore. The breccia is composed by dolomite and silica, with a varying size from 1 to 10cm. Cement within ore is represented by siliceous and ferromanganese minerals, which appears as violet-red color with locally showing as brown.

Analysis of polished thin section shows the mineral compositions are characterised as: the majority of the ore minerals in breccia are represented by lapidocrocite, with minority for goethite and pyrite (pyrite proportion less than 5%); main gangue minerals are chalcedony and quartz, and the secondary are dolomite, calcite, with the minority for clay, biotite and sericite. The analysis also shows a low content of ore minerals in the ore.

There is no obvious alteration occurred on the wall rocks, and it is easy to distinguish the ores and wall rocks without any tools or instruments.

Ore Structures and Textures

The main structures of ores for Qingheyan mine are discovered as brecciform structure and penetrative structure. Dolomite and chalcedony formed the gray-violet siliceous dolomite with breccia structure. Micro-ferromanganese mineral oxides gathered along the micro-fissures together with dolomite formed the penetrative structure.

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APPENDIX VI

Textures are characterised by colloform texture and brecciform texture. In the ores of colloform texture, the ore minerals are seldom observed except for a little limonite. The ore minerals and gangue minerals together filled in the micro-fissures of ores with colloform texture. In the ores of brecciform texture, the ore minerals appear micro-crystalline between the rubble and micro-fissures.

Ore Type

The metallogeny for Qingheyan deposit is believed of hydrothermal type in lower temperature. In the joint parts of faults, the breccia developed well and the mineralization is related to the faults and fracture. The main type of ores in Qingheyan mine is represented by brecciated oxidised ore.

Wall and Waste Rocks

Foot and hanging walls of orebodies are mainly presented by dolomite with chert banding from Gaoyuzhuang Formation, which are enriched in ferromagnesian minerals, and provide a favourable condition for the depositing and enrichment for gold mineral. It is not easy to distinguish the borderline of ore-bearing altered rocks and wall rocks, and usually the mineralization intensity is stronger at the fracture zones and gets weaker in the wall rocks.

Due to the orebodies (mineralized bodies) of Qingheyan mine are in thin layer and with single vein, there is no considerable band rocks (waste rocks) or inclusions.

5.6.2 Banbishan Gold Mine

Mineral Components of the Ore

The majorities of the ore minerals are native gold, pyrite, pyrrhotite and arsenopyrite, and the secondary minerals include wolframite, chalcopyrite and sphalerite. The minorities of ore minerals are represented by scheelite, galena and stibnite.

Gangue minerals in the ores are firstly represented by quartz, plagioclase and microcline, and secondly by biotite, muscovite, chlorite, calcite and apatite.

The proportion of minerals is different in the different type of ores.

The principal useful element is gold (Au), and useful associated compositions are silver (Ag), copper (Cu), lead (Pb), Zinc (Zn) and antimony (Sb). However, the content of the associated minerals are generally low that can not be utilized. The main harmful mineral is arsenic (As) with content about 0.20%~0.30%, and 20 sample results show that the average content of As is at 0.26%.

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APPENDIX VI

Some of the ore minerals are described as follows:

Native gold is the principal mineral containing gold for this deposit, with bright yellow colour and good ductility, strong metallic luster. Native gold in Sanjia mine is hosted in metal sulphide minerals.
Arsenopyrite is hosted in altered type of ores of biotite leptynite and the ores with silication.
Pyrite as major sulphide component is also the main carrier of gold. It occurs in euhedral, subhedral or anhedral forms, usually disseminated in quartz and other gangue minerals. Its grain size usually varies from 0.04 up to 2mm, normally is less than 0.3mm.
Pyrrhotite is hosted in altered rocks or altered biotite leptynite ores with anhedral crystal distributed in the fissures.
Chalcopyrite shows irregular shapes with disseminated and blocky structure. It is usual that some pyrite was replaced by chalcopyrite, forming the structure of replacement remnant.
Galena appears in subhedral or anhedral granular forms. Mainly grain sizes of galena vary between 0.03 and 1mm, and occasionally fine grains size cam be small as 0.005 mm. Galena is often discovered at the end of ore veins.
Sphalerite is discovered with different size of grain. Coarse grain could reach 2 mm, while fine grains can come down below 0.02mm of diameter but predominant granularity varies between 0.03 and 1 mm. Commonly sphalerite is closely associated with native gold.

The main gangue minerals are described as follows:

Quartz: crystalline, anhedral crystals or grains of size variable from 0.02 to 2 mm, some between 0.01 and 0.05mm. Quartz occurs associated with sericite, chlorite and calcite, as well as ore minerals.
Sericite and Chlorite: fine grained, crystalloblastic texture, alteration products from feldspar, pyroxene, hornblende and biotite. Sericite and chlorite are intercalated with other minerals like quartz, calcite, and feldspar.
Calcite: Associated with quartz, sericite and chlorite, sometimes found in thin veins or around sulphides.

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APPENDIX VI

Structures and Textures of the Ore

The main structures of ores in Banbishan mine are discovered as banded, veinlet, disseminated and brecciform structures, among which the banded and veinlet structure is sometimes related to high grade ores. The main ore minerals such as pyrite, galena and sphalerite occur mainly in disseminated form in gangue minerals. Stockwork like veinlets are also present composed of quartz with associated ore minerals. Common width of the fissures ranges from 1 to 5 mm.

Euhedral or subhedral granular and replacement remnant texture are mostly discovered in the ores, and secondary textures are blocky, colloform, cataclastic and other textures. The main types of ore textures are discussed as below.

Euhedral or subhedral granular texture: The pyrite presents as euhedral or subeuhedral crystal or grains distributed in the gangue minerals.
Metasomatic replacement texture: The chalcopyrite and galena replaced pyrite. Also the galena was replaced by sphalerite, and its remnants are distributed in the sphalerite.
Anhedral granular texture: Sulphides and native gold occur in the ore as anhedral, irregular grains.
Cataclastic texture: The pyrite and gangue components are compressed and crushed to small size; galena, quartz and other gangue minerals fill in the fissures, associated with the little of native gold.
Poikilitic texture: The native gold is irregularly scattered without common orientation in pyrite, galena, sphalerite and quartz etc.
Mylonitic texture: Mylonitic texture is usually observed in the sub-structural plane, with alteration to sericite and chlorite.

Ore Types

Ore types of Banbisan mine could be classified as oxidised ores and primary ores. In both types of ores, arsenic (As) element is contained and sulphide (S) is with a low proportion.

The oxidised ores are distributed in the near surface (ground surface to 10m below) and a part of them were mined out.

The primary ores are located under the oxidised and could be characterise as altered rocks with chlorite-silica alteration, altered biotite leptynite type and the type of altered rocks with strong silication.

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APPENDIX VI

Wall and Waste Rocks

Wall rocks were altered, characterised by alteration of microcline, silica, arsenopyrite, sericite, chlorite and carbonate. The band thickness is generally less than 0.5m.

5.6.3 Miaozhangzi Gold Mine

Mineral Composition of the Ore

The majorities of the metal minerals are native gold, pyrite, pyrrhotite and arsenopyrite, and the secondary minerals include wolframite, chalcopyrite and sphalerite. The minorities of metal minerals are represented by scheelite, galena and stibnite.

The main metal minerals are described as follows:

Native gold is the principal mineral containing gold for this deposit, with bright yellow colour and good ductility, strong metallic luster. Native gold in Sanjia mine is hosted in metal sulphide minerals.
Pyrite as major sulphide component is also the main carrier of gold. It occurs in euhedral, subhedral or anhedral forms, usually disseminated in quartz and other gangue minerals. Its grain size usually varies from 0.04 up to 2mm, normally is less than 0.3mm.
Pyrrhotite is hosted in altered rocks or altered biotite leptynite ores with anhedral crystal distributed in the fissures.
Chalcopyrite shows irregular shapes with disseminated and blocky structure. It is usual that some pyrite was replaced by chalcopyrite, forming the structure of replacement remnant.

The main gangue minerals are discovered as quartz, calcite and muscovite.

According to the geological report (general exploration) in 1988, the main associate benefit minerals are as Ag, Cu, Zn, Pb, Mo, W, and Bi, however they are in low grade that can not be utilized (Table 5-5). The main harmful element is arsenic (As).

Table 5-5: Grades of Benefit Compositions in Miaozhangzi Gold Mine

ppm	Bi	Ag	Cu	Pb	Zn	W	Mo
Range	0.69-1.15	0.77-2.13	0.00-91.0	10.0-33.5	20.0-185.0	6.2-67.0	1.5-18.5
Average	0.75-0.85	0.93-1.88	16.2-35.0	23.0-29.0	50.0-60.0	10.0-14.0	3.5-10.3

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APPENDIX VI

Structures and Textures of the Ore

The main structures of ores in Miaozhangzi mine are discovered as banded, veinlet, disseminated and brecciform structures, among which the banded and veinlet structure is sometimes related to high grade ores. The main ore minerals such as pyrite, galena and sphalerite occur mainly in disseminated form in gangue minerals. Stockwork like veinlets are also present composed of quartz with associated ore minerals. Common width of the fissures ranges from 1 to 5 mm.

Euhedral or subhedral crystal granular and replacement remnant texture are mostly discovered in the ores, and secondary textures are blocky, colloform, cataclastic and other textures. The main types of ore textures are discussed as below.

Ore Types

Ore type of Miaozhangzi mine is simple as there are all primary ores except a few oxidised ones in the near surface. Alteration of sericite and altered granite porphyry type and mostly observed.

Wall and Waste Rocks

The “ore veins” are hosted in altered granite and biotite leptynite from Poluotai Formation, Zhuzhangzi Group of lower Proterozoic. No band rocks are discovered in the industrial orebodies.

5.6.4 Sanjia Gold Mine

Mineral Components of the Ore

Two types of ores are categorized in Sanjia mine, one of which is from sulphide quartz vein and the other is cataclastic altered rocks with silicification. Majority of the metal minerals are native gold, pyrite, chalcopyrite, argentite, galena and sphalerite. Gangue minerals in the ores are mainly quartz, chlorite, sericite and calcite.

The principal useful element is gold (Au), according to the statistics of adit sample results from industrial orebodies, the average grade of gold is 20.63g/t, and the counterpart from boreholes is 30.57g/t with a highest value at 186.64g/t. Useful associated compositions are silver (Ag) and copper (Cu). According to results discovered from previous exploration work, the highest grade of silver is 647g/t and the best mineralization for copper is at 1.4% Cu.

The main metal minerals are described as follows:

Native gold is the principal mineral containing gold for this deposit, with bright yellow colour and good ductility, strong metallic luster. Native gold in Sanjia mine is hosted in metal sulphide minerals.

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APPENDIX VI

Pyrite as major sulphide component is also the main carrier of gold. It occurs in euhedral, subhedral or anhedral forms, usually disseminated in quartz and other gangue minerals. Its grain size usually varies from 0.04 up to 2mm, normally is less than 0.3mm.
Chalcopyrite shows irregular shapes with disseminated and blocky structure. It is usual that some pyrite was replaced by chalcopyrite, forming the structure of replacement remnant.
Galena appears in subhedral or anhedral granular forms. Mainly grain sizes of galena vary between 0.03 and 1mm, and occasionally fine grains size cam be small as 0.005 mm. Galena is often discovered at the end of ore veins.
Sphalerite is discovered with different size of grain. Coarse grain could reach 2 mm, while fine grains can come down below 0.02mm of diameter but predominant granularity varies between 0.03 and 1 mm. Commonly sphalerite is closely associated with native gold.

The main gangue minerals are described as follows:

Quartz: crystalline, anhedral crystals or grains of size variable from 0.02 to 2 mm, some between 0.01 and 0.05mm. Quartz occurs associated with sericite, chlorite and calcite, as well as ore minerals.
Sericite and Chlorite: fine grained, crystalloblastic texture, alteration products from feldspar, pyroxene, hornblende and biotite. Sericite and chlorite are intercalated with other minerals like quartz, calcite, and feldspar.
Calcite: Associated with quartz, sericite and chlorite, sometimes found in thin veins or around sulphides.

Structures and Textures of the Ore

The main structures of ores in Sanjia mine are discovered as banded, veinlet, disseminated and brecciform structures, among which the banded and veinlet structure is sometimes related to high grade ores. The main ore minerals such as pyrite, galena and sphalerite occur mainly in disseminated form in gangue minerals. Stockwork like veinlets are also present composed of quartz with associated ore minerals. Common width of the fissures ranges from 1 to 5 mm.

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APPENDIX VI

Euhedral or subhedral crystal granular texture: The pyrite presents as euhedral or subeuhedral crystal or grains distributed in the gangue minerals.
Metasomatic replacement texture: The chalcopyrite and galena replaced pyrite. Also the galena was replaced by sphalerite, and its remnants are distributed in the sphalerite.
Anhedral granular texture: Sulphides and native gold occur in the ore as anhedral, irregular grains.
Cataclastic texture: The pyrite and gangue components are compressed and crushed to small size; galena, quartz and other gangue minerals fill in the fissures, associated with the little of native gold.
Poikilitic texture: The native gold is irregularly scattered without common orientation in pyrite, galena, sphalerite and quartz etc.
Mylonitic texture: Mylonitic texture is usually observed in the sub-structural plane, with alteration to sericite and chlorite.

Ore Types

Ore type of Sanjia mine is simple as there are all primary ores except a few oxidised ones in the near surface. Gold mineralization is closely related to the metal sulphide. According to the mineral paragenesis and assemblage, the ores (quartz veins) can be categorized three types as pyrite-gold, chalcopyrite-gold and polymetallic-gold, among which the pyrite-gold type is discovered most frequently.

Wall and Waste Rocks

Foot and hanging walls of orebodies are mainly presented by biotitic-hornblende-plagioclase gneiss, hornblende-plagioclase gneiss, and local migmatized granitic gneiss, which are enriched in ferromagnesian minerals, and provide a favourable condition for the depositing and enrichment for gold mineral. A distinct boundary between ore-bearing quartz veins and wall rocks could be found, as normally there is observable colour changing; whereas it is not easy to distinguish the borderline of ore-bearing altered rocks and wall rocks, and usually the mineralization intensity is stronger at the fracture zones and gets weaker in the wall rocks.

Due to the orebodies (mineralized bodies) of Sanjia mine are in thin layer and with single vein, there is no considerable band rocks (waste rocks) or inclusions.

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APPENDIX VI

5.7 Sampling, Analytical Procedures and Quality Control

5.7.1 Previous Exploration

Qingheyan Gold Mine

The exploration work in Qingheyan area started in 1967, and geochemical survey in scales of 1:200,000 and 1:50,000, as well as geological mapping at a scale of 1:200,000 were conducted in the initial period.

The gold mineralization in Qingheyan mine area was discovered in 1986, and in the period from June 1988 to December 1992 a systematic exploration program for looking for gold deposit was fulfilled by No. 5 Geological Brigade of Hebei Provincial Bureau of Geology and Mineral Resources (No.5 Brigade). The results of the exploration work in the period include: 14 orebodies were defined; the mineralization characters were basically researched; and an exploration report was compiled in 1997, namely “Prospecting Geological Report on Qingheyan Gold Mine, Xiaomaping town, Qinglong Autonomous County, Hebei Province”. A section of resources estimate was included in the report and was submitted to the related governmental authority, reportedly the report was approved by Hebei Bureau of Geology Resources Exploration and Development, a provincial subsidiary authority of former Ministry of Geology and Mineral Resources of China.

In 2001, 2004 and 2008, some other Chinese geological units had done the prospecting work, and the relevant reports including resources estimates were prepared by each unit as well.

Reportedly in Qingheyan mine the mining activity was launched since 1996, and by March 2008, about 219,492t of ores was depleted in Shuiquangou mining license area, which refers a depleted gold metal resource at 830.36kg.

In November 2009, No.5 Brigade updated the resources of Qingheyan mine by an investigation of the mine, sampling verification for 13 channel samples, map modification and engineering survey. A report named “Resources/Reserves and Geological Investigation Report on Sanjia Mine, Qinglong Manchu Autonomous County, Hebei Province” was submitted at that time. The workload completed by No.5 Brigade in November 2009 is listed as Table 5-6.

Table 5-6: Workload Completed by No. 5 Geological Brigade – Qingheyan Mine

Work	Workload
Engineering Survey	4 points
1:1,000 Geological Section Modification	900m
Underground Survey	200m
Channel Sampling	13 samples

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APPENDIX VI

Banbishan Gold Mine

Regional geological investigation was conducted in 1967-1970 by Hebei Brigade of Regional Geological Survey, which provided comparable complete geological data of Qinglong area. Between 1982 and 1984, some sampling and assessing work was done by geological brigades.

In 1985, No. 2 Geological Brigade of Hebei Provincial Bureau of Geology and Mineral Resources (“No. 2 Geological Brigade”) started “prospecting” assessment on Banbishan mine, and in 1987, the level of exploration was turned as “general prospecting” (Four levels/classes of exploration from the lower to the upper in Chinese standard are “reconnaissance”, “general prospecting”, “exploration”, and “detailed exploration”), and in September 1988 the field work was finished. The workload completed by No. 2 Geological Brigade in 1980s is summarised in the following Table (Table 5-7).

Table 5-7: Workload Completed by

No. 2 Geological Brigade – Banbishan Mine

Exploration	Workload
Drilling	4801.4 m (28 holes)
Trenching	2010.6m3
New Underground Working	661.6m
Old Adit Research	313.8m

Based on the historical data and the new data provided by Hongwen, No. 5 Geological Brigade carried out an investigation on the mine in 2009, and then prepared resources update. The work conducted by No.5 Brigade is listed ain Table 5-8.

Table 5-8: Workload Completed by No. 5 Geological Brigade – Banbishan Mine

Work	Workload
Field Profile Investigation	5km
1:1,0000 Geological and Topographic mapping	12km2
Ore Verins Check	2 veins
Sampling	15 samples

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APPENDIX VI

Miaozhangzi Gold Mine

Miaozhangzi Gold Mine was firstly investigated in late 1950s, and the systematic geological exploration was conducted by No. 2 Geological Brigade in the period form 1983 to 1988. The workload is summarised in the following Table 5-9.

Table 5-9: Exploration Workload Completed by No. 2 Geological Brigade – Miaozhangzi Mine

Item	Workload
Diamond Drilling	4216.41/18
Trenching	2286.61 m3
Tunneling – by machine	590 m
Tunneling – by manual	122 m
1/1000 Geo-Topo mapping	3 km2
1/2000 Geo-Topo mapping	3 km2
Basic Assaying	1830
Spectrinetry Samples	287
Compound Samples	10
Chemical Assaying for Full Elements	2
Grab Samples	33
Polished Shin Section	275
External Check Samples	51

In middle November 2009, No. 5 Geological Brigade carried out investigation and engineering survey as well as sampling in Sanjia mine and then prepared a report named “Resources/Reserves and Geological Investigation Report on Miaozhangzi Mine, Hebei Manchu Autonomous County”. The workload completed by No. 5 Geological Brigade in November 2009 is listed in Table 5-10.

Table 5-10: Workload Completed by

No. 5 Geological Brigade – Miaozhangzi Mine

Work	Workload
Field Profile Investigation	5km
1:1,000 Profile Modification	2,015m
Underground Survey	100m
Channel Sampling	12 samples

Sanjia Gold Mine

Formal exploration work conducted in Sanjia gold mine could be traced to early 1960s, when several geological brigades carried out trenching and previous adit logging. In 1976, some deep drilling and underground working was completed.

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APPENDIX VI

From 1977 to 1981, No. 522 Geological Brigade conducted systematic geological exploration program in Sanjia mine; the workload completed in that period is in Table 5-11.

Table 5-11: Workload Completed by No. 522 Geological Brigade – Sanjia Mine

Exploration	Workload
Drilling	106 holes,
	32666.82m
Trenching	5472.20m3
Topographic and Geological Mapping 1:2000	2.5km2
Regional Geological Mapping 1:10000	60km2

Among the 106 boreholes there were 34 holes in which the industrial orebody was discovered. No.522 Brigade submitted a piece of exploration report and gold resources at 4,349.496kg in C and D categories were estimated.

In addition, mining activities of Sanjia mine took place from 1970 and the main mining objectives are Vein Nos. 3, 6, 7 and 2. Reportedly from 1970 to 1981 there were total 55,769 ounces (oz) were mined out. In 1987, No. 522 Geological Brigade re-assessed the Vein No. 3 and its subsidiary vein namely No. 3-1, and submitted a resources balance of C and D grades at 1,636.37kg.

In middle November 2009, No. 5 Geological Brigade, Hebei Provincial Bureau of Geology and Mineral Resources carried out investigation and engineering survey as well as sampling in Sanjia mine and then prepared a report named “Resources/Reserves and Geological Investigation Report on Sanjia Mine, Hebei Manchu Autonomous County”. The workload completed in November 2009 is listed in Table 5-12.

Table 5-12: Workload Completed by No. 5 Geological Brigade – Sanjia Mine

Work	Workload
Engineering Survey	4 points
1:1,000 Geological Section Modification	3000m
Underground Survey	500m
Channel Sampling	27 samples

5.7.2 Sampling and Assaying

The trenches and adits were sampled using channel sampling method; samples in trenches generally were collected along its bottom however in adit the middle part of the wall were sampled. Most all channel sample length ranges at 1.1 to 1.5 m with sample section size 10cm x 5 cm.

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APPENDIX VI

SRK noticed that there were no reported grab samples collected by No. 5 Geological Brigade. SRK would suggest the Company and the Brigade to use grab samples to check the ore density, especially for Sanjia mine. Grab samples could be collected from trenches, drill core and other working, sample size about 10cm x 10cm x 10cm were packed and sent to laboratory soon after sampling.

The samples for polished thin section and microscope investigation were collected from a numerous different locations with standard sample size of about 3cm x 6cm x 9cm. The samples for emission spectral analysis were collected with usual field weight ranging from 300g to 2000g.

Drilling data are from the historical exploration conducted mostly in 1980s, and reportedly the drilling cores were split to halves; one halves were sent to laboratory for assaying another stored in core boxes for further reference. However the mines have not kept all of the drill cores.

The processing and analysis for basic samples were conducted by the laboratory of Tangshan Testing Institute of Hebei Provincial Geological Prospecting Bureau. The sample splitting procedure was referenced with the formula of Q=K*d[2] , where Q is represented for the minimum weight of the samples (kilogram), “d” is represented for the diameter of the maximum sample size, and the splitting coefficient K is set as 1 according to the principle for gold ore samples preparation.

The sample preparation follows a standard procedure i.e.: firstly the sample is crushed down to the size of -10 meshes then split using quartering method to 500g sample which is at size of -30 meshes, and then pulverized to -200 meshes. After that 100 g of pulverized sample is used for analysing the remainders are storage for further references. Reportedly 20g of the samples were used for assaying.

Reportedly there were qualified internal and external check for basic samples (drill core samples), however SRK has no chances to check the original assaying due the duplicate samples are not more available and the mining work made the original sampling location none available for re-sampling.

Seen in available reports, the sampling and assaying protocol were under Chinese specifications, and in accordance with the relevant standards.

There was internal check for samples collected by No. 5 Geological Brigade in 2009; however no external check conducted, as reportedly No. 5 Geological Brigade found their results are quite satisfied with the results provided by Qinglong Hongwen.

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APPENDIX VI

5.7.3 SRK Checking Samples

SRK took 3 samples in the mine during the visit, and all of them are sampled from the adits (unground workings), among which there are 2 collected in Banbishan mine and the other is from Sanjia mine. The results are shown in Table 5-13. Seen in the table, the mineralization is closely related to the sulphide.

Table 5-13: Results of SRK Check Samples

Mine	ID	Au	Au 2	Au 3	Ag	As	Cu	S	P
		(g/t)	(g/t)	(g/t)	(ppm)	(ppm)	(ppm)	(%)	(ppm)
Banbishan	1#	3.04		2.97	0.9	1838	53	0.48	308
Banbishan	1-1#	2.69			0.7	2158	47	0.29	347
Sanjia	3#	268	305	257	249.8	49	7981	18.43	187

Note: “Au 2” and “Au 3” are the repeated assays for Au

5.8 Resource/Reserve Estimates

The recent estimates of resources and reserves for Qingheyan, Banbishan (including Miaozhangzi mining area) and Sanjia gold mines of Qinglong project were conducted by No. 5 Geological Brigade. After reviewing the provided reports and related maps and tables and discussing the technical personnel of Qinglong Hongwen, SRK would like to cite the estimates resources and reserves by No. 5 Geological Brigade, including parameters, methods, definition of orebodies and the results of estimates. SRK’s comments on the resources/reserves estimates will be provided in the following subsections as well.

5.8.1 Qingheyan Gold Mine

Related Parameter Settings

According to Chinese Specification for Geological Survey on Rock Gold Deposit (DZ/T0205-2002), the cut off grade for primary ores is usually set as 1g/t and the minimum mineable thickness is assigned as 0.2m. However based on the geological and mineralization characters of the Qingheyan gold mine and realistic operating cost as well as potential market price, the index parameters were modified by No. 5 Brigade when estimating the resources.

The following parameters for the resource estimation were adopted by the No. 5 Geological Brigade.

Cut off grade: 0.5g/t;
Minimum mineable thickness: 0.8m;
Maximum band thickness: 2m;

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APPENDIX VI

Maximum barren gap: (1) corresponding in upper and lower levels of adits (galleries): 10m; (2) not corresponding in upper and lower levels of adits (galleries): 20m;
When thickness of orebodies is smaller than minimum mineable thickness, determining with mg/t (see “thickness by grade” is whether greater than 0.4 mg/t, if yes, included into resources/reserves estimate; else, not included).

Considering the price of gold and the cost roughly estimated, it is SRK’s opinion that assigning cut off grade as “0.5g/t” could be acceptable, however SRK should point out that No. 5 Brigade did not clarify the minimum industrial grade clearly, while SRK assumed it as 2g/t by checking all the provided data related to the estimates.

Method of Estimates

Considering the dip angles of the orebodies in Qingheyan mine are at a range of 54o – 90o, No. 5 Geological Brigade used the conventional Method of Geological Block.

Briefly, the Method of Geological Block is firstly to divide the whole are into several or dozens of blocks according to geology and exploration results, then to estimate the area, thickness, volume, grade, ore tonnage, and metal resource of each block, and finally to get the result of the whole estimated area by adding the ore tonnage and metal resource of each block. This method is one of the conventional and widely used methods for resources/reserves estimation, which gives a global and rough estimate of the resources or reserves.

Ore tonnage (Q) in each block is the product of ore density (d) multiplying the volume (V) of ore block, as Q=Vd; and V is determined with the true area (S) and average block thickness (m), as V=Sm, where the true area of the block could be estimated with the projected area in the longitudinal projections and the dip angle of ore blocks. The longitudinal projections are substantial for the estimates.

In the estimation of resources and reserves in Qingheyan mine, the main values are estimated as

Average grade of engineering: was calculated by the length weighted method.
Average grade of Cross-section profile: was calculated by twice average weighted method. Firstly, the cross-section was divided into several small block, and the average grade of every small was calculated by the length weighting (or ore body thickness) method, and then the average grade of cross-section was calculated by small block area weighted.

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APPENDIX VI

Average grade of mineralized block: was calculated by the two section area of same block and same ore body weighted.
Average grade of mineralized body: the metal quantity divided by the ore quantity.
Average grade of deposit: the total metal quantity of all the ore bodies divided by the ore quantity of all the ore bodies.
Cross-section area (S’) delineation is by MAPGIS software on longitudinal projected block area.

In the estimation, No.5 used the historical result of 2.51g/cm[3] (or 2.51t/ m[3] ) as ore density, which was provided by No.5 Brigade shown in the previous report in May 1997.

Definition of Orebodies and Blocks

According to geologic features of orebodies, and respective industrial indexes, the orebodies were delineated with the related index parameters discussed above. During the orebody definition, rule of “thickness multiplying grade” (m*g/ t) was used.

For orebody extrapolation, basically the orebody extrapolated distance on profile is 1/4 of the proposed engineering interval (80m x 80m), if interval is more than basic engineering interval, then extrapolated 20m. The detailed situations are as follows.

For two neighbouring engineering sites (boreholes, trenches or underground workings), when in one of them the mineralization was discovered whereas in the other was not, if

engineering spacing less than 80m, extrapolating with 1/4 of the spacing along both strike and dip directions;
engineering spacing more than 80m, extrapolating with 20m along both strike and dip directions;

For two neighbouring engineering sites (boreholes, trenches or underground workings), when in one of them the industrial (higher) mineralization (�4g/t Au) was discussed whereas in the other the sub-economic (lower) mineralization (0.5g/ t�Au<4g/t) was discovered, the boundary for different type of orebodies was determined with 1/2 of the engineering spacing.

In the border area of orebodies or ore blocks, if the Au grade in the engineering is more than 1/2 of cut off’s, then the extrapolation to the outside is with 1/3 of the basic grid (80m x 80m for Qingheyan mine)

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APPENDIX VI

Totally 10 ore blocks were divided for resources estimates. SRK noticed that No. 5 Geological Brigade prepared estimates for 333 and 334 categories of resources. Shown in the longitudinal projections as Figure 5-11 and Figure 5-12, the Category 333 resources are inferred mainly from the discoveries with trenching and underground working, and Category 334 resources are inferred in a larger scale from the mineralization discoveries, which shows a kind of prediction.

==> picture [338 x 216] intentionally omitted <==

Figure 5-11: Longitudinal Projection of Orebody I-4 – Qingheyan

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TECHNICAL REPORT

APPENDIX VI

==> picture [346 x 428] intentionally omitted <==

Figure 5-12: Longitudinal Projection of Orebody II-4 – Qingheyan

Results of Estimates

Dated by November 30, 2009, the resources reported by No. 5 Brigade are shown in Table 5-14.

Table 5-14: Estimated Resources of Qingheyan Gold Mine

Chinese	Ore	Average	Au Metal
Category	Tonnage	Grade	Resource
	(t)	(g/t)	(kg)
333	120,733	4.86	586.62
334	465,525	4.81	2,236.99

– 399 –

TECHNICAL REPORT

APPENDIX VI

SRK reviewed the resources estimation by No. 5 Geological Brigade and found the 334 Resources estimated in Qingheyan mine are extrapolated from the discoveries in trenching and underground working. Due to the orebodies are mostly not stable enough, SRK would state that the extrapolation from trenching results near the ground surface is not fully reasonable and could not provide enough confidence for the 334 Resource. SRK would suggest that the 334 Resource reported by No. 5 Geological Brigade to be kept as a reference for future resource upgrading works.

The comparison between Chinese resources categorisation and JORC Code is provided Appendix II. Category 333 Resource is similar to the “Inferred Resource” in JORC Code, but Category 334 Resource has no similar counterpart in JORC Code.

5.8.2 Banbishan Gold Mine

Related Parameter Settings

According to Chinese Specification for Geological Survey on Rock Gold Deposit (DZ/T0205-2002), the following industrial parameters for the resource estimation were adopted by the No. 5 Brigade.

Cut off grade: 1g/t;
Lower limit of industrial grade: 2.5g/t,
Average grade control of the deposit: 4.5g/t;
Minimum mineable thickness: 0.8m;
Maximum band thickness: 2m;
Maximum barren gap: (1) corresponding in upper and lower levels of adits (galleries): 10m; (2) not corresponding in upper and lower levels of adits (galleries): 20m;

In SRK’s opinion, the industrial indexes are reasonable.

Method of Estimates

Based on the occurrences of orebodies and the average grades for orebodies, the conventional method namely Method of Geological Block was selected to perform the resources estimates.

– 400 –

TECHNICAL REPORT

APPENDIX VI

ore tonnage and metal resource of each block. This method is one of the conventional and widely used methods for resources/reserves estimation, which gives a global and rough estimate of the resources or reserves.

In the estimation of resources and reserves in Sanjia mine, the main values are estimated as

Average grade of engineering: was calculated by the length weighted method.
Average grade of Cross-section profile: was calculated by twice average weighted method. Firstly, the cross-section was divided into several small block, and the average grade of every small was calculated by the length weighting (or ore body thickness) method, and then the average grade of cross-section was calculated by small block area weighted.
Average grade of mineralized block: was calculated by the two section area of same block and same ore body weighted.
Average grade of mineralized body: the metal quantity divided by the ore quantity.
Average grade of deposit: the total metal quantity of all the ore bodies divided by the ore quantity of all the ore bodies.
Cross-section area (S’) delineation is by MAPGIS software on longitudinal projected block area.

The ore density is set as 2.70t/m[3] .

Definition of Orebodies and Blocks

According to geologic features of orebodies, and respective industrial indexes, the orebodies were delineated with the control of underground workings (as 122b) and the extrapolation from them. The extrapolation was along the direction of orebody dip with 50m. There were 5 ore blocks defined in the procedure of estimation, of which 3 blocks were defined with 333 or 122b resources.

– 401 –

TECHNICAL REPORT

APPENDIX VI

In Figure 5-13, the old categories for resources were used, as No. 5 Geological Brigade adopted the historical ore block classification and updated with new discoveries in the recent years. Generally between Chinese old and new standards, Category C is similar to 332 or 122b, and Category D is similar to 333.

Results of Estimates

The resources update was based on the previous exploration and new discoveries during the mining. In the previous estimation, the old categories for resources were used. In 1988, 1,488.39kg of C and D Resource for gold metal was estimated.

Dated by November 30, 2009, the details for resources reported by No. 5 Geological Brigade are shown in Table 5-15.

==> picture [330 x 221] intentionally omitted <==

Figure 5-13: Ore Blocks for Resources Estimation in Banbishan Mine

Table 5-15: Details of Resources in Banbishan Mine

										Au
Orebody	Geological	Projected	Dip	Inclined				Ore		Metal	Chinese
Zone	Block	Area	Angle	Area	Thickness	Volume	Density	Tonnage	Grade	Resourc	Category
		(m2)	(˚)	(m2)	(m)	(m3)	(t/m3)	(t)	(g/t)	(kg)
M1	KD1	86,754	50	113,249	1.95	220,836	2.7	596,257	1.91	1,139	122b
	KD2	48,576	50	63,411	2.45	155,357	2.7	419,464	5.41	2,269	333
	KD3	128,611	50	167,889	2.45	411,328	2.7	1,110,568	5.41	6008	334
M2	KD4	15,314	55	18,694	1.75	32,714	2.7	88,328	3.17	280	333
	KD5	71,729	55	87,560	1.75	153,230	2.7	413,721	3.17	1311	334

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APPENDIX VI

TECHNICAL REPORT

No. 5 Geological Brigade reported 2 blocks with 334 Resource, namely KD3 and KD5, and according to the report prepared by No. 5 Geological Brigade, 7,310kg of gold metal resources with Category 334 were estimated. Considering the resources of Category 334 estimated by this geological brigade need more supports by sufficient original data and there is comparable counterpart with 334 in JORC Code. SRK would recommend the Company to verifying the resources and upgrade the level and confidence for the possible potentials.

Table 5-16 shows the summary of resources at Banbishan gold mine.

Table 5-16: Estimated Resources at Banbishan Gold Mine

Category	Ore	Au	Grade
	(t)	(kg)	(g/t)
122b	596,257	1,139	1.91
333	507,792	2,549	5.02
334	1,524,289	7,319	4.80

5.8.3 Miaozhangzi Gold Mine

Related Parameter Settings

According to Chinese Specification for Geological Survey on Rock Gold Deposit (DZ/T0205-2002), the cut off grade for primary ores is usually set as 1g/t and the minimum mineable thickness is assigned as 0.8m. However based on the geological and mineralization characters of the Qingheyan gold mine and realistic operating cost as well as potential market price, the index parameters were modified by No. 5 Geological Brigade when estimating the resources.

The following parameters for the resource estimation were adopted by the No. 5 Geological Brigade.

Cut off grade: 0.5g/t;
Minimum mineable thickness: 0.8m;
Maximum band thickness: 2m;
Maximum barren gap: (1) corresponding in upper and lower levels of adits (galleries): 10m; (2) not corresponding in upper and lower levels of adits (galleries): 20m;
When thickness of orebodies is smaller than minimum mineable thickness, determining with mg/t (see “thickness by grade” is whether greater than 0.4 mg/t, if yes, included into resources/reserves estimate; else, not included).

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TECHNICAL REPORT

APPENDIX VI

Considering the price of gold and the cost roughly estimated, it is SRK’s opinion that assigning cut off grade as “0.5g/t” could be acceptable, however SRK should point out that No. 5 Geological Brigade did not clarify the minimum industrial grade clearly, while SRK assumed it as 2g/t by checking all the provided data related to the estimates.

The area for resources estimates are within the permit area, which indicted there are 6 outside orebodies are not included.

Method of Estimates

Considering the dip angles of the orebodies in Qingheyan mine are at a range of 54˚ – 90˚, No. 5 Geological Brigade used the conventional Method of Geological Block.

In the estimation of resources and reserves in Sanjia mine, the main values are estimated as

Average grade of engineering: was calculated by the length weighted method.
Average grade of Cross-section profile: was calculated by twice average weighted method. Firstly, the cross-section was divided into several small block, and the average grade of every small was calculated by the length weighting (or ore body thickness) method, and then the average grade of cross-section was calculated by small block area weighted.
Average grade of mineralized block: was calculated by the two section area of same block and same ore body weighted.
Average grade of mineralized body: the metal quantity divided by the ore quantity.

– 404 –

TECHNICAL REPORT

APPENDIX VI

Average grade of deposit: the total metal quantity of all the ore bodies divided by the ore quantity of all the ore bodies.
Cross-section area (S’) delineation is by MAPGIS software on longitudinal projected block area.

In the estimation, No. 5 Geological Brigade used the historical result of 2.67g/cm[3] (or 2.51t/m[3] ) as ore density, which was provided by No. 2 Geological Brigade shown in the previous report in December 1988.

Definition of Orebodies and Blocks

For orebody extrapolation, basically the orebody extrapolated distance on profile is 1/4 of the proposed engineering interval (80x80m), if interval is more than basic engineering interval, then extrapolated 20m. The detailed situations are as follows.

For two neighbouring engineering sites (boreholes, trenches or underground workings), when in one of them the mineralization was discovered whereas in the other was not, if

engineering spacing less than 80m, extrapolating with 1/4 of the spacing along both strike and dip directions;
engineering spacing more than 80m, extrapolating with 20m along both strike and dip directions;

For two neighbouring engineering sites (boreholes, trenches or underground workings), when in one of them the industrial (higher) mineralization (� 4g/t Au) was discussed whereas in the other the sub-economic (lower) mineralization (0.5g/ t �Au< 4g/t) was discovered, the boundary for different type of orebodies was determined with 1/2 of the engineering spacing.

– 405 –

TECHNICAL REPORT

APPENDIX VI

Totally 51 ore blocks were divided for resources estimates. SRK noticed that No.5 Brigade prepared estimates for 122b, 333 and 334 categories of resources. Shown in the longitudinal projections as Figure 5-14, the Category 333 resources are inferred mainly from the discoveries with trenching, drilling and underground working, and Category 334 resources are inferred in a larger scale from the mineralization discoveries, which shows a kind of prediction.

==> picture [331 x 152] intentionally omitted <==

Figure 5-14: Resource Categories in Longitudinal Projection – Miaozhangzi Mine

Results of Estimates

Dated by November 30, 2009, the resources reported by No.5 Brigade are shown in Table 5-17.

Table 5-17: Estimated Resources of Miaozhangzi Gold Mine

		Ore	Au	Average
Chinese	Categories	Tonnage	Tonnage	Grade
		(t)	(kg)	(g/t)
122b		102,952	639	6.21
333		41,033	101	2.46
334		372,210	1,833	4.92

No. 5 Geological Brigade reported that 1,833 kg of gold metal resources with average grade at 4.25g/t in Category 334 were estimated. Considering the resources of Category 334 estimated by No. 5 Geological Brigade need more supports by sufficient original data and there is comparable counterpart with 334 in JORC Code. SRK would recommend the Company to verifying the resources and upgrade the level and confidence for the possible potentials.

– 406 –

TECHNICAL REPORT

APPENDIX VI

5.8.4 Sanjia Gold Mine

Related Parameter Settings

According to Chinese Specification for Geological Survey on Rock Gold Deposit (DZ/T0205-2002), the cut off grade for primary ores is usually set as 1g/t and the minimum mineable thickness is assigned as 0.2m. However based on the geological and mineralization characters of the Sanjia gold mine and realistic operating cost as well as potential market price, the index parameters were modified by No. 5 Geological Brigade when estimating the resources.

The following parameters for the resource estimation were adopted by the No. 5 Geological Brigade.

Cut off grade: 0.5g/t;
Minimum mineable thickness: 0.3m;
Maximum band thickness: 2m;
Maximum barren gap: (1) corresponding in upper and lower levels of adits (galleries): 10m; (2) not corresponding in upper and lower levels of adits (galleries): 20m;
When thickness of orebodies is smaller than minimum mineable thickness, determining with mg/t (see “thickness by grade” is whether greater than 0.15 mg/t, if yes, included into resources/reserves estimate; else, not included).

Method of Estimates

As orebodies in Sanjia mine are mostly thin veins with an average dip angle at 47˚, it is advantageous to use conventional Method of Geological Block.

– 407 –

APPENDIX VI

TECHNICAL REPORT

In the estimation of resources and reserves in Sanjia mine, the main values are estimated as:

Average grade of engineering: was calculated by the length weighted method.
Average grade of Cross-section profile: was calculated by twice average weighted method. Firstly, the cross-section was divided into several small block, and the average grade of every small was calculated by the length weighting (or ore body thickness) method, and then the average grade of cross-section was calculated by small block area weighted.
Average grade of mineralized block: was calculated by the two section area of same block and same ore body weighted.
Average grade of mineralized body: the metal quantity divided by the ore quantity.
Average grade of deposit: the total metal quantity of all the ore bodies divided by the ore quantity of all the ore bodies.
Cross-section area (S’) delineation is by MAPGIS software on longitudinal projected block area.

It is worthy notice that in the procedure the average dip angles for all blocks were assigned same as 47˚ for simplify the estimation of true block area (S), as S=S’/47˚, which presents a very rough estimation for the true area of ore block. Following with the area determination, the volume is estimated as the product of block area and ore density.

In the estimation, No. 5 Geological Brigade used the historical result of 3.00g/cm[3] (or 3.00t/m[3] ) as ore density, which was provided in the previous report from No. 522 Geological Brigade. SRK noticed that this value (3.00g/cm[3] ) is about 10% higher than the ore density results used for estimates of other mines (around 2.70g/cm[3] ). There is no definite proof to ensure that “3.00 g/cm[3] ” is an accurate value for the ore density of Sanjia mine, though it might be reasonable. In SRK’s opinion No. 5 Geological Brigade should test some bulk and grab samples from every type of ores, in order to assure this number is accurate when preparing the resources/reserves estimate and rather not use the previous results more than 28 years ago.

– 408 –

TECHNICAL REPORT

APPENDIX VI

Definition of Orebodies and Blocks

According to geologic features of orebodies, and respective industrial indexes, the orebodies were delineated with the related index parameters discussed in the context above. During the orebody definition, rule of “thickness multiplying grade” (m*g/t) was used. For orebody extrapolation, basically the orebody extrapolated distance on profile is 1/4 of the proposed engineering interval (80x80m), if interval is more than basic engineering interval, then extrapolated 20m.

Totally there were 7 ore blocks divided, among which 5 blocks were categorized with resource of Category 333 and 2 blocks with resource/reserve of Category 122b (see Figure 5-15). Category 122b is discussed by exploration and mining activities (drilling and underground working) and Category 333 is inferred by extrapolating 100m from 122b.

==> picture [331 x 181] intentionally omitted <==

Figure 5-15: Resource Blocks and Categories in Longitudinal Projection – Sanjia Mine

– 409 –

TECHNICAL REPORT

APPENDIX VI

Results of Estimates

Dated by November 30, 2009, the resources/reserves of 333 and 122b categories reported by No. 5 Geological Brigade are shown in Table 5-18.

Table 5-18: Estimated Resources of Sanjia Gold Mine

Ore Tonnage (t) 172,509 185,742 358,251	Grade (g/t) 9.44 13.2 11.4	Au Metal Resource (kg) 1,628.48 2,442.51
		4,070.99

37,608 28,818 49,698 72,906 123,315	10 2.74 3.03 2.72 16.7	376.46 78.96 150.58 198.30 2,058.13
312,345	9.16	2,862.43

SRK should point out that the estimation results were an update on the basis of the resources estimation conducted by No. 522 Geological Brigade. No. 5 Geological Brigade did some sampling and engineering survey but did not carry out any additional exploration work, the main database for resources estimation was from the previous report and other data provided by Qinglong Hongwen. The resource estimates may be in accordance to the Chinese standards, but is not verified by any governmental agencies or independent companies. In SRK’s opinion, the resources should be used with cautions.

The comparison between Chinese resources categorisation and JORC Code is provided Appendix II. In Chinese resources categorisation, Category 122b stands for “indicated basic reserve” which has not been deducted by design mining loss, while in JORC Code this similar kind of resource is called “Indicated Resource”. Category 333 herein is similar to the “Inferred Resource” in JORC Code.

5.9 SRK’s Recommendations for Further Exploration

SRK noted there are abundant resources of Category 333 and Category 334 estimated by No. 5 Geological Brigade in the exploration area, which may suggest more exploration work including in-fill drilling should be carried out in all of the mining licensed areas to verify them and upgrade the resources category.

– 410 –

TECHNICAL REPORT

APPENDIX VI

6 MINING ASSESSMENT

6.1 Introduction

Hongwen Gold currently has three gold mines named as Sanjia Gold mine, Banbishan Gold mine and Qingheyan Gold mine, the three mines are located in different gold mineralization fields of Qinglong County. There were four gold mines including the mentioned three were officially acquired by Hongwen Industrial Group, a Tongshan based private company in December 2003 from the Gold Bureau of Qinglong County, since then the enterprises have been transforming from a state-owned operation-management style to the current market orientated private company operation.

Sanjia Gold mine has the longest gold mining history of the county. It was set up in April 1970. The mine development used for this mine is declined-shaft for many years due to lack of development funds for mine expansion and the mining method is considered as the narrow-vein mining, used mainly the Short-Hole Shrinkage, but sometimes changed to Room & Pillar, or Waste Lifting Stoping. The mining land area is 1.383 km[2] permitted by two valid mining licenses. The production capacity of the mine is about 200 tonnes per day at current development facilities.

Banbishan Gold mine was built in March 1986 as a state-owned gold mine. There are currently two mining leases for the gold operations and three mining fields. An application for a consolidating of 6.7 km[2] mining area has been accepted by Qinghuandao City government and awaiting for a final approval from Hebei provincial government. The current operation capacity of the mine is also 200 tonnes per day. There is a large gold mineralization belt within the consolidated mining area, which is about 10 m wide and over 3,000 m long, which is a highly recommended as the source of potential for future expansion. The mine development and the mining methods used at Banbishan Gold mine are similar to that of Sanjia Gold mine, such as the Inclined-Shaft development and Short-Hole Shrinkage mining method as well as Room & Pillar method for specific ore-bodies.

Qingheyan Gold mine was first built in January 1997 by Qinglong Gold Bureau. After the acquisition and restructuring of the mine by Hongwen in 2003, the mine will be was expanded to a mining permit area of about 3.78 km[2] , where there are 6 mining fields covered by two mining leases. Both underground and open-pit mining methods are used for this mine. The underground mining method is a kind of modified Short-Hole Shrinkage.

– 411 –

TECHNICAL REPORT

APPENDIX VI

6.2 Mining License

Qinglong Hongwen wholly owned three gold mines; they cover seven mining licenses. Table 6-1 shows the details of the mining license.

6.3 Mining Conditions

6.3.1 Hydro-geological Condition

Qinglong Hongwen Project area is located to the east of Yanshan Mountain. The climate of the Qinglong County is characterized by continental climate with clearly four seasons. The extreme temperature recorded is 36.6°C for hot and -26.3°C for cold. The average rainfall is 731.2mm; the average evaporation is 1504.2mm. The highest speed of wind is 12m/s. The most thickness of freeze is 0.8m.

The non-frost season is about 172 days. This mining district falls within a system classified under Chinese as being prone to earthquakes with an intensity of “7 degrees”. SRK was informed that mining and processing site design took account of Chinese Codes of Practice for seismically-active areas.

Table 6-1: Details of Renewed Mining License

Sanjia Gold Mine

Mining license No.	1303000820050	C1300002009054120020185
Mine owner	Qinglong Hongwen Gold LLC	Qinglong Hongwen Gold LLC
Address	Qinglong County, Hebei	Qinglong County, Hebei
	Province	Province
Mine name	Sanjia Gold Mine	Wangjiagou Area of Sanjia
		Gold Mine
Ore type	Gold	Gold
Mining type	Underground mining	Underground mining
Production capacity	11,000t/a	500t/a
Area	1.174km2	0.209km2
Mining depth	374m to 60m ASL	319m to 100m ASL
Valid period	From November 2008 to	From May 2009 to May 2011
	November 2012
Issued by	Qinglong Land and Resources	Qinglong Land and Resources
	Bureau	Bureau
	Qingheyan Gold Mine
Mining license No.	1303000820038	1300000720191
Mine owner	Qinglong Hongwen Gold LLC	Qinglong Hongwen Gold LLC
Address	Qinglong County, Hebei	Qinglong County, Hebei
	Province	Province
Mine name	Shuiquangou Gold Mine	Xiaodongyu Gold Mine
Ore type	Gold	Gold

– 412 –

APPENDIX VI

TECHNICAL REPORT

Mining type Underground mining Underground mining Production capacity 5,000t/a 12,000t/a Area 2.0km[2] 1.78km[2] Mining depth 350m to 250m ASL 460m to 200m ASL Valid period From September 2008 to July From July 2007 to August 2012 2010 Issued by Qinglong Land and Resources Hebei Land and Resources Bureau Bureau Banbishan Gold Mine Mining license No. 1300000520273 C1300002010044120061430 Mine owner Qinglong Hongwen Gold LLC Qinglong Hongwen Gold LLC Address Qinglong County, Hebei Qinglong County, Hebei Province Province Mine name Banbishan Gold Mine Lengjingou Area of Banbishan Gold Mine Ore type Gold Gold Mining type Underground mining Underground mining Production capacity 9,000t/a 700t/a Area 1.06km[2] 0.1319km[2] Mining depth 240m to 48m ASL 370m to 270m ASL Valid period From June 2005 to June 2010 From April 2010 to March 2012 Issued by Hebei Land and Resources Hebei Land and Resources Bureau Bureau Mining license No. 1303000120220 Mine owner Qinglong Hongwen Gold LLC Address Qinglong County, Hebei Province Mine name Miaozhangzi Area of Banbishan Gold Mine Ore type Gold Mining type Underground mining Production capacity 6,000t/a Area 0.7119km[2] Mining depth 206m to 40m ASL Valid period From October 2001 to October 2003 Issued by Hebei Land and Resources Bureau

– 413 –

TECHNICAL REPORT

APPENDIX VI

6.3.2 Geotechnical and Mining Condition

For all the three gold mines, there are no systematic and comprehensive assessments on the engineering geology. Some parameters of engineering geology collected at present are shown in Table 6-2. Generally, there are minor geotechnical issues at mines within the Yanshan Mountain Region. Wall rocks and ore bodies are very stable at the mines due to competent nature of the rocks. Once a mining area is completed, pillars are retrieved if possible. The geotechnical treatment and management at the three mines are relatively easy.

Table 6-2: Existing Parameters of Engineering Geology

		Sanjia Gold	Banbishan
		Mine	Gold Mine	Qingheyan	Gold Mine
		Wangjiagou	Banbishan	Xiaodongyu	Shuiquangou
Parameters	Unit	Area	Area	Area	Area
Haningwall and		plagioclase-	Biotite	Dolomite,	Dolomite
footwall		gneiss	leptynite,	Breccia
			altered biotite
Hardness Coefficient	f	4~10	6~10	4~10	4~10
of Ore
Hardness Coefficient	f		8~14
of Wall Rock
Specific Gravity of	t/m3	2.85	2.69	2.86		2.86
Ore
Specific Gravity of	t/m3		2.7
Wall Rock
Swelling factor			1.5
Stability		Well	Well	Well	Well

SRK noticed that the rocks and ores are mostly intact with high compressive strength, the corresponding roofs and floors are quite stable. Therefore, the geotechnical conditions in the mining area are considered to be in the medium-high type.

During the underground visit, SRK noted that there was no soft inter-bedding sighted either in the rocks or the ores. SRK also observed that for the excavated tunnels and the mining stopes, the rocks and ores exhibited good stability and support was not used in any tunnels/drives. Even in the shallow tunnels, neither obvious deformation of the tunnel nor creep of the rock was found, indicating that the long-term stability of the tunnel has reached a good level. However, SRK suggest that for the future expansion, key areas such as the newly proposed vertical shaft, the “horse-head gate”, the main water pump house and the underground transformer room, preventative support measures should be taken.

– 414 –

TECHNICAL REPORT

APPENDIX VI

6.4 Mine Design

Since the three mines are different in its grade, ore type and other mining and mineral processing conditions, the parameters used for each mine are different. used mine Generally, a cut-off grade of 1g/t; ore loss rate of 10% and normally mining dilution rate of 12 to 15% are used for Sanjia and Banbishan gold mines. For the Qingyanhe Gold Mine, its mining recovery rate is normally over 90%, but dilution rate is higher than that of the other two mines because it is mainly in open-pit operation. However, due to higher gold prices, the cut-off grade is also considered as of 0.5g/t for some easy-treated gold ores. A pre-feasibility study was prepared by China Changchun Gold Design Institute in August 2007 for the mine expansion to over 3000t/d production capacity (including another gold mine: Xinliu Gold mine previously owned by Qinglong Hongwen, which was planned to produce and process 500 tonnes of ore per day). Updated mine design was completed by an external licensed gold design institute.

6.5 Mine Development

Sanjia Gold mine and Banbishan Gold mine have similar development method of Inclined-Shaft to access surface to underground workplaces. There are blind inclined-shafts built in both Sanjia and Banbishan mines. Qingheyan Gold Mine was adopted an adit and blind incline development system. Table 6-3 lists the summary of development systems for three gold mines.

Table 6-3: Summary of Development System

	Sanjia Gold Mine	Sanjia Gold Mine	Banbishan	Gold Mine	Qingheyan	Gold Mine
	No. One and	Wangjiagou	Banbishan	Miaozhangzi	Xiaodongyu	Shuiquangou
	Two Area	Area	Area	Area	Area	Area
Developing Mode	Incline with	adit and	Inclines and	Incline	adit and blind	Adit
	two-level	incline	two-level		incline
	blind inclines		blind inclines
Total Levels	12	5	8	5	7	3
Level Height	20~25m	20~25m	10~29m	20m	25~30m	25~30m
Portal of Incline	367m		190m	230m	340m	335m
Bottom of Incline	52m		37m	132m	170m	280m
Hoisting Mode	Winch-Wagon	Winch-Wagon	Winch-Wagon	Winch-Wagon	Manual wagon	Manual wagon
Production	200t/d	Not clearly	200t/d	Being	50kt/a	100kt/a
Capacity		yet.		integrated

For Sanjia Gold mine, the entrance of the decline is at 367m level, the main inclined-shaft is built between 367m and 210m serving 5 operation levels using a hoister 1.2m diameter. Under 210m level, a blind inclined-shaft is built at level 210m to serve operations between level 210m and 95m using a same 1.2m diameter hoister. At 95m level, the third declined-shaft is built to serve level 95m to 52m using a smaller hoister of 0.8m diameter. There are completed lifting, transportation, ventilation and drainage systems built in the mine. Four 20m[3] air-pressuring machines are located

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TECHNICAL REPORT

APPENDIX VI

at the air-pressuring machine station on the surface. The transportation tunnel has dimensions of 2.2m wide by 2.0m high. A steel rail of 12kg/m weight is used for CJ16 diesel powered locomotive and 0.9 m[3] rail cars.

For Banbishan Gold mine, there are separate two lifting systems, one is for Banbishan mining field and the other is for Lengjingou mining field. Both declined-shafts use 1.2m in diameter hoister. The declined-shaft at Banbishan mining field is built on level 200m and serving for level 200m to level 20m (9 operation levels), and the declined-shaft at Lengjingou mining field is built on level 220m and serving for 220m level to 50m level (6 operation levels). There are three 20m[3] air-pressuring machines located at the surface air-pressuring station of the mine. The lifting, transportation, ventilation and drainage systems are in good order.

For Qingheyan Gold mine, both open-pit and underground mining operations were carried out at Shuiquannangou mining field of the gold mine. The open-pit mining was occurred above 357m level. Under 357m, a truck-ramp was constructed to access the ore bodies, and there were three operation levels (257m, 280m and 357m) developed for mining. Apart from 3km from Shuiquannangou, the other mining filed called Xiaodongyu has a mining permitted area of 2km[2] . Xiaodongyu is currently out of operation and is pending for Hongwen’s restructuring and the mine redevelopment.

6.6 Mining Method

Mostly, the gold ore bodies are narrow and vertical, the mining method employed at the mines is the traditional shrinkage stoping with or without bottom-pillars, i.e., for gold ore bodies thicker than 4 meters without bottom-pillars, otherwise, with bottom-pillars. The mining stopes are normally 40 to 60m long and 40m high. Mined stopes are partially backfilled to increase their stability, and at the same time reducing underground operating cost by reducing waste rocks sent to the surface. Hand-held airlegs are used to tunnel and develop stopes. The mining method delivers acceptable broken ore to chute fronts with timber flow control, which are operated manually to load ore into side tipping rail trucks of 0.9m[3] capacity. Waste rocks are generally removed from the mine by the same locomotive and rail cars as used for ore transport.

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The waste-rock cars are tipped by hand onto the waste rock dump. The cars containing ore are tipped onto the ore dumping site which allows manual selection of larger waste rocks. The typical shallow-hole shrinkage stoping method is shown in Figure 6-1.

==> picture [341 x 317] intentionally omitted <==

Figure 6-1: Typical Shallow-Hole Shrinkage Mining Method

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However, there are large parts of the gold ore bodies of the three gold mines of Qinglong Hongwen, which are not vertically positioned, and the shrinkage mining method is not suitable for extracting these ores. There have been alternative choices under this situation. A modified small scaled Room & Pillar mining method is used at the mines, which is simply showed as Figure 6-2.

==> picture [305 x 159] intentionally omitted <==

Figure 6-2: Shallow-Hole Room & Pillar Method

6.7 Mining Schedule

Hongwen Gold Ltd is operating its three gold mines with valid six mining leases and one renewal mining lease with a consolidation plan of covering 6.67 km[2] of land. The three mines have a combined mining and processing capacity of about 600 tonnes per day. The mining operation at Qingheyan Gold mine was temporarily stopped due to lack of working capitals. The operating is set as three eight-hour shifts, seven days per week. Tunnelling and extracting works are not contracted externally but internally with tunnelling teams and extracting teams respectively, who are all of contract workers of Hongwen Gold. Many years of modifying of the mine organizational structure and management policies have made the mines operating efficiently in terms of scheduling and cost trolling. The wage and bonus of a worker is based not only his/her working hours but also on measurable engineering works done and the total operating costs for the works.

Both Sanjia and Banbishan mines have multiple levels of development, tunnelling, and extracting, there have been no difficulties of arranging the work schedules. The mining stopes are basically small scale and each stope produces around 20 to 60 tonnes per day depending on various conditions of an ore body or a vein. There are three working levels at Shuiquannangou mining field of Qingheyan Gold mine, which was recorded as producing about 150 tonnes to 250 tonnes per day. The Xiaodongyu mining field of Qingheyan Gold mine was producing less due to its narrow veins and lack of mine development work.

The total operating days are about 330 days a year and non-operating days are 30 to 35 dats for maintenance and repairing.

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6.8 Ventilation

“Natural ventilation” is applied and is sufficient for mining face ventilation under usual conditions. In some circumstance, if needed, ventilation fans are used for assistance. The high vertical extent of the workings allows a natural chimney effect to move air in at the lower portals, and to exit at the high portals or ventilation shafts. However, after underground blasting, the ventilation requires more time, especially for excavation in a dead-end, since the fume diffusion may take longer time. Ventilation system of Sanjia Gold Mine is presented in Figure 6-3.

==> picture [352 x 186] intentionally omitted <==

Figure 6-3: Ventilation System of Sanjia Gold Mine

6.9 Compressed Air

At present each portal of underground mining areas has an air compressor room.. Four of 4L-20/8 type air compressors are used for underground air supply at Sanjia Gold mine and two of 3L-10 type compressors are used at Banbishan Mine. Qingheyan mine uses 1.6 to 6 cubic meters air compressors at different operation sites of the mine.

6.10 Water and Electricity Supplies

Water and electrical power supplies are described in other section of this report.

6.11 Mine Safety

The safety management of the three mines of Hongwen Gold is of above an average Chinese mining standard. The company has a very detailed safety management guidelines and handbooks for various work teams. There have been no major incidents occurred at the mines over the years, and the management team has received many awards from the government Safety Bureaus. For the tailings dams’ safety, annual checking and professional inspections by qualified engineering contractors have been scheduled and done. SRK noted that there is an effort made by the management to

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promote safety. Although the standards do not meet western standards, appropriate systems are in place and over the time it is predicted that the safety practices and standards will continue to improve. Safety procedures and performance statistics are discussed further in related section of this report.

6.12 Conclusions and Recommendations

The three gold mines owned by Qinglong Hongwen have been operating under their certain capacities. However, due to lack of capital injections, resources could not be developed into reserves in time, which impeded the increase of productions of the mines. However, these three gold mines have good resource potential as documented by previous scientific studies which were carried out by national and provincial geological research institute and universities in China. The recent geological investigations carried out by No. 5 Geological Brigade also state a good results and potentials of gold resources. SRK believes that both technical and capital input for the explorations of the properties will be significant for upgrading of the current gold resources and likely finding new deposits.

SRK suggests that:

Investment of exploration works to upgrade the current “334” resource to higher category level should be planned and started as soon as possible;
Investment of regional geological investigations including geochemical, geophysical, geotechnical (mainly within the current mines) and other kind of advanced mineralization studies, which could be carried out as an alliance with the Chinese top geological scientists and geologists, and even with some international geologists, which could bring the potentials of the gold properties for Qinglong Hongwen;
Recruiting or inviting experienced geologists, engineers and geoscientist to work with the company for operation, mine design, exploration planning and carrying out exploration programs for the three different mines with different gold mineralization types; and
Old processing system and aged equipment are lower in efficiencies, which maybe considered for replacement and renovations.

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7 ORE PROCESSING ASSESSMENT

7.1 Introduction

Qinglong Hongwen has two concentrator plants for processing gold ore. Each has a processing capacity of 200t/d. Both plants are working well under current conditions. However, the equipment at both plants is old which leads higher energy consumption and lower concentrating efficiency. SRK noted that both plants have rooms for technical renovation and expansions in the future when needed.

7.2 Sanjia Gold Mine

Sanjia Gold mine has a processing capacity of 200t/d. including two production lines with a production capacity of 120t/d and 80t/d, respectively. The 80t/d line has been shut down due to its old equipment and small productivity. The mine is producing normal gold ores (average grade of 3 to 5g/t) and extra high grade gold ores (averaged over 30g/t). The extra high grade ores are normally sold to smelters directly, which accounts for about 20 to 30% of its total production, the remaining is moved into processing plant for two stages of crushing, one stage of milling and then flotation (Figure 7-1). The final products of Sanjia Gold mine are high grade gold ores and gold concentrates. The grade of the concentrates produced from Sanjia concentrator is about 90g/t, the recovery rate is about 88% to 93 %, concentrate, and the yielding rate is designed as about 2.5%.

==> picture [370 x 107] intentionally omitted <==

Figure 7-1: An Overview of Sanjia Processing Plant

7.2.1 Ore Amenability

Ore type at Sanjia mine mainly is gold-bearing sulphide quartz vein, followed by altered rock. The metal minerals mainly include pyrite, chalcopyrite, argentite, galena and native gold. The element worth to be recovered is gold, which occurs in above-mentioned metallic sulphide minerals, mainly in pyrite. This shows that the gold can be recovered by recovering mentioned metallic sulphide minerals. Moreover, those minerals have a coarse disseminating grain, which indicates the ore is easy for grinding and processing. In addition, the silver and copper contained is enough to be utilized. According to the geological sample analysis, the average content of silver is 24.65g/t, and of copper is 0.16%. Because gold content in quartz vein is high, produced rich coarse gold ore by hand picking from it will be sold directly, while the gold contained in altered rock is relatively low, the rock will be sent to the processing plant for

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flotation to get the gold concentrate. Due to the mining dilution and because the rich ore has been hand picked firstly, grade of ore sent to the processing plant is relatively low and average feeding grade of copper is only about 0.03% which has no value to be processed.

Rich ore contained in the quartz vein and low grade ore hold in altered rock has distinct different colours which makes hand picking more easily. For the flotation conducted on the lean ore, gold recovery rate is higher than 85%, and gold content in the concentrate is higher than 100g/t, which shows a good amenability of ore. Silver and copper are not priced during product sales due to their low grade.

7.2.2 Processing Procedure and Equipment

Presently, there are two production lines in Sanjia processing plant with the productivity of 120t/d and 80t/d respectively, and 200t/d in total. The processing procedures of two production lines are basically the same, as shown in Figure 7-2. It consists of four steps:

Step 1: Crushing. Ore extracted from the underground is crushed to less than 12mm through a closed two stages crushing process, and then is stored in a fine ore bin.

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==> picture [239 x 313] intentionally omitted <==

Figure 7-2: Sanjia Processing Plant Flowsheet

Step 3: Flotation. The grinded ore pulp flows into one mixing drum by gravity and then enters one group of flotation machines after added with agents and stirred. Through one stage rough flotation, two stages scavenging and three stages of cleaning, gold concentrate and tailing will be produced. The tailing will be pumped to the TSF, and the gold concentrate will go into the next process of dewatering. Two chemical agents are available, one is collecting agent for metallic sulphide and gold, which is to increase the hydrophobicity of target minerals, the other is foaming agent 2# oil, by which the dewatered mineral particles float to the pulp surface so as to separate from the gangue mineral.

Step 4: Concentrate Dewatering. The gold concentrate from flotation process will enter one thickener to make its concentration improved to 60%, and then is filtered by one vacuum filter to make its water content reduced to less than 8%, so as to obtain the final concentrate.

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The main production equipment is shown in Table 7-1. SRK notices that the first flotation line has been shut down due to small production scale and serious ageing of its equipment.

Table 7-1: Main Equipments of Sanjia Processing Plant

Process	Equipment	Specification	Line 1		Line 2
Ore Feeding	Chute feeder	500x600mm	1		1
Primary Crushing	Jaw crusher	PEF250x400mm	1		1
Fine Crushing	Hammer crusher	600x600mm	1
	Cone crusher	PYD900mm			1
Screen	Vibrating screen	SZZ1250x2500mm	1		1
Grinding	Ball mill	MQG1500x3000mm			1
	Ball mill	MQG1500x2250mm	1
Classification	Spiral classifier	FLG1200mm			1
	Spiral classifier	FLG1000mm	1
Floation	Mixing drum	�1500x1500mm	1
	Flotation machine	XJK-0.62m3	18
	Flotation machine	XJK-1.1m3			16
Concentrate Dewatering	Thickener	TNZ-6m		1
	Vacuum filter	WZG-5m2		1

7.2.3 Technical Index

Table 7-2 shows the ore processing indexes of last three years from 2007 to 2009. The grade of hand-picked high-grade ore is about 40g/t. The head grades of low-grade ore are between 1.00g/t and 2.00g/t. In 2009, the Sanjia processing plant produced 298t concentrate with Au grade of 87.56g/t. The Au recovery rate is 85.65%.

Table 7-2: Production Indexes of Sanjia Processing Plant

Content	Unit	2007	2008	2009
High-Grade Ore	t	1086	1128	1550
Au Grade in High-Grade Ore	g/t	35.58	41.67	39.32
Low-Grade Ore	t	23455	26498	29766
Au Grade in Low-Grade Ore	g/t	1.47	1.47	1.02
Concentrate Yield in
Low-Grade Ore	t	286	332	298
Au Grde in Concentrate	g/t	103.48	103.16	87.56
Au Recovery Rate	%	85.67	87.91	85.65

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7.2.4 Tailings Storage Facilities

Sanjia TSF has a total designed storage capacity of 0.28 million m[3] . The tailing dam is total of 56m high built by upstream embankment method. During site visit, SRK notices that the current TSF is similar to a valley type tailing pond with dams at three sides as the following figure:.

==> picture [359 x 82] intentionally omitted <==

Figure 7-3: Overview of Sanjia Tailings Storage Facility

As the tailing pond needs to meet the designed requirements during construction of starter dam and tailings stacking embankment, and the drainage system also has to be built based on the standards to avoid certain potential safety hazards happening in the future. In October 2009, MCC Shenkan Engineering and Technology Corporation, Qinghuangao Co., Ltd. made an engineering exploration on the tailing pond to analyse the stability of tailing dam, and put forward the upgrading suggestions. It is suggested to invite a qualified design company to make a design on the upgrading of the tailing pond. And the construction shall be commenced as soon as possible to meet the safety requirement and to avoid dam breaking incidents in the future.

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7.3 Banbishan Gold Mine

Banbishan processing plant is designed in processing the ores of Banbishan mining area and Miaozhangzi mining area. Both mining areas have disseminated gold ore type with low sulphide content. The plant has an initial dressing capacity of 100t/d, and then updated to 200t/d by a new flotation line construction. Figure 7-4 shows an overview of the Banbishan ore processing plant.

==> picture [340 x 187] intentionally omitted <==

Figure 7-4: An Overview of Banbishan Processing Plant

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7.3.1 Processing Procedure and Equipment

Banbishan processing plant consists of two processing lines with capacity of each production line is 100t/d. Production procedures is basically the same with that of the Sanjia gold mine, but its grinding fineness is 80% being lower than 75µm. In addition, amalgamation plate is additionally mounted in grinding and classification circuit to recover the dissociated monomer gold. The processing flowsheet is shown in Figure 7-5. The main manufacturing equipments are shown in Table 7-3. The following five operation steps are included in the production flow:

Step 1: Crushing. Ores excavated from underground will pass the two stages of closed circuit crushing process and be crushed as being less than 12mm, then be stored in fine ore bin. The first stage of crushing is conducted by two sets of jaw crusher while the second stage is conducted by one set of hammer crusher. The equipment configuration is considered as unreasonable, especially for the second stage of using hammer crusher for crushing. The operating cost is rather high, and great amount of duct will be generated which will worsen the operating environment. Using cone crusher will be much more reasonable.

==> picture [274 x 365] intentionally omitted <==

Figure 7-5: Banbishan Processing Plant Flowsheet

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TECHNICAL REPORT

Step 2: Grinding – Classification. Ore grinding circuit is made up of ball mill and spiral classifier. Underflow from spiral classifier can be then returned to the ball mill for re-grinding, while the overflow will be conducted the secondary classification by hydrocyclone. Underflow from hydrocyclone will also sent back to the ball mill for re-grinding, while its overflow with fineness of 80% lower than 75µm and the concentration of 28% will be fed to the operation of flotation. One closed stage circuit is adopted for ore grinding. Though being classified in the two stages of spiral classifier and hydraulic cyclone, the optimum grinding fineness of 94% being lower than 75µm defined by the test still cannot be reached. Because the ore grinding grain size is rather coarse, the actual ore dressing indexes are far below the test indexes. It is clear that one stage of ore grinding is unreasonable and one stage of grinding conducted by ball mill shall be added. Two stages of closed circuit grinding shall be adopted.

Step 4: Flotation. Grinded ore pulp will flow into one set of agitator drum. Being added with reagent for beneficiation, stirred and mixed, it will then be put into one set of flotation machine. After one stage of rough flotation, two stages of scanvenging and three stages of cleaning, gold concentrate and tailings are produced. Tailings will be pumped to tailing pond for storage while gold concentrate will enter into the next dewatering operation. Reagents for beneficiation can be divided into two kinds. One is metallic sulfide and gold collecting agent-isobutyl xanthate and butyl aerofloat, which will increase hydrophobicity of the target minerals. The other one is foaming agent 2# oil, which will increase stability of bubble in the flotation machine. Bubbles will carry the hydrophobic mineral grains, float upwards to the ore pulp surface and be separated from the gangue mineral.

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Step 5: Concentrate Dewatering. Gold concentrate from flotation will enter into one set of thickener and the concentration will be improved to 60%. After being filtered by another vacuum filter, moisture content is reduced to less than 8% which is the final concentrate.

Table 7-3: Main Equipments of Banbishan Processing Plant

Operation	Equipment	Specification	Line 1		Line 2
Ore Feeding	Chute feeder	500x600mm	2
Primary Crushing	Jaw crusher	PEF250x400mm	2
Fine Crushing	Hammer crusher	800x800mm	1
Screening	Vibrating screen	SZZ1250x2500mm	1
Ore Grinding	Ball grinder	MQG1500x3000mm	1
	Ball grinder	MQG1500x2250mm			1
Classification	Spiral classifier	FLG1200mm	1
	Spiral classifier	FLG1000mm			1
Flotation	Agitator drum	�1500x1500mm	1		1
	Flotation	XJK-1.1m3	16
	machine
	Flotation	XJK-0.62m3			18
	machine
Concentrate Dewatering	Thickener	TNZ-6m		1
	Vacuum filter	WZG-5m2		1

7.3.2 Technical Index

Table 7-4 shows ore dressing production indexes from 2007 to 2009. Comparing with test indexes, the production indexes are rather low. Amalgamation recovery rate of gold is 21~28%, flotation recovery rate of gold is 50~55% and total recovery rate is 74~78%. In addition, grade of gold concentrate is rather low due to reduction of feeding grade of ore and insufficient grinding fineness. As a result, technical reform is required by Banbishan processing plant to promote the technical indexes.

Table 7-4: Production Indexes of Banbishan Processing Plant

Item	Unit	2007	2008	2009
Ore Treated	t	55279	60736	63055
Au Grade of Treated Ore	g/t	2.21	1.87	1.71
Au Recovery Rate of
Gold-Bearing Mercury	%	21.13	22.84	28.27
Concentrate	t	1441	1560	1580
Au Grade of Concentrate	g/t	45.03	40.42	33.5
Au Recovery Rate of
concentrate	%	53.03	55.52	49.09
Total Au Recovery Rate	%	74.16	78.36	77.36

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7.3.3 Tailings Storage Facilities

Banbishan TSF is a valley type tailing pond, being composed of two conjoint tailing ponds (Figure 7-6). The front tailing pond is an old tailing pond, which adopts the upstream embankment method and tailings embankment to build the dam. Because the actual gradient is steeper than and dam height is close to the design, the stability of the dam body might be influenced. A new TSF was constructed 200m downstream of the old one in 2002. The new dam still adopts the upstream embankment and tailings embankment method to build dam on foundation of the starter dam. In order to reduce immersion on the old dam by impoundment at tail of the new pond, which may affect the stability of old dam, and the drainage well built at tail of the new pond. In October 2009, MCC Shenkan Engineering and Technology Corporation, Qinhuangdao Co., Ltd. carried out engineering exploration on this tailing pond to analyse the stability of the dam and proposed improvement suggestions. According to SRK’s assessment, operation of the tailing pond is good without any obvious safety problem. However, floods in rainy season of summer will threaten security of the tailing pond. It is suggested that embankment dam should be constructed in accordance with the designed requirements on gradient and method. In addition, management shall be strengthened during flood season and effective flood control measures shall be taken.

==> picture [355 x 126] intentionally omitted <==

Figure 7-6: an Overview of Banbishan TSF

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7.4 Qingheyan Gold Mine

Qingheyan gold mine is low-grade oxidized ore. Gold was recovered using heap-leaching facilities to process the ores mined from its mine. Shuiquangou and Xiaodongyu mining area of Qingheyan gold mine have their own leaching yards. The ore already mined was processed until March 2008, and no production is carried out thereafter. Figure 7-7 shows an overview of the old heap-leaching yard.

==> picture [360 x 161] intentionally omitted <==

Figure 7-7: An Overview of the Heap-Leaching Yard at Qingheyan Gold Mine

7.4.1 Heap-leaching Procedure

The heap leaching plant includes heap leaching yard, stockpile, leaching solution spraying system, solution pool system, active carbon adsorption equipment, gold-bearing carbon stripping-electrowinning device and gold slime smelting equipment and so on, and its process description is as follows:

Step 1: Preparation of heap leaching yard. Two mining areas have respectively 1-3 heap leaching yards, which all are arranged in the valley where slope is not too steep. After heap leaching sites are leveled and compacted, then pave 2 layers plastic films with 0.2mm thickness. The heap leaching yard may lean to one side or to a corner to make solution leached can flow out of the stockpile from the bottom.

Step 2: Ore Crushing. The extracted ore is crushed by the jaw crusher in the method of single stage crushing with its grain size less than 40mm, and then transported to the heap leaching yard laid plastic film by truck or tractor.

Step 3: Ore Stacking. According to designed height, discharge the crushed ore on the heap leaching yard, and it will forward move gradually with increasing of ore volume entering the yard until paving the whole heap leaching yard, then bulldoze and scarify the compacted ore pile surface by hand or excavator. Add lime when stacking ore to make the leaching solution pH of the leaching work in next step keep 10-11 and prevent decomposition of sodium cyanide. SRK noticed that the ore height of each stacking is 2-6m. After leaching of the first stockpile is over, then adopt the same stacking method to stack the second layer of stockpile on it.

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Step 4: Spraying and Leaching. Pave the solution transmission pipelines on the surface and side slope of the stacked stockpile, the inner diameter of main pipeline is 50mm and the inner diameter of by-pass pipeline is 25mm with one bypass pipeline in every 4m and one plastic sprayer installed for every 4m on each by-pass pipeline. The plastic sprayer is similar with American Senninger sprayer, which is the special sprayer for heap leaching with 4-6m spraying radius. The sodium cyanide solution is pumped to each sprayer through the pipeline, then sprayer sprays evenly solution on the stockpile surface, and solution will penetrate down, then react with gold in the ore during penetration process and produce soluble gold-cyanide complex. The reaction is expressed in its simplest form by the Elsner equation:

4Au + 8NaCN + O2 + 2H2O = 4Na[Au(CN2)] + 4NaOH

The gold containing leaching solution will penetrate to the plastic film in the bottom of stockpile, then outflow along the surface of plastic film and enter into the special solution collection pool-rich solution pool.

Step 5: Active Carbon Absorption. The concentration of the gold containing solution collected in the rich solution pool is less than 10mg/L, which is a low number. Make use of the nature of active carbon capable of absorbing strong gold, and use the water pump to make leaching rich solution pass continually a set of 4 stripping columns, and then gold will be absorbed by the active carbon. The solution flowing from the stripping column is called the barren solution, which will enter into another pool-– barren solution pool, after adding sodium cyanide, it will return back to the stockpile, thus a leaching-absorption cycle is formed, and generally such a cycle lasts for 45-60 days, which is called a leaching period. When the active carbon absorbs for certain time and the absorbed gold volume is higher than 6g/kg, discharge the gold-bearing active carbon from the stripping column, and transport it to the de-absorption-electrolysis workshop.

Step 6: Gold-Bearing Carbon Stripping-Electrowinning. Gold-bearing carbon will be processed in stripping-electrowinning device. Strip the gold absorbed by the active carbon from carbon into solution; after electrowinning of solution, gold will be galvanized on the negative pole steel wool of electrowinning cell; electrowinned solution will return the stripping column to form the stripping-electrowinning cycle. Such a cycle may generally lasts for 12-24 hours. Take out the negative pole steel wool from electrowinning cell for smelting after finishing each gold-bearing carbon de-absorption.

Step 7: Gold Slime Smelting. Steel wool will be handled by hydrochloric acid which can dissolve the impurity of base metal, and then smelt by high temperature into gold bullion.

Qingheyan heap-leaching production has stopped for nearly 2 years, therefore, relevant equipments or devices, such as active carbon stripping columns, gold-bearing carbon stripping and electrowinning device and gold smelting equipment have not been seen in the site, some technical parameters (such as leaching period, de-absorption period, active carbon type) also can not be verified. However, because heap leaching is

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a mature technology, and investment in equipments and facilities is low, generally it is possible to invest, build, produce, output gold in the same year, and equipments and facilities in the heap leaching plant will not influence greatly on future investment.

7.4.2 Technical Index

Table 7-5 indicates the heap-leaching data (provided by Qinglong Hongwen) of Qingheyan gold mine in the period between January 2005 and March 2007.

Table 7-5: Heap-Leaching Indexes of Qingheyan Gold Mine

Item	Unit	2005	2006	2007
Ore Mined/Treated	t	94628	125615	49950
Au grade	g/t	1.06	0.97	1.00
Au Recovery Rate	%	70.22	70.07	70.03
Recovered Au	kg	70.43	85.38	34.98

7.5 Potential to Expand Throughout

The small sized and older equipment used suggests that there is limited capacity to increase throughout without incurring capital expenditure. Minor increments in production maybe achieved up to 20% by reducing the crusher product sizing, which may increase plant availability. Due to the new development of ore processing techniques and equipment in China, the major increments could be achieved up to 50% or more by adding and/or renovating some of the key facilities of the plants.

7.6 Expansion Plan

Depending on the current estimation of gold reserves and resources of the mines, and the good mine development conditions as inspected, the company is planning to increase the current plant processing capacity of 400t/d to 1200t/d at the three gold mines, and treatment by heap-leaching of more than 100,000 tonnes of low grade oxidation ores per year at Qingheyan gold mine in a short period of time (within 1.5 years), which will process up to 500,000 tonnes of gold ore in total per annum. The proposed capacity comes from building up a new 350t/d concentrator at Xiaodongyu mining field of Qingheyan mine, and renovating the current two 200t/d concentrators at Sanjia and Banbishan mines into 350t/d and 500t/d respectively by the end of 2010 or later. As a long-term plan of the company, it is planned to increase the plant processing capacity to 2000t/d, and 200,000 tonnes of oxidation ore per annum for heap-leaching,

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so that the long-term expansion target is to treat 860,000 tonnes of gold ores per annum. The following table summaries the short-term and long-term expansion plans of the company (Table 7-6).

Table 7-6: Exploration Plans of Qinglong Hongwen

	Sanjia		Qingheyan	Qingheyan	Total Production (tpa)	Total Production (tpa)
Production	Concentrator	Banbishan		Heap-		Heap-
Capacity	(t/d)	(t/d)	Concentrator	leaching	Blotations	leaching
Current	200t/d	200t/d			132,000
Short-Term	350t/d	500t/d	350t/d	100kt	400,000	100,000
Long-term	500t/d	1000t/d	500t/d	300kt	660,000	200,000

7.7 Conclusions and Suggestions

Each of the three gold mines of Hongwen Gold has its own characteristics in mineralization, mineral combination and metallurgy. Gold ore from Sanjia mine is higher in grade and easy to be treated, i.e. relatively free-milling. The flowsheet of Sanjia concentrator uses a simple flotation scheme without regrinding and is low in regent consumption. Currently the recovery rate is generally over 86% to 89%, and the cost for treatment of one tonne of ore is about RMB 70. It is projected that the recovery rate could reach to 95% if the current aged equipment to be replaced during the renovation or rebuilding of this concentrator. The current processing capacity is 200t/d, which is to be expanded to 350t/d and further expanded to 500t/d within a three-year development time along with the projected exploration programs of the Company.

The gold ore from Banbishan Gold mine is a micro-sized type with lower content of As. The treatment of Banbishan gold ores is relatively difficult. The process of Banbishan gold concentrator includes gravity concentration, two stages of crushing, one stage of milling, and flotation. The gravity concentrating and the flotation of the process can recover about 20%, and 55% of gold respectively, which makes the overall recovery rate of 75%. The micro-sized (minus 400” mesh) gold is accounting for 30%, which is the major factor of losing gold into tailings. To achieve a better recovery rate in the future, some advanced techniques and equipment are needed for technical renovation in the future, and it is believed that the recovery rate can be achieved to over 90% after the technical renovations. Due to its high potential (mainly because of its wide ore bodies) of increasing mining capacity, the Banbishan Mine is to increase its processing capacity from current 200t/d to 500t/d by the end of 2010 and further to 1000t/d according to the company’s three-year development plan

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ores. The gold ores of Qingheyan Mine are mostly oxidation ores that are suitable for heap-leaching. However, it should be taken extremely caring of the ground water and surface water where use cyanides as the agent of extracting gold.

It is suggested that geological exploration should be strengthened to increase reserves quantity and update reserves classification, on which a appropriate mining and processing scale can be determined. Company should also commission the experienced and qualified heap leaching technology service organ to make an overall plan and design on heap leaching yard construction, and the technology of active carbon absorption, gold bearing carbon stripping-electrowinning, etc.

8 WORKFORCE

8.1 Workforce Numbers

Required total workforce numbers for the Sanjia and Banbishan operating gold mines in September 2009 are shown in Table 8-1. SRK believes that the mining capacity can be increased based the workforce numbers.

Table 8-1: Workforce Numbers

	Numbers
Department	2009
Company headquarters	20
General & duty manager	4
Chief engineer	1
Chief accountant	1
Others	14
Mining department	429
Management	6
Technology	15
Mining and transport workers	408
Metallurgical processing plant	66
Management	6
Technology	9
General workers	51
Workshop & Maintenance	20
Management	3
General workers	17
Sale Department	10
Management	3
General workers	7
Safety Department	27
Full-time	12
Others	15
Total	572

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8.2 Assessment of Workforce

Based on the laws of Chinese National Ministry of Labour and the work contract regulations of Hebei Bureau of Work and Social Security, Company staff and employees will sign work contracts. To ensure a relatively stable workforce, the Company will transact endowment, medical, work injury, unemployment and bearing insurance plus housing accumulation funds for employees.

9 OCCUPATIONAL HEALTH AND SAFETY

9.1 Safety Approvals and Permits

The company has had a very good reputation in safety management in Hebei province. There is a Safety Management and Monitoring Department at head office, and each mine has a safety management division leading directly by the mine manager. Each mine including mine and plant has a certain number of workers responsible for the safety of mining, processing plants and tailing dams. Each mine or an operating division has a safety committee and written safety goals are required. A monthly, seasonal, half-year, and an annual review of safety responsibilities for each mine or division is conducted by the safety officers from the Safety Management and Monitoring Department of the company.

According to the new employees experience level and work field, they must accepted half-day, one-day, or two-day safety training and checking required certificate or license (e.g., the use of explosives) before going to work. For specific workforces such as and before the start of each shift, employees hold regular safety meetings of about 10 minutes duration with the previous shift workers in their work area. The previous shift workers are required to complete a written and signed safety record to advise the incoming shift about the prevailing work conditions.

During the site visits, SRK noted that safety signage and personal protective equipment (PPE) were provided to employees. However, SRK notes that improved utilisation of PPE and other strategies can be employed to reduce health and safety risks to the workforce. Accordingly, however, the company has indicated a desire and intention to improve the appropriate use by employees of PPE.

9.2 Historical Safety Records

The company operating sites, including the three mines, and two concentrator, and relevant facilities have records of accident statistics shown in Table 9-1. In year 2006, the mine had 6 minor injuries. In year 2007, 4 minor injuries were recorded. In year 2008 3 minor injury was occurred. And by the end of December 2009, 4 minor injuries were also recorded.

SRK was informed that Qinglong Hongwen safety records indicate that from July 2006 to 31st December 2009, the company recorded no major injuries and 17 minor injuries for employees.

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Table 9-1: Qinglong Hongwen Accident Statistics, July 2006 to 31 Dec 2009

	2006		2007		2008		31 Dec	2009
	E	C	E	C	E	C	E	C
Minor	6	0	4	0	3	0	4	0
Serious	0	0	0	0	0	0	0	0
Fatal	0	0	0	0	0	0	0	0
Total	?	0	?	0	?	0	?	0

E = Employees, C = Contractors

SRK considers the above accident statistics to show that the company is committed to safety training, provision of safety equipment and safety monitoring. It is SRK’s view that more needs to be done to improve the safety records and Qinglong Hongwen fully supports SRK’s suggestions.

9.3 Workforce Turnover

By 31st December 2009, workforce numbers for the mine were 572, for the processing plants including the management staff and the truck fleet. Staff turnover was stated as a bit high at about 10% for the processing plant per year and 3% for the mining contractors per year. However Qinglong Hongwen stated that there have been no problems with the provision of the skilled workers required. SRK was informed during site visit that The Company is planning to decrease the turnover rate and build stable management and production teams by further improving safety conditions and increasing salary levels.

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10 PRODUCTION, OPERATING AND CAPITAL COSTS

10.1 Historical Production

Sanjia Gold mine

Mining and processing capacity was designed as 200t/d, which treats about 50,000 to 65,000 tonnes of gold ore per annum (“tpa”). Historical production records are shown in Table 10-1.

Table 10-1: Historical Production Records of Sanjia Gold Mine*

Item	Unit	2007	2008	2009
Ore mined (High-Grade Ore)	t	1,086	1,128	1550
Au grade in High-Grade Ore	g/t	35.58	41.67	39.32
Ore mined/treated (Low-Grade Ore)	t	38,640	46,999	60939
Au grade in Low-Grade Ore	g/t	1.47	1.47	1.02
Au Concentrate	t	286	332	298
Au Grade at Concentrate	g/t	103.48	103.16	87.56
Au Recovery Rate	%	85.7	87.9	85.7
Concentrate Recovery Rate	%	79.22	83.8	82.47

*Note: The mined high-grade ore was sold directly without going through concentrator.

Banbishan Gold mine

Mining and processing capacity was designed as 200t/d, which treats about 50,000 to 65,000tpa. Historical production records are shown in Table 10-2.

Table 10-2: Historical Production Records of Banbishan Gold Mine

Item	Unit	2007	2008	2009
Ore Mined/Treated	t	55279	60736	63055
Au grade	g/t	2.21	1.87	1.71
Au Concentrate	t	1441	1560	1580
Au Grade at Concentrate	g/t	45.03	40.42	33.5
Au Recovery Rate	%	74.16	78.36	77.36

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Qingheyan Gold mine

Open-pit and underground mining methods were used at Qingheyan mine. The mining and heap-leaching capacity of 200,000t of oxidation ores was achieved before. Table 10-3 shows its historical production records.

Table 10-3: Historical Production Records of Qingheyan Gold Mine*

Item	Unit	2005	2006	2007
Ore Mined/Treated	t	94628	125615	49950
Au grade	g/t	1.06	0.97	1.00
Au Recovery Rate	%	70.22	70.07	70.03

*Note: The year 2008 includes only three months from January to March.

10.2 Operating Costs

As interviewing with mine management team, the financial department provided operating costs analysis showing the costs for mining as RMB80 to 120 per tonne ore and processing RMB60 to 65 per tonne ore which makes total operating costs of RMB140 to 185 per tonne ore mined and treated in general. However, there are minor differences between the mines which have different mining and mineral processing conditions. Consumption of reagents and other materials in the costs are based on prices obtained by suppliers in China. Information regarding the salary scales was used to calculate labour costs. Power consumption and hence costs were based on the local standards of charges. The administration costs include financial cost as well as safety and environmental management spending at mine level as well. The following describe each mine of Qinglong Hongwen, its operating cost breakdowns.

Sanjia Gold Mine

Mining Cost

Mining is conducting by decline and underground mining techniques by mine staff, and no contractors employed currently. The company provides consumables and the necessary operating and support equipment as well as all direct labour and front line supervision to the mining and tunnelling work teams contracted under negotiated and market-orientated work-load earnings and the consumable prices, such as how much credited to the work team of one tonne of gold ore with certain grade, and how much credited for one meter tunnelling, and on the other side to account how much spending or costs by the team to create the credits for themselves.

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of meters of a certain diameter tunnel that the contractor is required to complete. Safety and environmental issues are also detailed in the contract to define the liabilities and responsibilities of both sides. Table 10-4 shows the mining costs.

Table 10-4: Sanjia Gold Mine, Mining Costs

Section Labour Consumables Power Tunnelling costs sharing Mine site geology and geotechnical works Maintenance and Administration Total	Unit Cost RMB/t HK$/t* 63.2 72.0 22.1 25.2 28.6 32.6 30 34.2 8.9 10.1 20.1 22.9 172.9 197.1	Unit Cost RMB/t HK$/t* 63.2 72.0 22.1 25.2 28.6 32.6 30 34.2 8.9 10.1 20.1 22.9 172.9 197.1
		197.1

*Exchange rate: 1 RMB = 1.14 HK$

Processing Costs

The processing costs are calculated based on the mine and plant operating data. The major costs for processing include labour, consumables, power and water, and administration (see Table 10-5).

Table 10-5: Sanjia Gold Mine, Mineral Processing Costs

Section Labour Consumables in total Steel balls Reagents Power Maintenance Administration Total	Unit Cost RMB/t HK$/t* 12.82 14.6 25.3 28.8 6.5 7.4 18.8 21.4 26.12 29.8 14.8 16.9 79.04 90.1	Unit Cost RMB/t HK$/t* 12.82 14.6 25.3 28.8 6.5 7.4 18.8 21.4 26.12 29.8 14.8 16.9 79.04 90.1
		90.1

* Exchange rate: 1 RMB = 1.14 HK$

Total Operation Cost:

The total operation cost of Sanjia Gold mine is RMB251.94 (HK$287.2) per tonne ore mined and processed including administration and maintenance costs.

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Total Unit Operation Cost:

Each tonne of gold ore produces gold of: 8.39g(1-15%)90% = 6.4g;

The unit cost in RMB/g is 251.94/6.4 = RMB39.4/g . The unit cost in USD/ oz is USD 180/oz .

Banbishan Gold Mine

Mining Cost

The company also provides power and water supplies for the mining operations. The mining contracts are signed based on the amount of ore mined and its quality control such as the average grade as well as the loss rate and dilution rate. Tunnelling (development) contracts are signed based on the amount of meters of a certain diameter tunnel that the contractor is required to complete. Safety and environmental issues are also detailed in the contract to define the liabilities and responsibilities of both sides. Table 10-6 shows the mining costs.

Table 10-6: Banbishan Gold Mine, Mining Costs

Section Labour Consumables Power Tunnelling costs sharing Mine site geology and geotechnical works Maintenance and Administration Total	Unit Cost RMB/t HK$/t* 28.5 32.5 9.74 11.1 6.05 6.9 15.0 17.1 8.9 10.1 11.21 12.8 79.4 90.5	Unit Cost RMB/t HK$/t* 28.5 32.5 9.74 11.1 6.05 6.9 15.0 17.1 8.9 10.1 11.21 12.8 79.4 90.5
		90.5

* Exchange rate: 1 RMB = 1.14 HK$

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Processing Costs

The processing costs are calculated based on the mine and plant operating data. The major costs for processing include labour, consumables, power and water, and administration (see Table 10-7).

Table 10-7: Banbishan Gold Mine, Mineral Processing Costs

Section Labour Consumables in total Steel balls Reagents Power Maintenance Administration Total	Unit Cost RMB/t HK$/t* 5.76 6.6 26.19 29.9 6.53 7.4 19.66 22.4 36.45 41.6 6.4 7.3 74.8 85.3	Unit Cost RMB/t HK$/t* 5.76 6.6 26.19 29.9 6.53 7.4 19.66 22.4 36.45 41.6 6.4 7.3 74.8 85.3
		85.3

* Exchange rate: 1 RMB = 1.14 HK$

Total Operation Cost:

The total operation cost of Sanjia Gold mine is RMB154.2 (HK$ 175.8) per tonne ore mined and processed.

Total Unit Operation Cost:

The total unit operation cost is calculated based on the average grade of the ore mined, dilution rate, and the total plant recovery rate, which are about 2.49g/t, 20%, and 85% respectively.

Each tonne of gold ore produces gold of: 2.49g(1-20%)85% = 1.69g;

The unit cost in RMB/g is 154.2/1.69 = RMB91.24/g . The unit cost in USD/ oz is USD 416/oz . However, the average grade of gold at Banbishan Gold Mine is about 4.18g/t according to reported resource estimation, the unit cost will be decreased to:

RMB91.24 *(2.49/4.18) = RMB54.35/g, in US dollar it is about USD 247/oz.

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Qingheyan Gold Mine

Mining Cost

Mining is conducting by open-pit and underground mining methods. The company provides consumables and the necessary operating and support equipment as well as all direct labour and front line supervision to the mining and tunnelling work teams contracted under negotiated and market-orientated work-load earnings and the consumable prices, such as how much credited to the work team of one tonne of gold ore with certain grade, and how much credited for one meter tunnelling, and on the other side to account how much spending or costs by the team to create the credits for themselves.

Table 10-8: Qingheyan Gold Mine, Mining and Heap-Leaching Costs

Section Labour Consumables Power Mine site geology and geotechnical works Maintenance and Administration Total	Unit Cost RMB/t HK$/t* 20 22.8 15 17.1 5 5.7 10 11.4 10 11.4 60 68.4	Unit Cost RMB/t HK$/t* 20 22.8 15 17.1 5 5.7 10 11.4 10 11.4 60 68.4
		68.4

* Exchange rate: 1 RMB = 1.14 HK$

Total Operation Cost:

The total operation cost of Qingheyan Gold mine is about RMB60 (HK$68.4) per tonne of ore mined and processed by heap-leaching.

Total Unit Operation Cost:

The total unit operation cost is calculated based on the average grade of the ore mined, dilution rate and overall recovery rate, which are 1.3g/t, 10% and 90% respectively.

Each tonne of gold ore produces gold of: 1.39g(1-10%)90% = 1.126g;

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The unit cost in RMB/g is 60/1.126 = RMB 53.3/g . The unit cost in USD/oz is USD 243/oz .

In summary, the operation costs of the three gold mines of Hongwen Gold in a long-term view are about RMB 40 to 55 per gram gold produced, and in terms of US dollars, it is to cost about USD 180 to 250 for one ounce gold produced.

10.3 Capital Costs and Investments

Hongwen Gold plans to invest a total of RMB 63.5 million in the period of April 2010 to March 2013 (three years) to upgrade the current gold resources to a minable reserve standard; the projected target is to confirm no less than 20 tonnes of gold reserves within the current mining permitted areas of Hongwen Gold. The planned drilling is 38,000m, and tunnelling is over 40,000m. This maybe called Hongwen Exploration Program-1.

After the projected consolidations of Banbishan gold mine, the total mining license area including Sanjia, Banbishan and Qingheyan mines will be increased dramatically. The Company is also planning to invest for a comprehensive geological investigation and exploration within the permitted area. The target is to identify more gold deposits and to increase the Company’s total gold resources and reserves. This is called Qinglong Hongwen Exploration Program-2. The budget for Exploration Program-2 is about RMB 100 million according to the plan.

As the expansion plan mentioned in section 7.6, the Company is plan to spend RMB 30 million to expand and improve the mines and the concentrators to a capacity of 1200t/d and further spending of RMB 20 million to 2000t/d at the end of the expansion and development plan after the acquisition. The detailed capital costs plan including mine development, plant expansion and Hongwen Exploration Program-1 is shown in the following table. In SRK’s opinion, the proposed capital investments are sufficient and likely to achieve the stated targets of the company. Table 10-9 shows the details.

Table 10-9: Forecast Capital Investments, 2010 to 2013 (RMB million)

Year April 2010 to March 2011 April 2011 to March 2012 April 2012 to March 2013 Total	Exploration Mines Program-1 Program-2 15 16.5 14.5 15 25 45 20 22 40.5 50 63.5 100	Total RMB HK$* 46.5 53.0 85 96.9 82.5 94.1 213.5 243.4	Total RMB HK$* 46.5 53.0 85 96.9 82.5 94.1 213.5 243.4
			243.4

* Note: exchange rate of RMB 1.0 = HK$ 1.14

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11 UTILITIES AND INFRASTRUCTURE

11.1 Road

The gold project is located at approximately 200km east of Beijing. Driving from Beijing International Airport to Qinglong County can be passed by Beijing-Shengyang Highway then provincial-class roads to Qinglong Town. Sealed roads are close to Sanjia, Banbishan and Qingheyan mines. It is about 120 km from Qinglong to Qinghuangdao City connected by high class sealed roads. The accesses to the mines and the transportation conditions are excellent.

Sanjia Gold mine:

As detailed in Chapter 4, Sanjia Gold mine is located about 18 km northeast of Qonglong Town, only driving 2 km to access the main road of Qonglong-Qinhuangdao. The road access is very good.

Banbishan Gold mine:

Banbishan Gold mine is about 20 km away southeast of Qinglong Town, east to Qinglong River. Sealed road connected to main road of Qinglong-Qinhuangdao. The mine is about 90 km from Qinhuangdao Railway Station. The road access and the conditions of the roads passing through are excellent.

Qingheyan Gold mine:

Qingheyan Gold mine is about 50 km from Qinglong Town. Mainly sealed roads are accessing to the mine site. The mine is about 14 km north to Luotun Railway Station of Da-Qin Railway. The road access for Qingheyan Gold mine is good too.

11.2 Electrical Power Supply

The mines and processing plants operated by Hongwen are connected to the local and provincial power grid which has available capacity for both the current production rate and the proposed expansion. Power is distributed by overhead power lines from local transformers.

Sanjia Gold mine:

There are two electrical power sources, one is from Shuihudong hydro-power station with a power supply of 2X850KW, which is connected to the mine by 5km power-line, and networked with Qinglong 35KV power transformer. Another one is from Majuanzi 35KV power transformer, about 2km away from the mine. At the mine area, there are two mine site power transformers built up to supply power to mines of 400KVA +180 KVA for surface and underground operations, and to concentrator of 500KVA. The current power usage at Sanjia is about 326 KW for mining and 316KW for mineral processing.

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Banbishan Gold mine:

Banbishan Gold mine has two power lines to supply electronic power sourced from Xiashaoguo transformer. each mining district has its own power distributor using 250KVA and 100KVA transformers. Electronic power machines use 380/220V power.

Qingheyan Gold mine:

Qingheyan Gold mine has a power line of 10KV as the source of power supply. The mine has a electronic power distributor, the transformer capacity is 200KVA. The major power consumption is by high-pressure air machines, fans, crunchers, and lighting.

11.3 Water Supply

For Sanjija Gold mine, the water is mainly sourced from underground mine water. There is a water tank of about 100m[3] capacity built up, which is on the surface close to the main entrance of the mine to supply underground water usage. Sanjia concentrator is using 800m[3] /d, of which 670m[3] /d is recycled into operation and only 130m[3] /d is sourced from underground water either mine water or well.

For Banbishan Gold mine, the water is mainly sourced from Qinglong river and mine water. The concentrator is using about 800m[3] /d of water, of which only 150m[3] /d is a net water input, and 650m[3] /d of water is recycled, i.e 81% of water recycling. The underground mine is using about 130m[3] /d of water, which is distributed by a water tank on the surface.

For Qingheyan Gold mine, the water is sourced from underground and nearby rivers.

11.4 Accommodation

For the mining projects, Hongwen provides accommodation for both the processing employees and the miners who are far from home, however, there are many workers coming from nearby village, they usually go back home after workings. Both Banbishan and Sanjia have enough houses for more workers staying at mine site.

11.5 Workshops and Repair Facilities

Hongwen already has its own maintenance workshops and maintains considerable stores of spares and production reagents and employs a number of tradesmen who are trained in repair and maintenance of the equipment on site. Parts which cannot be found in the workshop or made on site will be sourced from Qinghuangdao City, Tangshan or Beijing and other major cities in China.

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12 ENVIRONMENTAL ASSESSMENT

12.1 Environmental Review Objective

The objective of this environmental due diligence review is to identify and or verify the existing and potential environmental liabilities and risks, and assess any associated proposed remediation measures for the Qinlong Hongwen 3 Gold Mines Project (Qinlong Gold Project) located in Qinlong Manchu Autonomous County, Hebei Province, China. The Qinlong Gold Project is owned and operated by Qinglong Manchu Autonomous County Hongwen Gold Company Limited (Hongwen Gold Ltd).

The Qinlong Gold Project currently comprises the following operational (and in care and maintenance) sites/facilities:

Sanjia Mine and Concentrator – 150tpd Project. Location: North Mountain of Sanjia Village, Maquanzi Town, Qinglong Manchu Autonomous County.
Banbishan Mine and Concentrator – 200tpd Project. Location: North Mountain of Banbi Village, Shuangshanzi Town, Qinglong Manchu Autonomous County.
Qingheyuan Mine and Heap Leach (in care and Maintenance) – 100tpd. Location: Xiaomaping Village, Liangshuihe Township, Qinglong Manchu Autonomous County.

The Qinlong Gold Project sites/facilities reviewed by SRK during the site visit and project assessment/review consists of the underground mines and surface auxiliary areas, Waste Rock Dumps (WRDs), processing plant and auxiliary facilities, Tailings Storage Facility (TSF) and office/residential sites.

12.2 Environmental Review Process, Scope and Standards

The process for the verification of the environmental permitting/licensing compliance and operational conformance for the Qinlong Gold Project comprised a review and inspection of the project’s environmental management performance against:

Chinese National environmental regulatory requirements (Appendix III).
World Bank/International Finance Corporation (IFC) environmental standards and guidelines (Appendix IV).
Internationally recognised environmental management practices.

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12.3 Status of Environmental Approvals and Permits

An Environmental Impact Assessment report (EIA) for the concentrators of Sanjia and Banbishan Gold Mines Project was produced by the Qinhuangdao Glass Industry Research Institute in September 2006. No approval for this EIA was provided to SRK for review; hence no approval conditions were available for review. No EIA report has been conducted though for the Sanjia and Banbishan mines and no EIA has been produced for the Qingheyuan Gold Mine and Heap Leach operation and as such no EIA approvals or conditions of approval are available for review.

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Environment Protection Law of People’s Republic of China”, we will standardize the mining enterprises that do not have EIA to make their production activities meeting the environment protection requirements” .

No Water and Soil Conservation Plans (WSCP) or WSCP approval for the Qinlong Gold Project’s operations were sighted as part of this review. Hongwen Gold Ltd stated to SRK that no WSCP had previously been prepared for the Qinlong Gold Project. The Qinlong Gold Project will not be compliant with the Water & Soil Conservation Law (1991) until a WSCP has been undertaken and approved by the administering Water Bureau.

No Water Resources Augmentation Report (WRAR) or WRAR approval for the Qinlong Gold Project was sighted as part of this review. Hongwen Gold Ltd stated to SRK that no WRAR had previously been prepared for the Qinlong Gold Project. The Qinlong Gold Project will not be compliant with the Water Law (1988) until a WRAR has been undertaken and approved by the administering Water Bureau.

No Final Checking and Acceptance (formal industrial entry certificate) on environmental protection facilities and systems for the Qinlong Gold Project’s operations been sighted as part of this review. Hongwen Gold Ltd reported to SRK that they have not begun any final check acceptance procedures for the Qinlong Gold Project. Hongwen Gold Ltd will need to conduct the final check acceptance on the Qinlong Gold Project before they will be able to operate compliantly under the Mining Law (1996), Environmental Protection Law (1989) and (Construction Project Environmental Protection Law (1998) . SRK was provided with copies of 9 Land Use Permits (LUP) from the Qinlong Autonomous County Land Resource Bureau for the Qinlong Gold Project’s Sanjia and Banbishan facilities/sites covering mine construction, processing plants, materials stockpiling, TSF construction, and road construction in compliance with the Land Administration Law (1999) . No LUP from the Qinlong Autonomous County Land Resource Bureau for the Qingheyuan Mine and Heap Leach, although 5 Land Acquisition (Compensation) Agreements between Hongwen Gold Ltd and the Qingheyuan Village signed in 2006 were provided for review.

SRK was provided with a copy of a Water Use Permit (No.00128 [2006]) for the extraction of groundwater (450,000m[3] /a) at Hongwen Gold Ltd’s Sanjia, Banbishan and Qingheyuan project sites. The permit was issued by the Water Resources Bureau of Qinglong Manchu Autonomous County valid from 1 June 2006 to 30 May 2010.

SRK was provided with Pollutant Discharge Permits for the Sanjia operation (No.PWL-D-0335-0145; Dec 2009 – Dec 2010) the Banbishan operation (No.PWL-D-0335-0138; Dec 2009 – Dec 2010) and an expired permit for the Qingheyuan operation (16 June 2006 – 15 June 2007). The Pollutant Discharge Permits were all issued by the Qinhuangdao City EPB.

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TECHNICAL REPORT

As no EIA, WSCP, WRAR or Final Checking Acceptance have been conducted, hence there have been no approval conditions for operation set by the EPB or Water Bureau for the Qinlong Gold Project. SRK recommends, Hongwen Gold Ltd address the lack of these environmental assessments as soon as possible thereby enabling the Qinlong Gold Project to be properly licensed and permitted via the appropriate governmental approvals for compliant operation.

12.4 Environmental Compliance and Conformance

The significant environmental aspects for the Qinlong Gold Project that are subject to this technical review are associated with the mining and mineral processing activities at the Qinlong Gold Project sites. The environmental technical review identified the following as the most significant current and potential environmental management that relate to operation and further development of the Qinlong Gold Project:

No EIA report or associated approval for the Sanjia and Banbishan Mine
No EIA report or associated approval for Qingheyuan Mine and Heap Leach
No approval for the Sanjia and Banbishan Concentrator EIA
No WSCP, WRAR or Final Checking Acceptance or their associated governmental approvals
Surface water management and discharges (i.e. site discharges, stormwater runoff)
Groundwater management and discharges (i.e. mine dewatering and seepage from the Waste Rock Dump – WRD)
Dust generation management and control
Rehabilitation of the waste rock stockpiles and other disturbed areas
Storage and handling of hazardous materials
Waste generation and management (industrial and domestic wastes)
No geochemical characterisation of industrial waste materials (waste rock)
Potential contaminated sites
Lack of an adequate structured closure planning process

The main compliance issue for the Qinlong Gold Project is that no WSCP, WRAR or Final Check Acceptance have been conducted/completed and that there are no associated governmental approvals for these project assessments. No EIA report (and

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no EIA approval) has been conducted for the Qingheyuan Mine/Heap Leach operation. This represents the greatest environmental (licensing/permitting) liability for the Qinlong Gold Project and should be addressed as soon as possible. Concurrently, operating without these project assessments reduces the operational/procedural information required to operate in compliance with other Chinese environmental laws and standards.

SRK was provided with a notice for the Qinlong Gold Project’s operations from the local Qinlong Manchu Autonomous County EPB stating that because the mine was old and EIA is not required. SRK cannot comment on the legality of this letter and recommends the issue be referred to an appropriately experienced lawyer. Therefore, SRK cannot confirm the status of the project’s compliance in relation to China’s National Mining Law (1996) , Environmental Protection Law (1989) and the Environmental Impact Assessment (EIA) Law (2002) until an EIA has been undertaken and approved by the administering Environmental Protection Bureau (EPB).

Of the above listed items, the most significant environmental risks (operational) for the Qinlong Gold Project are associated with potential surface/groundwater and dust impacts. In addition, storage and handling of hazardous materials/wastes, including fuels and reagents and the potential for generating contaminated sites and operational closure liabilities through management of waste rock, hydrocarbons and general waste also presents high environmental risks. In particular, the Qinlong Gold Project has no structured process in place for undertaking contaminated sites assessment and for broader closure planning. The lack of characterisation of process wastes and the potential for acid rock drainage and metal leaching (e.g. significant amounts of pyrite were observed within ore from the Sanjia Mine) may also be of concern.

12.5 Land Disturbance

The main impact on the surrounding ecological environment is due to disturbance and contamination caused by surface stripping, waste rock and tailings storage, processing plant drainage, processing waste water, explosions, transportation and associated buildings that are erected. If effective measures are not taken to manage and rehabilitate the disturbed areas, the surrounding land can become polluted and the land utilization function will be changed, causing an increase in land degradation, water loss and soil erosion.

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No registry documenting areas of current land disturbance for any of the Qinlong Gold Project areas have been sighted as part of this review. SRK was provided with 9 LUPs for the Sanjia and Banbishan project sites with areas permitted for project operational facilities. Operational land disturbance at site were observed by SRK to be somewhat ad-hoc in nature within the permitted project areas. The largest areas of land use/disturbance were from the construction of the processing plants, mines and their auxiliary facilities, TSFs, WRDs and the Heap Leaches for the Qingheyuan operation.

SRK recommends, Hongwen Gold Ltd develop a registry documenting areas of current land disturbance and land rehabilitation work completed for all of the Qinlong Gold Project site areas.

12.6 Flora and Fauna

Land disturbance from the development of mining and mineral processing projects may also result in impacts to or loss of flora and fauna habitat. The project development EIA should determine the extent and significance of any potential impacts to flora and fauna habitat. Where these potential impacts to flora and fauna habitat are determined to be significant, the EIA should also propose effective measures to reduce and manage these potential impacts.

No flora and fauna baseline assessment has been conducted for the Qinlong Gold Project and no other information was available for SRK to review concerning potential impacts upon floral and faunal communities in the area as a result of mining and processing activities. The project EIA covering Sanjia and Banbishan concentrators though does state, “current ecological environment shows that there is no wild animal and plants protected by state or local authorities in target region. The vegetation is mainly shrubs and grasses, both of which are not protected and have small value. The landscape is typical slope landscape without rare sceneries, and thus the aesthetic value is not high” although no reference to any botanical/zoological study was made.

SRK recommends baseline assessments along with predictions of potential impacts to floral and faunal communities in the surrounding area of influence be conducted to fully understand the project’s potential environmental risks.

12.7 Waste Rock and Tailings Management

12.7.1 Waste Rock Management

Hongwen Gold Ltd has stated they do not record the amount of waste rock produced from the Qinlong Gold Project’s mining operations. SRK observed at site that WRDs were constructed in an ad-hoc manner about the different mine shafts. No designs for these WRDs were available for review. The Qinlong Gold Project’s EIA have no made an assessment of the potential environmental impacts for the WRDs and no estimates of annual or total volumes of waste rock that need to be stockpiled from the Qinlong Gold Project’s mining operations.

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Hongwen Gold Ltd stated that no waste rock geochemical/acid rock drainage (ARD) assessment has been conducted. SRK also observed that no management measures for dealing with drainage from the WRDs were in place at the Qinlong Gold Project. Significant amounts of pyrite also were observed within ore and waste rock at some of the Qinlong Gold Project’s operations.

SRK recommends recording volumes of waste rock generated by the Qinlong Gold Project’s mines and dumped within WRD’s. SRK also recommends conducting a comprehensive ARD/geochemical characterisation assessment of waste rock to help determine effects on pH and its impact on leaching heavy metals and to develop a record of monitoring of water downstream from the WRD’s to confirm it is not being impact upon.

12.7.2 Tailings Management

No information in respect to annual or planned total tailings volumes and geochemical characterisation for the Qinlong Gold Project has been sighted as part of this review. The project EIA covering Sanjia and Banbishan concentrators mentions a tailing output of 49,000tpa, but includes no information as to whether this a total for all 3 mines (EIA also covered a third mine, Xinliu) or for 1 of the mines.

The TSF was built with a water return system for the reuse of tails water within the processing plant. Water is returned via a pump house (to a high-water tank) from seepage collection pools at the base of the TSF dam. Hongwen Gold Ltd stated that no discharge of water from the TSF takes place and all tails water is recycled for processing ore. SRK though observed that overflow from the seepage collection pool was simply allowed to discharge down the natural gullies.

Hongwen Gold Ltd reported to SRK that no geochemical characterization of tails or ARD assessment has been carried out for the Qinlong Gold Project operations. SRK did observe significant amounts of pyrite within the ore at some of the project sites and saw early signs of ARD occurring at these sites.

SRK recommends recording volumes of tailings generated by the Qinlong Gold Project. SRK also recommends conducting a comprehensive ARD/ geochemical characterisation assessment of tailings to help determine effects on pH and its impact on leaching heavy metals and to develop a record of monitoring of surface and groundwater and sediments downstream from the TSF’s to confirm it is not being impacted upon.

12.8 Water Aspects and Impacts

Groundwater is the water source (along with recycled processing water) for the Qinlong Gold Project; it is also the main water source for residents of the area. Atmospheric precipitation and runoff have been identified as being the main source of groundwater supply. No other hydrological information on aquifer flows and depths has been provided for review. As no WRAR assessment of the impact of the project

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drawing groundwater on the surrounding groundwater resources has been conducted. The surface water bodies nearby the project area have no appreciable amount of water, however there were small natural gullies running next to the Sanjia and Banbishan project sites that appears to be mainly surface water discharges.

Water use for the Qinlong Gold Project is mainly for ore processing, dust suppression, open rock-drilling dust suppression operation water, and domestic water of the office and lodging buildings in mining areas. Hongwen Gold Ltd stated they do not record the amount of water used for each activity, but estimate water usage for processing based upon the amount of water to process a unit of ore. SRK was provided with no further information on water use.

Hongwen Gold Ltd reported to SRK that mine water is not reused but is discharged to the surrounding surface environment. Hongwen Gold Ltd and the project EIA reported that all processing and tailings water is recycled and not allowed to be discharged. SRK though observed that tailings water was overflowing from the tailings seepage tank and being discharged down the adjacent gully and waste water drainage from the Concentrator was also being discharged to the gully.

SRK was provided with a Water Use Permit (No.00128 [2006] 1 January 2006 to 30 May 2010) for 450,000m[3] /a, issued by the Water Resources Bureau of Qinlong Manchu Autonomous County that covered all the Qinlong Gold Project operations for review, but no WSCP or WRAR have been conducted for the Qinlong Gold Project. Hongwen Gold Ltd reported to SRK that the only monitoring of the project’s waste water is conducted by the local Environmental Monitoring Station (no records available for review); Hongwen Gold Ltd itself does not monitor waste water or have any water treatment plant installed at the project site.

SRK recommends, the Qinlong Gold Project’s water usage be measured and recorded, waste water monitoring be conducted by Hongwen Gold Ltd and a Monitoring plan be introduced to formalize the process. Also, measures to mitigate ARD and associated metals leaching should be assessed and introduced as required along with water treatment before discharge to the environment.

12.9 Air Emissions

Dust emissions for the Qinlong Gold Project are from stockpiles, open areas, ore handling and the general movement of vehicles and mobile plant. During SRK’s site visit in winter the site was covered by snow so observations of dust generation sources, their emissions and potential impacts were not possible. As a number of areas about the project sites had little vegetation cover it is SRK’s opinion that the potential for dust generation is possible and therefore a potential environmental risk.

To date, Hongwen Gold Ltd reported there has been no operational monitoring of dust emissions at any of the Qinlong Gold Project’s locations. Site personnel stated that the concentrate stockpile was kept damp during dry periods and roads were

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sprayed by water trucks. SRK observed some water sprays at ore crushing, handling and transfer points, although they were of low efficiency. No other dust control measures were observed or described during the site inspection.

Gas emissions generated by the Qinlong Gold Project are predominately from the operation of fixed and mobile plant and emissions include fugitive waste gas, explosive waste gas and boiler’s flue gas in mainly produced by drilling, exploding, loading and transporting in the mining and stockpiling areas and heating in the winter. The main pollutants include CO, NO, NO2, smoke and SO2. No detailed assessment of these potential gas emissions has yet been completed.

SRK recommends comprehensive dust suppression/management plans and gas emission management measures are developed to meet National Standards for in the mine as well as in and around the mine site and associated facilities. SRK recommends a comprehensive analysis of the whole projects estimated emissions and management measures be established in line with Chinese National requirements.

There is no Chinese National legislative requirement for the project to estimate its Greenhouse Gas emissions or to implement any emissions reductions. As such none of the project environmental assessment documentation reviewed address the issue of Greenhouse Gas emissions. However, energy efficiency and the reduction of Greenhouse Gas emissions are now considered as Chinese National policy directives. In addition, these are also components of IFC environmental requirements and are considered as internationally recognised environmental management practices. Therefore, SRK recommends that consideration be given to developing initiatives to quantify Greenhouse Gas emissions and assess possible emission reduction strategies for the Qinlong Gold Project.

12.10 Noise Emissions

The activities that are carried out in the mining industry are characterized by producing sound emissions that if they are not adequately managed, could affect the health and security of the workers, produce changes in the fauna and in the environment in general. The main noise sources for the Qinlong Gold Project will be from the operation of fixed equipment (crushers, compressors, pumps) and mobile equipment (mainly haulage activities).

The Sanjia and Banbishan Concentrators EIAs states, the noises at plant boundaries both daytime and night do not exceed the Standard of Boundary Noise of Industrial Enterprise (GB12348-90) and the distance to the nearest residence is 1,500m and therefore noise will have a minimal impact on nearby residents. SRK observed during the site visit that significant noise sources were restricted within close vicinity of the processing plants and vehicle haulage and agrees with the EIA noise impact assessment.

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12.11 Hazardous Materials Management

Reagents were stored within the processing plant in various areas at the Sanjia and Banbishan sites, but without and secondary containment. Hydrocarbons (motor oil, grease, lubricants) were also observed about the sites not stored within dedicated areas and without any secondary containment. Hongwen Gold Ltd stated haulage contractors source their diesel off-site from state gas stations. Hongwen Gold Ltd stated Qingheyuan has been in care and maintenance since 2008 so no reagents were stored at the project site at the time of SRK’s site visit.

As the Qingheyuan Heap Leach operation will use cyanide management procedures and appropriate storages will need to be developed and implemented for safe and compliant operation. Explosives magazines were observed by SRK to have been constructed in line with Chinese legislative requirements and were the required 300m from the nearest building.

The Qinlong Gold Project should develop upgraded procedures for hazardous materials management (hydrocarbons, cyanide, reagents and explosives) and use along with appropriate storage facilities and conditions to comply with National regulations. SRK recommends constructing fuel diesel storage (with adequate bunding – secondary containment) and transfer facilities to contain spillages from entering the environment and dedicated reagent storages within the processing plant with secondary containment. Also, that appropriate management measures are developed for the use and storage of cyanide at the Qingheyuan site.

12.12 Waste Management

12.12.1 Waste Oil

The Qinlong Gold Project produces waste oil from the servicing and maintenance of equipment. No annual generation rates and detailed assessment of the storage and handling requirements for this waste oil have yet been completed. SRK observed some generated waste oil being collected at various points about the processing plant from equipment while others were not. Additionally, no dedicated storage areas (with appropriate containment) were observed during the site visit. Hongwen Gold Ltd stated they do not sell it for recycling in line with Chinese directives for recycling and reuse of waste products, but that they do reuse some of it for lubrication about site.

SRK recommends maintenance work is carried out over concreted hardstand areas to minimize the spillage of waste oil to the soil/water environment. The waste oil collected should be stored in containers within secondary containment facilities. Initiatives for the sale and recycling of waste oil should be developed and implemented to fulfil Chinese National Standards for the reuse/recycling of waste products (including hydrocarbons).

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12.12.2 Solid Wastes

No annual generation rates and detailed assessment of the disposal of the inert industrial and domestic solid wastes for the Qinlong Gold Project has yet been completed. SRK observed examples of uncontrolled rubbish dumping within the current project site areas during the site visit. Hongwen Gold Ltd reported to SRK that no dedicated company or county landfill was being used for refuse disposal, but was simply discarded.

SRK recommends placing sufficient refuse collection points about site for the collection of refuse prior to disposal. Hongwen Gold Ltd should either be able to have rubbish collected by the local county (dependent upon whether the county has such services) or can construct their own landfill (which needs permitting) for disposal of refuse generated on site. SRK did observe that scrap iron was being collected and stockpiled in an ad-hoc manner about site prior to being sold for recycling in line with Chinese National directives on the reuse/recycling of waste products.

12.12.3 Sewage and Oily Waste Water

No annual generation rates and detailed assessment of the disposal of the sewage or oily waste water for the Qinlong Gold Project have been completed. The project EIA (for the Sanjia and Banbishan Concentrators) provides no information regarding sewage generation and management measures to control potential environmental impacts. SRK observed during the site visit that dry composting toilets were used at site and Hongwen Gold Ltd stated that the compost was collected regularly and used as fertilizer about site and adjacent areas.

No information on oily waste water was available at the time of SRK’s site visit and no reference to oily waste water impacts or management procedures was made. SRK observed that there were no measures in place about the Qinlong Gold Project sites for the separation of oils from waste water and that plant drainage from the Sanjia and Banbishan sites was being discharged into local gullies.

SRK recommends the management of oily waste water and sewage be addressed as part of an operational Environmental Protection and Management Plan (EPMP) for the project. Hongwen Gold Ltd should construct plant washdown collection drains and concreted hardstand areas for vehicle and equipment maintenance that are bunded to collect spilt hydrocarbons for appropriate disposal and separation from water; thereby reducing the source of oily waste water.

12.13 Contaminated Sites Assessment

The assessment, recording and management of contaminated sites within mining or mineral processing operations, is a recognised international industry practice (i.e. forms part of the IFC Guidelines) and in some cases a National regulatory requirement (e.g. an Australian environmental regulatory requirement). The purpose of this process

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is to minimise the level of site contamination that may be generated throughout a project’s operation while also minimising the level and extent of site contamination that will need to be addressed at site closure.

A contaminated site or area can be defined as:

“An area that has substances present at above background concentrations that presents or has the potential to present a risk of harm to human health, the environment or any environmental value”.

Contamination may be present in soil, surface water or groundwater and also may affect air quality through releases of vapours or dust.

Examples of typical contaminated areas within a mining/mineral processing project are spillages to soil/water of hydrocarbons and chemicals, and uncontained storage and spillages to soil/water of ores and concentrates.

The process to assess and record the level of contamination basically involves a combination of visual (i.e. suspected contamination observed from spillages/releases) and soil/water/air sampling and testing (i.e. to confirm contaminant levels). Once the level of contamination is defined, the area’s location and contamination details are then recorded within a site register.

Remediation/clean up of contamination areas involves the collection and removal of the contaminated materials for treatment and appropriate disposal, or in some cases the in-situ treatment of the contaminated (e.g. use of bioremediation absorbents on hydrocarbon spillage). The other key component to the management of contaminated areas is to also remove or remedy the source of the contamination (e.g. place hydrocarbon storage and handling within secondary containment).

No contaminated sites assessment program has at this stage been developed for the Qinlong Gold Project that covers the above mentioned components. Although the majority of the project site was covered by snow during SRK’s site visit, SRK observed areas of contamination (oil spills and rubbish) about the areas of the project site; mainly, by hydrocarbon storage areas, concentrator sites and vehicle maintenance areas. SRK recommends that a contaminated sites assessment and management process be developed for the Qinlong Gold Project, thereby actively remediating current and future contaminated sites.

12.14 Environmental Protection and Management Plan

The purpose of an operational Environmental Protection and Management Plan (EPMP) is to direct and coordinate the management of the project’s environmental risks. The EPMP documents the establishment, resourcing and implementation of the project’s environmental management programs. The site environmental performance is monitored and feedback from this monitoring is then utilised to revise and streamline the implementation of the EPMP.

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No plan has at this stage been developed for the Qinlong Gold Project that covers the above mentioned components. SRK was provided with copies of an “Environment Policies and Management Modes” and “Environment Management Practical Outlines” of Hongwen Gold Ltd for the Qinlong Gold Project. They include:

Practical Environment Outlines
Environment Risk Assessment and Management
Air Emission/Dust Management
Ambient Noises
Storage, Usage and Disposal of Petroleum
Management of Chemicals/Harmful Materials and Wastes
Management of Surface Water and Groundwater
Land Disturbance
Land Reclamation
Management of Production Waste Residues
Waste Management
On-site Pollution
Production Shutdown Planning/Site Cleaning
Impact to Local Communities

SRK observed at site that no operation plans or procedures existed at site for the assessment, recording or management of these issues. SRK recommends that Hongwen Gold Ltd develop and implement an operational EPMP for the Qinlong Gold Project in line with Chinese National requirements and recognised international practices as the project moves toward operation.

12.15 Emergency Response Plan

The IFC describes an emergency as ‘an unplanned event when a project operation loses control, or could lose control, of a situation that may result in risks to human health, property, or the environment, either within the facility or in the local community’. Emergencies are of a scale that have operational wide impacts, and do not include small scale localised incidents that are covered under operational area specific

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management measures. Examples of an emergency for a mining/mineral processing project are events such as pit wall collapse, underground mine explosion, the failure of a TSF or a large scale spillage/discharge of hydrocarbons or chemicals.

The recognised international industry practice for managing emergencies is for a project to develop and implement an Emergency Response Plan (ERP). The general elements of an ERP are:

Administration – policy, purpose, distribution, definitions of potential site emergencies and organisational resources (including setting of roles and responsibilities).
Emergency response areas – command centres, medical stations, muster and evacuation points.
Communication systems – both internal and external communications.
Emergency response procedures – work area specific procedures (including area specific training).
Checking and updating – prepare checklists (role and action list and equipment checklist) and undertake regular reviews of the plan.
Business continuity and contingency – options and processes for business recovery from an emergency.

No plan has at this stage been developed for the Qinlong Gold Project that covers the above mentioned components. SRK notes that the “Environment Policies and Management Modes” report that was supplied by Hongwen Gold Ltd gives a brief of an ERP for environmental accidents that should be implemented at site. SRK notes though that an operational ERP had not been developed or implemented at any of the Qinlong Gold Project sites.

SRK recommends that Hongwen Gold Ltd develop and implement an operational ERP for the Qinlong Gold Project, in line with Chinese requirements and recognised international industry practices.

12.16 Site Closure Planning and Rehabilitation

The Chinese National requirements for mine closure are covered under Article 21 of the Mineral Resources Law (1996), the Rules for Implementation of the Mineral Resources Law of the People’s Republic of China (2006), the Land Use Regulations of the People’s Republic of China (1986.6.25) and the Land Rehabilitation Regulation issued by the State Council on October 21, 1988 . In summary these legislative requirements cover the need to conduct land rehabilitation, to prepare a site closure report and submit a site closure application for assessment and approval.

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The recognised international industry practice for managing site closure is to develop and implement an operational site closure planning process and document this through an operational Closure Plan. This operational closure planning process should include the following components:

Identify all site closure stakeholders (e.g. government, employees, community etc.).
Undertake stakeholder consultation to develop agreed site closure criteria and post operational land use.
Maintain records of stakeholder consultation.
Establish a site rehabilitation objective in line with the agreed post operational land use.
Describe/define the site closure liabilities (i.e. determined against agreed closure criteria).
Establish site closure management strategies and cost estimates (i.e. to address/reduce site closure liabilities).
Establish a cost estimate and financial accrual process for site closure.
Describe the post site closure monitoring activities/program (i.e. to demonstrate compliance with the rehabilitation objective/closure criteria).

The implementation of this process for a Chinese mining project will:

Facilitate achieving compliance with these Chinese National legislative requirements; and
Demonstrates conformance to a recognised international industry management practice.

There is currently no operational closure planning process in place for the Qinlong Gold Project that covers the above components. SRK recommends that an operational closure planning process is developed and implemented for the Qinlong Gold Project in line with Chinese National legislative requirements and incorporates recognised international industry practices. SRK did though observe that the TSF dam walls had been revegetated at the Sanjia and Banbishan Project sites.

12.17 Evaluation of Environmental Risks

The sources of inherent environmental risk are project activities that may result in potential environmental impacts. These project activities have been previously described within this report.

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In summary the most significant compliance and environmental risks for the development of the Qinlong Gold Project, currently identified as part of the project assessment, are:

No EIA report or associated approval for the Sanjia and Banbishan Mines
No EIA report or associated approval for Qingheyuan Mine and Heap Leach
No approval for the Sanjia and Banbishan Concentrator EIA
No WSCP, WRAR or Final Checking Acceptance or their associated governmental approvals
Surface water management and discharges (i.e. site discharges, stormwater runoff)
Groundwater management and discharges (i.e. mine dewatering and seepage from the Waste Rock Dump – WRD)
Dust generation management and control
Rehabilitation of the waste rock stockpiles and other disturbed areas
Storage and handling of hazardous materials
Waste generation and management (industrial and domestic wastes)
No geochemical characterisation of industrial waste materials (waste rock)
Potential contaminated sites
Lack of an adequate structured closure planning process

The main compliance issue for the Qinlong Gold Project is that no EIA for the Sanjia and Banbishan Mines (EIA only covers Concentrators) and no EIA for the Qingheyuan Mine and Heap Leach has been prepared. There is also no EPB approval for the Sanjia and Banbishan Concentrator EIA. SRK was provided with a notice for the Qingheyuan Mine and Heap Leach from the local Qinlong Manchu Autonomous County EPB stating that because the mine was old and EIA is not required. SRK cannot comment on the legality of this letter and recommends the issue be referred to an appropriately experienced lawyer. No WSCP, WRAR or Final Check Acceptance have been conducted/completed and that there are no associated governmental approvals for these project assessments.

The environmental risks associated with water, dust and tailings management, and land disturbance and rehabilitation, can be generally managed if Chinese National environmental standards and regulatory requirements are met.

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The environmental risks associated with the potential for generating contaminated sites and other site closure liabilities can be effectively managed through the adoption of relevant recognised international industry practices. On-site management of these above risks should be coordinated through the implementation of an operational EPMP.

13 SOCIAL ASSESSMENT

13.1 Social and Community Interaction

The Qinlong Gold Project is located in Qinglong Manchu Autonomous County in the northeast boundary of Hebei Province, north of the Great Wall of Ming Dynasty and east side of Yanshan Mountains. The Qinlong Gold Project is owned and operated by Qinglong Manchu Autonomous County Hongwen Gold Company Limited (Hongwen Gold Ltd).

13.2 Public Participation

The EIA reports, according to the survey results, the reasons people agree with the project location and construction are listed as follow:

The project construction complies with state industrial policy.
The project construction can promote local economy development.
The project can not only obtain better economic benefits, but increase the financial tax of Qinglong County
The Project can provide jobs to local peasants, increase local people’s income, improve living level and be favorable for social stability and to build a moderately prosperous society in all aspects.

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The pollution control measures adopted have better effect, and “three wastes” have little impact to local environment.

The EIA also reports, in the survey of public participation, people are concerned about the project construction and put forward many suggestions and requirements, mainly including:

The project shall carefully carry out “three simultaneities” principle, implement pollution control, and make sure the environmental protection facilities running smoothly and no pollution caused to environment.
They hope that the reasonable compensation shall be paid to the peasants for the land occupied according to relevant state regulations, and that when recruiting employees, qualified local peasants can be given prior to.

SRK recommends carrying out the public’s suggestions/requirements as reported within the EIA to ensure Hongwen Gold Ltd maintains a strong social license to operate amongst their communities and reduce and social risks and liabilities to the Qinlong Gold Project.

13.3 Relationship with Local Government

The main administrative body for the Qinlong Gold Project is the in Qinlong Manchu Autonomous County government within Hebei Province jurisdiction. No non-compliance notices and or other notices of breach of environmental/social conditions for the Qinlong Gold Project have been sighted as part of this review.

Hongwen Gold Ltd reported to SRK that the local government and local community believe, with little previous industry developed in the area, the local government/community felt that the project would be advantageous to the area’s development.

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REFERENCES

No.5 Geological Brigade, Hebei Provincial Bureau of Geology and Mineral Resources, Resources/Reserves and Geological Investigation Report on Sanjia Mine, Qinglong Manchu Autonomous County, Hebei Province , November 2009.
No. 522 Brigade of North China Metallurgy Geology Exploration Company, Geological Exploration Report on Sanjia Mine Area, Qinglong Manchu Autonomous County, Hebei Province , November 1981.
No. 5 Geological Brigade, Hebei Provincial Bureau of Geology and Mineral Resources, Resources/Reserves and Geological Investigation Report on Banbishan Mine, Qinglong Manchu Autonomous County , Hebei Province, November 2009.
No. 5 Geological Brigade, Hebei Provincial Bureau of Geology and Mineral Resources, Resources/Reserves and Geological Investigation Report on Miaozhangzi Mine, Qinglong Manchu Autonomous County, Hebei Province , November 2009.
No. 2 Geological Brigade, Hebei Provincial Bureau of Geology and Mineral Resources, Geological Exploration Report on Miaozhangzi Mine Area, Qinglong Manchu Autonomous County, Hebei Province , December 1988.
No. 522 Brigade of North China Metallurgy Geology Exploration Company, Geological Exploration Report on Sanjia Mine Area, Qinglong Manchu Autonomous County , Hebei Province, November 1981.
Changchun Gold Design Institute, Pre-feasibility Study for Qinglong County 4 Gold Mines Acquisition , Aug 2007;
Qinglong Manchu Autonomours County Hongwen Gold Co., Ltd. Profile and Resources Introduction , Nov 2008;
The 2nd Geology Exploration Brigade of Hebei Geology and Minerals Development and Exploration Bureau, Geology Prospecting Report for Banbishan Gold Mine of Qinglong County , Hebei Province, Dec 1988;
The 2nd Geology Exploration Brigade of Hebei Geology and Minerals Development and Exploration Bureau, Detailed Geology Prospecting Report for Miaozhangzi Gold Mine of Qinglong County, Hebei Province , Dec 1988;
The 522nd Brigade of North China Metallurgy and Geology Exploration Company, Geology Exploration Report for Sanjia Gold Mine of Qinglong County, Hebei Province , Nov 1981;
The 522nd Brigade of North China Metallurgy and Geology Exploration Company, Borehole Log for Sanjia Gold Mine of Qinglong County, Hebei Province ;

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The 522nd Brigade of The 1st Metallurgy and Geology Exploration Company of Ministry of Metallurgical Industry, Vein No.3 and No.3-1 Assessment Report for Sanjia Gold Mine of Qinglong County, Hebei Province , May 1987;
Cost Statement (Jan-Nov 2009) for Sanjia Gold Mine of Qinglong Hongwen Gold Co., Ltd. ;
Sanjia Gold Mine Salary Table (Sept.2009) ;
Sanjia Gold Mine Employee Statistics , 24 Sept. 2009;
Materials Daily Consumption Record (Sept 2009) for Mining Area No.1 and No.2 of Sanjia Gold Mine ;
Sanjia Gold Mine Production Statement(Jan-Sept 2009) for Mining Area No.1 and No.2 ;
Sanjia Gold Mine Daily Production Statement (1-15 Nov 2009) ;
Sanjia Gold Mine Daily Weighting Table ;
Sanjia Gold Mine Daily Mining Record (Sept 2009) ;
Sanjia Gold Mine Samples Test Report ;
Sanjia Gold Mine Lean Ore Daily Production Record (Sept 2009) ;
Internal Audit Table (Sept 2009) for Mining Area No.1 of Sanjia Gold Mine ;
Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd., 2009 Company Targets , 1 Jan 2009;
Qinglong Manchu Autonomous County Honwen Gold Co., Ltd., 2009 Company Targets Assignment , 25 Dec 2008;
2009 Output and Tunnelling Plan for Sanjia Gold Mine of Hongwen Gold Co., Ltd , 5 Nov 2008;
Production Plan (Jul, Aug and Sept of 2009) for Sanjia Gold Mine of Hongwen Gold Co., Ltd. ;
Sanjia Gold Mine Fixed Assets Depreciation Table ;
2009 Injunctions for Mining Area No.1 of Sanjia Gold Mine , 25 Dec 2008;
8 Rewarding and Punishing Measures for Mining Area No.1 of Sanjia Gold Mine in 2009 , 25 Dec 2008;

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Sanjia Gold Mine Punishment Regulations for Production Regulations Violation in 2009
Banbishan Gold Mine Employee Statistics ;
Rewards and Punishments Measures for Banbishan Processing Plant , 1Jan 2009;
Rewards and Punishments Measures for the Mining Area of Banbishan Gold Mine , 1 Jan 2009;
Banbishan Gold Mine Fixed Assets Inventory ;
Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd., Banbishan Gold Mine 2009 Targets , 1 Jan 2009;
Consumption Table for Rock Drilling (Sept 2009) for Mining in Mining Area No.2 of Banbishan Gold Mine ;
Consumption Table for Rock Drilling (Sept 2009) for Tunnelling in Mining Area No.2 of Banbishan Gold Mine ;
Banbishan Gold Mine Jan – Sept Payroll Table ;
Banbishan Gold Mine Jan – Dec Cost Statement ;
Banbishan Gold Mine Low Cost Articles and Consumables Inventory , 30 Dec 2009;
Qinghuangdao Land and Resources Bureau, Banbishan Gold Mine Lengjingou Mining Area Mining License Renewing Certificate , 7 Dec 2009;
Banbishan Gold Mine Salary Collection ;
MCC Shenkan Engineering and Technology Corporation Qinhuangdao Co., Ltd., Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd. Banbishan Gold Mine Tailing Dam Stability Analysis Report , Oct 2009;
MCC Capital Engineering and Research Incorporation Qinhuangdao Co., Ltd., Qinhuangdao Qinglong Manchu Autonomous County Gold Resources Consolidation Implementation Plan , Nov 2009;
Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd. Regulations Collection (book 1-Safety Production Responsibility System, book 2– Safety Production Management Regulation, book 3– work post safety operation regulation) ;
Heibei Huizheng Safety Assessment Co., Ltd. Safety Status Assessment Report on Shuiquangou Mining Area of Qingheyan Gold Mine, Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd. , Jun 2008;

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Heibei Huizheng Safety Assessment Co., Ltd, Safety Status Assessment Report on Banbishan Gold Mine, Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd. , Jun 2008;
Heibei Huizheng Safety Assessment Co., Ltd, Safety Status Assessment Report on Sanjia Gold Mine, Qinglong Manchu Autonomous County Hongwen Gold Co. , Ltd. Jun 2008;
Hebei Huatai Safety Assessment Co., Ltd., Safety Production Permit Specific Assessment Report for Sanjia Gold Mine, Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd. Jun 2005;
Hebei Huatai Safety Assessment Co., Ltd., Safety Production Permit Specific Assessment Report for Banbishan Gold Mine, Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd. Jun 2005;
Hebei Huatai Safety Assessment Co., Ltd. Safety Production Permit Specific Assessment Report for Shuquannangou Mining Area of Qingheyan Gold Mine, Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd. Jun 2005;
Hebei Huatai Safety Assessment Co., Ltd. Safety Production Permit Specific Assessment Report for Xiaodongyu Mining Area of Qingheyan Gold Mine, Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd. Jun 2005;
Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd Qingheyan Gold Mine Production Statement of 2006, 2007 and 2008 ;
Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd Banbishan Gold Mine Production Statement of 2006, 2007, 2008 and Jan 2009
Qinglong Manchu Autonomous County Hongwen Gold Co., Ltd Sanjia Gold Mine Production Statement of 2006, 2007 and 2008
The 5th Geology Exploration Brigade of Hebei Geology Exploration Bureau of Geology Exploration and Minerals Development, Hebei Qinglong Manchu Autonomous County Xiaomaping Township Qingheyan Gold Mine Geology Prospecting Report , May 1997;
The 5th Geology Exploration Brigade of Hebei Geology Exploration and Minerals Development Bureau, Geology Exploration Report for Gold Resource/Reserve in Banbishan Gold Mine of Qinglong Manchu Autonomous County, Heibei Province , Nov 2009;
The 5th Geology Exploration Brigade of Hebei Geology Exploration and Minerals Development Bureau, Geology Exploration Report for Gold Resource/Reserve in Qingheyan Gold Mine of Qinglong Manchu Autonomous County, Heibei Province , Nov 2009;

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APPENDIX VI

The 5th Geology Exploration Brigade of Hebei Geology Exploration and Minerals Development Bureau, Geology Exploration Report for Gold Resource/Reserve in Sanjia Gold Mine of Qinglong Manchu Autonomous County, Heibei Province , Nov 2009;
The 5th Geology Exploration Brigade of Hebei Geology Exploration and Minerals Development Bureau, Geology Exploration Report for Gold Resource/Reserve in Miaozhangzi Gold Mine of Qinglong Manchu Autonomous County, Heibei Province , Nov 2009;
Gold Resource Status and Development in Qinglong County ;
Qinglong Manchu Autonomours County Hongwen Gold Co., Ltd, Environment Policies and Management Modes of Qinglong Manchu Autonomours County Hongwen Gold Co., Ltd. , Jan 2009;
Qinglong Manchu Autonomours County Hongwen Gold Co., Ltd, Environment Management Practical Outline of Qinglong Manchu Autonomours County Hongwen Gold Co., Ltd , Jan 2009;
Qinhuangdao Glass Industry Research Institute, EIA report of concentrators of Xinliu, Sanjia and Banbishan Gold Mines, Qinglong Manchu Autonomous County , Sept 2006.
Qinhuangdao Environment Monitoring Station, Hebei Province Pollution Sources Monitoring Report (Sanjia, Qingheyan and Banbishan) , 2006;
Water Resource Bureau of Qinglong Manchu Autonomous County, Water Usage Permit , 1 Jun 2006;

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APPENDIX VI

APPENDICES

APPENDIX VI

APPENDIX II: CHINESE RESOURCE AND RESERVE STANDARDS

Categorization of Mineral Resources and Ore Reserves

The system for the categorisation of mineral resources and ore reserves in China is in a period of transition which commenced in 1999. The traditional system, which is derived from the former Soviet system, uses five categories based on decreasing levels of geological confidence – Categories A, B, C, D and E. The new system (Rule 66) promulgated by the Ministry of Land and Resources (MLR) in 1999 uses three-dimensional matrices, based on economic, feasibility/mine design and geological degrees of confidence. These are categorised by a three number code of the form “123”. This new system is derived from the UN Framework Classification proposed for international use. All new projects in China must comply with the new system, however, estimates and feasibility studies carried out before 1999 will have used the old system.

Wherever possible, the Chinese Resource and Reserve estimates have been reassigned by SRK to categories similar to those used by the JORC Code to standardise categorisation. Although similar terms have been used, SRK does not mean to imply that in their present format they are necessarily classified as ‘Mineral Resources’ as defined by the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”).

Definition of the new Chinese resource and reserve category scheme and a general comparison guide between the Chinese classification scheme and the JORC Code is presented in the following tables.

	Chinese	Reserve Category
JORC Code Resource	Previous	Current system
Measured	A, B	111, 111b, 121, 121b, 2M11, 2M21, 2S11,
Indicated	C	122, 122b, 2M22, 2S22, 332
Inferred	D	333
Non-equivalent	E	334

Definition of the New Chinese Resource and Reserve Category Scheme

Category	Denoted	Comments
Economic	1	Full feasibility study considering economic
		factors has been conducted
	2	Pre-feasibility to scoping study which
		generally considers economic factors has
		been conducted
	3	No pre-feasibility or scoping study
		conducted to consider economic analysis

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Category		Denoted	Comments
Feasibility		1	Further analysis of data collected in “2” by
			an external technical department
		2	More detailed feasibility work including
			more trenches, tunnels, drilling, detailed
			mapping
		3	Preliminary evaluation of feasibility with
			some mapping and trenches
Geologically	controlled	1	Strong geological control
		2	Moderate geological control via
			closely-spaced data points (e.g.
			small-scale mapping)
		3	Minor work which is projected throughout
			the area
		4	Review stage

Relationship between JORC Code and the Chinese Reserves System

In China, the methods used to estimate the resources and reserves are generally prescribed by the relevant Government authority, and are based on the level of knowledge for that particular geological style of deposit. The parameters and computational methods prescribed by the relevant authority include cut-off grades, minimum thickness of mineralisation, maximum thickness of internal waste, and average minimum ‘industrial’ or ‘economic’ grades required. The resource classification categories are assigned largely on the basis of the spacing of sampling, trenching, underground tunnels and drill holes.

In the pre-1999 system, Category A generally included the highest level of detail possible, such as grade control information. However, the content of each category B, C and D may vary from deposit to deposit in China, and therefore must be carefully reviewed before assigning to an equivalent “JORC Code type” category. The traditional Categories B, C and D are broadly equivalent to the ’Measured’, ‘Indicated’, and ‘Inferred’ categories that are provided by the JORC Code and USBM/USGS systems used widely elsewhere in the world. In the JORC Code system the ‘Measured Resource’ category has the most confidence and the ’Inferred’ category has the least confidence, based on the increasing levels of geological knowledge and continuity of mineralisation.

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APPENDIX VI

In the new Chinese Category Scheme, as shown in the following table, the three numbers refer to economic, feasibility/mine design and geological degrees of confidence.

Chinese Classification Scheme Comparison to JORC

Old Chinese Classification			A & B								C			D	E & F
						New	Chinese			Classification
“E” Economic Designed mining loss accounted	Recoverable Reserve (111)		Probable Recoverable Reserve (121)								Probable Recoverable Reserve (122)
Evaluation (100) Designed mining loss not accounted (b)		Basic Reserve (111b)		Basic Reserve (121b)							Basic Reserve (122b)
		Basic		Basic							Basic
Marginal Economic (2M00)		Reserve		Reserve							Reserve
		(2M11)		(2M21)							(2M22)
Sub-Economic (2S00)		Resource (2S11)		Resource (2S21)							Resource (2S22)
Intrinsically		–			–			Resource					Resource	Resource	Resource
Economic (300)									(331)				(332)	(333)	(334)
“F” Feasibility Evaluation		Feasibility (010)	Pre-Feasibility (020)						Scoping (030)		Pre-Feasibility (020)		Scoping (030)	Scoping (030)	Scoping (030)
“G” Geological Evaluation				Measured (001)								Indicated (002)		Inferred (003)	Predicted (004)
														Unclassified or
														Exploration Potential
													Inferred
JORC			Probable Reserve					or	Indicated
						Resource
		Proved/Probable Reserve or
		Measured	Resource

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APPENDIX VI

APPENDIX III: CHINESE ENVIRONMENTAL LEGISLATIVE BACKGROUND

The Chinese National Mineral Resources Law (1996), Rules for Implementation of the Mineral Resources Law of the People’s Republic of China (2006) and Environmental Protection Law (1989) provide the main legislative framework for the regulation and administration of mining projects within China. The Environmental Protection Law (1989) provides the main legislative framework for the regulation and administration of mining projects environmental impacts.

The following articles of the Mineral Resources Law (1996) summarise the specific provisions in relation to environmental protection:

� Article 15 Qualification & Approval

Anyone who wishes to establish a mining enterprise must meet the qualifications prescribed by the State, and the department in charge of examination and approval shall, in accordance with law and relevant State regulations examine the enterprise’s mining area, its mining design or mining plan, production and technological conditions and safety and environmental protection measures. Only those that pass the examination shall be granted approval.

Article 21 Closure Requirements

If a mine is to be closed down, a report must be prepared with information about the mining operations, hidden dangers, land reclamation and utilisation, and environmental protection, and an application for examination and approval must be filed in accordance with relevant State regulations.

Article 32 Environmental Protection Obligations of Mining License Holders

In mining mineral resources, a mining enterprise or individual must observe the legal provisions on environmental protection to prevent pollution of the environment. In mining mineral resources, a mining enterprise or individual must economise on the use of land. In case cultivated land, grassland or forest land is damaged due to mining, the mining enterprise concerned shall take measures to utilize the land affected, such as by reclamation, tree and grass planting, as appropriate to the local conditions. Anyone who, in mining mineral resources, causes losses to the production and well-being of other persons shall be liable for compensation and shall adopt necessary remedial measures.

The following articles of the Environmental Protection Law (1989) summarise the specific provisions for environmental protection in relation to mining:

Article 13 Environmental Protection

Units constructing projects that cause pollution to the environment must observe the state provisions concerning environmental protection for such construction projects. The environmental impact statement on a construction project must assess the pollution

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the project is likely to produce and its impact on the environment and stipulate the preventive and curative measures; the statement shall, after initial examination by the authorities in charge of the construction project, be submitted by specified procedure to the competent department of environmental protection administration for approval. The department of planning shall not ratify the design plan descriptions of the construction project until after the environmental impact statement on the construction project is approved.

Article 19 Statement of requirement for Environmental Protection

Measures must be taken to protect the ecological environment while natural resources are being developed or utilised.

Article 24 Responsibility for Environmental Protection

Units that cause environmental pollution and other public hazards shall incorporate the work of environmental protection into their plans and establish a responsibility system for environmental protection, and must adopt effective measures to prevent and control the pollution and harms caused to the environment by waste gas, waste water, waste residues, dust, malodorous gases, radioactive substances, noise, vibration and electromagnetic radiation generated in the course of production, construction or other activities.

Article 26 Pollution Prevention & Control

Installations for the prevention and control of pollution at a construction project must be designed, built and commissioned together with the principal part of the project. No permission shall be given for a construction project to be commissioned or used, until its installations for the prevention and control of pollution are examined and considered up to the standard by the competent department of environmental protection administration that examined and approved the environmental impact statement.

Article 27 Report on Pollution Discharge

Enterprises and institutions discharging pollutants must report to and register with the relevant authorities in accordance with the provisions of the competent department of environmental protection administration under the State Council.

Article 38 Violation Consequences

An enterprise or institution which violates this Law, thereby causing an environmental pollution accident, shall be fined by the competent department of environmental protection administration or another department invested by law with power to conduct environmental supervision and management in accordance with the consequent damage; in a serious case, the persons responsible shall be subject to administrative sanction by the unit to which they belong or by the competent department of the government.

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The following articles of the Construction Project Environmental Protection Law (1998) and Regulations on the Administration of Construction Project Environmental Protection (November 1998) summarise the specific provisions for undertaking a project’s Final Checking and Acceptance process:

Article 20 – The construction unit should, upon completion of a construction project, file an application with the competent department of environmental protection administration that examined and approved the said construction project environmental impact report, environmental impact statement or environmental impact registration form for acceptance checks on completion of matching construction of environmental protection facilities required for the said construction project.
Acceptance checks for completion of construction of environmental protection facilities should be conducted simultaneously with the acceptance checks for completion of construction of the main body project. Where trial production is required for the construction project, the construction unit should, within 3 months starting from the date of the said construction project going into trial production, file an application with the competent department of environmental protection administration that examined and approved the said construction project environmental impact report, environmental impact statement or environmental impact registration form for acceptance checks on completion of matching construction of environmental protection facilities required for the said construction project.
Article 21 – For construction projects that are built in phases, go into production or are delivered for use in phases, acceptance checks for their corresponding environmental protection facilities should be conducted in phases.
Article 22 – Competent departments of environmental protection administration should, within 30 days starting from the date of receipt of the application for acceptance checks on completion of construction of the environmental protection facilities, complete the acceptance checks.
Article 23 – The said construction project may only formally go into production or be delivered for use when the matching construction of the environmental protection facilities required for the construction project has passed acceptance checks.

The following article of the Water & Soil Conservancy Law (1991) summarises the provisions for the preparation and approval of Water and Soil Conservation Plans:

Article 19 – When the construction of a railway, highway or a water project is carried out, a mining or electrical power enterprise or any other large or medium-sized industria1; enterprise is established in a mountainous, hilly or sandstorm area, the environmental impact statement for the project must include a

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APPENDIX VI

water and soil conservation programme approved by the department of water administration. The water and soil conservation programme shall be drawn up in accordance with the provisions of Article 18 of this Law.

Where a township col1ective mining enterprise is to be set up or an individua1 is to apply for mining, in accordance with the provisions of the Law on Mineral Resources, in a mountainous, hilly or sandstorm area, a water and soil conservation programme approved by the department of water administration under the people’s government at or above the county level must be submitted before the app1ication for going through the approving procedures for mining operation is made. Water and soil conservation facilities in a construction project must be designed, constructed and put into operation simultaneously with the principal part of the project. When a construction project is completed and checked for acceptance, the water and soi1 conservation facilities shal1 be checked for acceptance at the same time, with personnel from the department of water administration participating.

The following are other Chinese laws that provide environmental legislative support to the Minerals Resources Law (1996) and the Environmental Protection Law (1989):

Environmental Impact Assessment (EIA) Law (2002).

Law on Prevention & Control of Atmospheric Pollution (2000).

Law on Prevention & Control of Noise Pollution (1996).

Law on Prevention & Control of Water Pollution (1996).

Law on Prevention & Control Environmental Pollution by Solid Waste (2002).

Forestry Law (1998).

Water Law (1988).

Water Conservancy Industrial Policy (1997).

Land Administration Law (1999).

Protection of Wildlife Law (1989).

Energy Conservation Law (1998).

Electric Power Law (1995).

Management Regulations of Prevention & Cure of Tailings Pollution (1992).

Management Regulations of Dangerous Chemical Materials (1987).

The relevant environmental protection related Chinese legislation that are required to be utilised for project’s design are a combination of the following National design regulations and emissions standards:

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APPENDIX VI

Environment Protection Design Regulations of Construction Project (No.002) by Environment Protection Committee of State Council of PRC (1987).
Regulations on the Administration of Construction Project Environmental Protection (1998).

Regulations for Quality Control of Construction Projects (2000).

Regulations for Environmental Monitoring (1983).

Regulations on Nature Reserves (1994).

Regulations on Administration of Chemicals Subject to Supervision & Control (1995). Regulations on Management of Chemicals Subject to Supervision & Control (1995). Environment Protection Design Regulations of Metallurgical Industry (YB9066-55). Comprehensive Emission Standard of Wastewater (GB8978-1996).

Environmental Quality Standard for Surface Water (GB3838-1988).

Environmental Quality Standard for Groundwater (GB/T14848-1993).

Ambient Air Quality Standard (GB3095-1996).

Comprehensive Emission Standard of Atmospheric Pollutants (GB16297-1996).

Emission Standard of Atmospheric Pollutants from Industrial Kiln (GB9078-1996).

Emission Standard of Atmospheric Pollutants from Boiler (GB13271-2001) ---– II – stage coal-fired boiler.

Environmental Quality Standard for Soils (GB15618-1995).

Standard of Boundary Noise of Industrial Enterprise (GB12348-90).

Emissions Standard for Pollution from Heavy Industry; Non-Ferrous Metals (GB4913-1985).

Control Standard on PCB’s for Wastes (GB13015-1991).

Control Standard on Cyanide for Waste Slugs (GB12502-1990).

Standard for Pollution Control on Hazardous Waste Storage (GB18597-2001).

Identification Standard for Hazardous Wastes-Identification for Extraction Procedure Toxicity (GB5085.3-1996).

Standard of Landfill and Pollution Control of Hazardous Waste (GB 18598-2001).

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APPENDIX VI

APPENDIX IV: WORLD BANK/INTERNATIONAL FINANCE CORPORATION (IFC) ENVIRONMENTAL STANDARDS AND GUIDELINES

In seeking to obtain project financing or to list on a stock exchange, these institutions themselves require the proponent to comply with such documents as the Equator Principles and the IFC Performance Standards and Guidelines. This is exemplified by the following preamble from the Equator Principles (July 2006):

Project financing, a method of Funging in which the lender looks primarily to the revenues generated by a single project both as the source of repayment and as security for the exposure, plays an important role in financing development throughout the world. Project financiers may encounter social and environmental issues that are both complex and challenging, particularly with respect to projects in the emerging markets.

The Equator Principles Financial Institutions (EPFIs) have consequently adopted these Principles in order to ensure that the projects we finance are developed in a manner that is socially responsible and reflect sound environmental management practices. By doing so, negative impacts on project-affected ecosystems and communities should be avoided where possible, and if these impacts are unavoidable, they should be reduced, mitigated and/or compensated for appropriately. We believe that adoption of and adherence to these Principles offers significant benefits to ourselves, our borrowers and local stakeholders through our borrowers’ engagement with locally affected communities. We therefore recognise that our role as financiers affords us opportunities to promote responsible environmental stewardship and socially responsible development. As such, EPFIs will consider reviewing these Principles from time-to-time based on implementation experience, and in order to reflect ongoing learning and emerging good practice.

These Principles are intended to serve as a common baseline and framework for the implementation by each EPFI of its own internal social and environmental policies, procedures and standards related to its project financing activities. We will not provide loans to projects where the borrower will not or is unable to comply with our respective social and environmental policies and procedures that implement the Equator Principles.

The following appendix Table 1 and appendix Table 2 provide a brief summary of the Equator Principles and IFC performance standards respectively. These documents are used by the EPFI’s and stock exchanges in their review of social and environmental performance of proponent companies.

Appendix Table 1: Equator Principles

Equator
Principles	Title	Key Aspects (Summary)
1	Review and	Categorise such projects based on the magnitude of its potential impacts
	Categorisation	and risks.
2	Social and	Conduct a Social and Environmental Assessment (“Assessment”). The
	Environmental	Assessment should also propose mitigation and management measures
	Assessment	appropriate to the nature and scale of the proposed project.

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Equator
Principles	Title	Key Aspects (Summary)
3	Applicable Social and	The Assessment will refer to the applicable IFC Performance Standards,
	Environmental	and applicable Industry Specific EHS Guidelines (“EHS Guidelines”) and
	Standards	overall compliance with same.
4	Action Plan and	Prepare an Action Plan (AP) which addresses relevant findings of the
	Management	Assessment. The AP will describe and prioritise actions, mitigation
	System	measures, corrective actions and monitoring to manage impacts and risks
		identified in the Assessment. Maintain a Social and Environmental
		Management System that addresses management of these impacts, risks,
		and corrective actions required to comply with host country laws and
		regulations, and requirements of the applicable Standards and Guidelines,
		as defined in the AP.
5	Consultation and	Consult with project affected communities. Adequately incorporate affected
	Disclosure	communities’ concerns.
6	Grievance Mechanism	Establish a grievance mechanism as part of the management system to
		receive and resolve concerns about the project by individuals or groups
		from among project-affected communities. Inform affected communities
		about the grievance mechanism in the course of the community
		engagement process and ensure that the mechanism addresses concerns
		promptly and transparently, and is readily accessible to all segments of the
		affected communities.
7	Independent Review	Independent social or environmental expert will review the Assessment, AP
		and consultation process to assess Equator Principles compliance.
8	Covenants	Covenant in financing documentation:
		a) to comply with all relevant host country social and environmental
		laws, regulations and permits;
		b) to comply with the AP during the construction and operation of the
		project;
		c) to provide periodic reports not less than annually, prepared by
		in-house staff or third party experts, that (i) document compliance
		with the AP, and (ii) provide compliance with relevant local, state
		and host country social and environmental laws, regulations and
		permits; and
		d) decommission facilities, where applicable and appropriate, in
		accordance with an agreed decommissioning plan.
9	Independent	Appoint an independent environmental and/or social expert, or require that
	Monitoring and	the borrower retain qualified and experienced external experts to verify its
	Reporting	monitoring information.
10	EPFI Reporting	Each EPFI adopting the Equator Principles commits to report publicly at
		least annually about its Equator Principles implementation processes and
		experience, taking into account appropriate confidentiality considerations.

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APPENDIX VI

Appendix Table 2: IFC Performance Standards

IFC
Performance
Standard	Title	Objective (Summary)	Key Aspects (Summary)
1	Social and	Social and EIA and improved	Social & Environmental Management
	Environmental	performance through use of	System (S&EMS). Social &
	Assessment and	management systems.	Environmental Impact Assessment
	Management		(S&EIA). Risks and impacts.
	Systems		Management Plans. Monitoring.
			Reporting. Training. Community
			Consultation
2	Labour and Working	EEO. Safety and health.	Implement through the S&EMS. HR
	Conditions		policy. Working conditions. EEO.
			Forced and child labour. OH&S.
3	Pollution Prevention	Avoid pollution. Reduce emissions.	Prevent pollution. Conserve resources.
	and Abatement		Energy efficiency. Reduce waste.
			Hazardous materials. EPR. Greenhouse.
4	Community Health,	Avoid or minimise risks to community.	Implement through the S&EMS. Do
	Safety and Security		risk assessment. Hazardous materials
			safety. Community exposure. ERP.
5	Land Acquisition and	Avoid or minimise resettlement.	Implement through the S&EMS.
	Involuntary	Mitigate adverse social impacts	Consultation. Compensation.
	Resettlement		Resettlement planning. Economic
			displacement.
6	Biodiversity	Protect and conserve biodiversity	Implement through the S&EMS.
	Conservation and		Assessment. Habitat. Protected areas.
	Sustainable Natural		Invasive species.
	Resource
	Management
7	Indigenous Peoples	Respect. Avoid and minimise impacts.	Avoid adverse impacts. Consultation.
		Foster good faith	Development benefits. Impacts to
			traditional land use. Relocation.
8	Cultural Heritage	Protect cultural heritage	Heritage survey. Site avoidances.
			Consultation.

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APPENDIX VI

SRK REPORT DISTRIBUTION RECORD

	Report Ref. Copy No. Date	SHK086 1 25 March 2010 Company Copy # Times Energy Corporation Ltd 1
	Name/Title
	Mr Tommy Cheung New

Approval Signature:

This report is protected by copyright vested in SRK Consulting. It may not be reproduced or transmitted in any form or by any means whatsoever to any person without the written permission of the copyright holder, SRK.

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VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

APPENDIX VII

==> picture [192 x 47] intentionally omitted <==

The readers are reminded that the report which follows has been prepared in accordance with the guidelines set by the International Valuation Standards, Eighth Edition, 2007 published by the International Valuation Standards Committee of which the Business Valuation Standards 2005 published by the Hong Kong Business Valuation Forum and the HKIS Valuation Standards on Trade-related Business Assets and Business Enterprises, First Edition, 2004 published by the Hong Kong Institute of Surveyors (“HKIS”) follow. These standards entitle the valuer to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer. It is emphasised that the findings and conclusion presented below are based on the documents and facts known to the valuer at the date of this report. If additional documents and facts are made available, the valuer reserves the right to amend this report and its conclusion.

17th Floor Champion Building Nos. 287-291 Des Voeux Road Central Hong Kong

24 June 2010

The Directors New Times Energy Corporation Limited Units 1007 to 1008 10th Floor New World Tower I 18 Queen’s Road Central Hong Kong

Dear Sirs,

In accordance with the instructions given by the management of New Times Energy Corporation Limited (hereinafter referred to as the “Company”), we have investigated and conducted an agreed-upon procedures valuation of the business enterprise value of (translated as Qinglong Manzu Autonomous County Hongwen Gold Company Limited and hereinafter referred to as “Hongwen Gold”) as at 30 April 2010 (hereinafter referred to as the “Date of Valuation”) for the Company’s internal management reference purpose. Our findings and conclusion in this valuation are documented in a valuation report and submitted to the Company at today’s date.

At the request of the management of the Company, we prepared this summary report to summarise our findings and conclusion as documented in the valuation report for the purpose of inclusion in this circular at today’s date for the Company’s shareholders’

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

reference. Terms herein used without definition shall have the same meanings as in the valuation report, and the assumptions and caveats adopted in the valuation report also apply to this summary report.

INTRODUCTION

Business enterprise value is defined as the total value of a business. It comprises monetary assets (net working capital), tangible assets and intangible assets, thereby encompassing all assets of a business enterprise (see Note). In other words, the business enterprise value is also equal to the value of its invested capital – common equity, preferred stocks and long-term debts. While there is no universal definition of the term, it is the usual practice for a professional valuer, based on his professional knowledge and experience, to identify the definition for the intended valuation.

In this appraisal (the word appraisal has the same meaning of valuation in this report), we were instructed to analyse and to express an independent opinion of the fair value of the entire equity interest of Hongwen Gold (hereinafter referred to as the “Appraised Asset”) as at the Date of Valuation, on a going concern basis, and based on documents and information provided by the management of the Company or from the management of Hongwen Gold. For the purpose of this valuation, we define the term business enterprise value as the fair value of the Appraised Asset.

The term “Fair Value” is defined by the International Valuation Standards (hereinafter referred to as the “IVS”), Eighth Edition, 2007 published by the International Valuation Standards Committee as “the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction”. We found that this definition is in line with various accounting standards.

We understand that the management of the Company will refer our work product (in any form of presentation) as part of its business due diligence and we have not been engaged to make specific purchase or sale recommendations. We further understand that the management of the Company will not rely solely on our work, and that the use of our work product will not supplant other due diligence which the management of the Company should conduct in reaching its business decision regarding the Appraised Asset. Our work is designed solely to provide information that will give the management of the Company a reference in the course of its internal due diligence work to the Appraised Asset, and our work should not be the only factor to be referenced by the Company.

COMPANY PROFILE

We were given to understand that Hongwen Gold was first established on 19 March 2004 and was a domestic limited liability enterprise in the mineral extractive industry specialised in gold mine with a registered capital of RMB 30 million. According to a Enterprise Legal Person Business Licence No. 130321000000823 dated 8 April

Note: A business enterprise is defined as a commercial, industrial, service, or investment entity, or a combination thereof, pursuing an economic activity.

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

2010, the operation term of the company was from 19 March 2004 to 11 March 2024. The business scope of the company was restricted to “ ” (translated as “gold ore mining (limited branch operations), flotation, smelting and coal, processing and sales of accessories”). The registered office of Hongwen Gold is situated at (translated as the Western side of Zhong Xing Road, Qinglong Town) of Qinglong Manzu Autonomous County, Hebei Province, the People’s Republic of China (hereinafter referred to as the “PRC” or “China”).

Hongwen Gold is the beneficial owner and operator of three various gold mine projects, namely Banbishan Gold Mine, Sanjia Gold Mine and Qingheyan Gold Mine in the PRC. The three gold mine projects (collectively, hereinafter referred to as the “Gold Mines”) are located within the gold mineralisation shear zones in Qinglong Manzu Autonomous County, Hebei Province, the PRC. Together, they have a total mining area of approximately 6.3549 sq. km. and contain gold ore resources estimates of approximately 3.9 million tonnes.

A. Sanjia Gold Mine ( )

Sanjia Gold Mine consists of two areas, in respect of which the Ministry of Land and Resources has granted to the operator – Hongwen Gold the respective gold mining licenses (Mining Operation Permit Nos. 1303000820050 and C1300002009054120020185): (i) a mining area of about 1.17 sq. km.; and (ii) a mining area of about 0.21 sq. km. According to the Business License No. 130321300000173, dated 3 December 2008, Sanjia Gold Mine was established on 29 March 2004, and is located at Sanjia Village, Maquanzi Town. Based on the Technical Report prepared and published by SRK Consulting China Ltd. in Appendix VI of this circular (the “Technical Report”), the Sanjia Gold Mine has a gold ore resource estimate of up to about 670,000 tonnes (360,000 tonnes and 310,000 tonnes categorised as Indicated and Inferred resource type under the JORC Code, respectively, and with a total amount of gold metal of about 6,900 kilograms).

B. Banbishan Gold Mine ( )

Banbishan Gold Mine consists of two areas, in respect of which the Ministry Land and Resources has granted to the operator – Hongwen Gold the respective gold mining licenses (Mining Operation Permit Nos. 1300000520273 and C13400002010044120061430): (i) a mining area of about 1.06 sq. km.; and (ii) a mining area of about 0.13 sq. km. According to the Business License No. 1303212200024, dated 8 June 2007, Banbishan Gold Mine was established on 29 February 2004, and is located at Banbishan Village, Shuangshanzi Town, Qinglong Manzu Autonomous County. Based on the Technical Report, Banbishan Gold Mine has a gold ore resource estimate of up to about 2.6 million tonnes (0.6 million, 0.5 million and 1.5 million tonnes categorised as Indicated, Inferred and Unclassified resource type under the JORC Code, respectively, and with a total amount of gold metal of about 11,000 kilograms).

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C. Qingheyan Gold Mine (

)

Qingheyan Gold Mine consists of two areas, in respect of which the Ministry of Land and Resources has granted to the operator – Hongwen Gold the respective gold mining licenses (Mining Operation Permit Nos. 1303000820038 and 1300000720191): (i) a mining area of about 2.0 sq. km.; and (ii) a mining area of about 1.78 sq. km. According to the Business License No. 130321300001140, dated 20 September 2008, Qingheyan Gold Mine was established on 29 March 2004, and is located at Xiaomaping Village, Liangshui Township. Based on the Technical Report, Qingheyan Gold Mine has a gold ore resource estimate of up to about 586,000 tonnes (121,000 tonnes and 465,000 tonnes categorised as Inferred and Unclassified resource type under the JORC Code, respectively, and with a total amount of gold metal of about 2,800 kilograms).

For more details of the Gold Mines (including the description of reserves/resources and the comments on the Gold Mines), the readers are required to refer to the Technical Report.

According to the information provided, Hongwen Gold has conducted a development plan (hereinafter referred to as “Business Plan”) to increase the production capacity. For more details of the Business Plan, the readers are required to refer to the section of “LETTER FROM THE BOARD” of this circular.

OVERVIEW (SEE NOTE)

A. The Economic Outlook of China

The economy of the PRC is the third largest in the world when measured by nominal GDP (Gross Domestic Product). Its growth rate for last year was 9.0%. From 1980 to 2006, the PRC’s GDP grow by an average rate of 10% annually. The PRC joined WTO in 2001, doubling the manufacturing output and recorded a massive trade surplus. At the beginning of 2010, China replaced Germany as the world largest export market. The foreign exchange reserves accumulated over US$1.9 trillion in 2009 which acts as a cushion against different kinds of external uncertainties, such as global economy recession, financial tsunami, etc.

Note: The information provided in this section relating to the mineral extraction industry and market is derived in part or extracted or referred to from various official and unofficial sources. The official sources include various quasi-governmental or world organisation websites (such as gov.cn and National Bureau of Statistics of China). The unofficial sources include information provided by the management of the Company and its appointed personnel, various websites (including Bloomberg.com, www.chinadaily.com.cn, www.wikipedia.org, and Yahoo! Finance), newspapers, research reports and journals (such as U.S. Geological Survey) from various industry practitioners or analysts. We need to state that such official and unofficial information have not been prepared or independently verified by us, and may not be consistent with other information complied within or outside the industry. None of our staff involved in preparing this report make any representation as to the correctness or accuracy of such information and accordingly such information should not be unduly relied upon. The readers should conduct his/her due diligence with regard to the correctness and accuracy of such information for his/her own use. Unless otherwise stated, the copyright of the quoted information belongs to the relevant owner.

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

With a strong growth at a compound annual growth rate of approximately 10.22% from 2001 to 2009, it is expected that the PRC’s economic growth would reach at 9.5% in 2010. The following figures indicated the China’s real GDP from 2004 to 2009:

Year			2004	2005	2006	2007	2008	2009
GDP	Growth	(%)	13.6	11.1	12.0	10.0	9.7	8.7

Sources: Bloomberg

According to the forecast made by Bloomberg, the PRC’s GDP will reach 9.6% and 9.0% in 2010 and 2011. Since the Chinese government provides massive protection and encouragement such as economic stimulus package to private sectors, China remains the position of the fastest growing economy in the world. According to Bloomberg, during 2003 to 2008, the consumer prices index (“CPI”) is raised from 1.2% to 5.9%, but recorded -0.68% in 2009 due to financial tsunami. However, it is expected that the CPI will grow again by 3.2% to 3.5% in 2010 to 2011. These figures show that the economic growth becomes more broadly based by rising of domestic consumption. The major force of economic growth is by the rapid urbanization and massive investments in construction projects mainly in Beijing and Shanghai as well as some inland cities such as Xian and Wuhan, etc. China has replaced Germany as the world’s third biggest economy since 2007, and it is predicted that China is on track to replace Japan as the second-largest economy soon.

For Hebei Province, despite of the Macro Economic Regulation and Control, the growth rate of the GDP in 2008 was 10.1% and the growth rate in 2009 was 10.0%, which grew faster than the overall Chinese economy in the recent two years. The table below listed out the GDP of Hebei Province in recent years (as at the end of each year).

Year		2005	2006	2007	2008	2009
GDP Growth (%)		13.4	13.2	12.9	10.1	10.0
Sources:	Bloomberg

B. The Industry

Mining is a very risky business and the initial work which needs to be carried out in order to find and prove up a deposit will, more often than not, prove it to be uneconomic rather than profitable to exploit. Exploration can be split into two separate parts – one is to find a new mine in the vicinity of an old one, the other is built from scratch by deciding what geological environments are most likely to contain the mineral which is being sought then to be followed by reading through literature to find where those environments are to be found and then sending out an exploration team to test the hypothesis.

All mining activity takes place within the earth’s crust, about the top 7-35 km of the solid matter comprising the bulk of the planet. However, the distribution of metals within the crust is by no means uniform, as can be seen by the differences in the types of rock which it contains, be it limestone, granite, sandstone or basalt. Nevertheless, these different

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rock types are generally of uniform composition, at least locally, and further concentrations need to occur in order to produce concentrations of materials which can be mined and sold at a profit. Such concentrations decided whether a mineral deposit is economically worth to extract or not. There are some generally accepted background concentrations of the major metallic elements and the concentration factors required for economic viability identified by some industry practitioners such as Charles Kernot (1999). These concentration factors are only of importance for the metals because of the geological controls on their formation.

Metal deposits are categorised both in terms of the metals which they contain and the controls on their origin which governs their three dimensional shape. The metals themselves are deemed to be either ferrous (containing iron) or non-ferrous. Non-ferrous metals are, in turn, subdivided into those which are precious, base or minor. The precious metals are essentially limited to gold, platinum and silver as these metals are relatively rare, but have great demand and widely traded.

Since 1998, when the Chinese government issued the laws regulating exploration and mining rights, operating a mining business in China must first obtain those rights from the government with a price. The business was considered to be opened to foreign investors in 2003 when the Chinese government allowed the transfer of the mining rights to all kinds of entities. It is now easier and more secure than ever for these foreign mining companies to operate in China. Apart from the above, several measures have also been taken to encourage foreign investment and participation in developing China’s mining industry by the government. These measures include the privatisation of the mining sector, streamlining of permitting and approval processes, granting irrevocable exclusive mining rights to foreign entities and relaxing rules on repatriation of capital profit. These measures benefit not only the foreign investors but also the local miners in that the cost of mining can be reduced and thus more profit can be generated.

C. The Outlook of Gold Market

Gold is one of the most well known metals in the world. It may have been the first metal used by humans. It occurs as nuggets or grains in rocks, underground “veins” and in alluvial deposits. Since the 1880s, South Africa has been the source for a large proportion of the world’s gold supply, with about 50% of all gold ever produced having come from South Africa. At its highest in 1970, the production of gold from South Africa accounted for 79% of the world supply, producing about 1,000 tons. The other major producers are United States, Australia, China, Russia and Peru. The world’s oceans also hold a vast amount of gold, however in very low concentrations. The table below gives the figures for the world production of gold in recent years.

Year		2005	2006	2007	2008	2009(e)
Production (in metric tons of
gold	content)	2,470	2,460	2,380	2,330	2,350
Source:	U.S. Geological Survey, Mineral	Commodity Summaries

Note: 2009 data is an estimation

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APPENDIX VII

China’s gold production has risen significantly in recent years to an output of over 285 metric tons in 2008. It was the largest producer of gold in the world. It is expected that output of gold in China can reach 300 metric tons in 2009. Most of China’s production comes from small, underground mines working vein deposits with little mechanisation or infrastructure.

Historically, gold has been considered one of the safest investments in the world. It is unusual that it is both a commodity and a monetary asset. All the gold that has ever been mined still exists above ground in some forms or another and the majority of above-ground stocks could easily be mobilised. Therefore, any upward movement of price is often met by the resale of above-ground stock. This is one of the reasons why the gold price is historically less volatile than most of the other commodity prices.

As at May 2010, gold price reached the level of US$1,200 an ounce, partly helped by the declining dollar and growing interest from institutional investors. Many analysts opined that the biggest driving factor is the weakening dollar. The outlook for the gold price is optimistic and rising. The chart below shows the growth of gold price in the past nine years since 2001.

==> picture [384 x 224] intentionally omitted <==

Source: Bloomberg, Gold Spot USD/Troy Ounce

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APPENDIX VII

VALUATION PROCEDURES ADOPTED

In performing this appraisal, we have adopted the following procedures which were agreed with the management of the Company before the engagement. They were:

To prepare and submit a list(s) of required document and information regarding the Appraised Asset during the course of valuation. The completeness of our valuation depends on the availability of the required information being supplied by the management of the Company or its appointed personnel.
To read and based on the content of the supplied material such as the various geology reports, mineral resources estimation, product information, market information and financial information and its related materials such as further exploration program, explanatory statements and relevant correspondence to arrive at our conclusion. In the course of our valuation, we will assume the information that contained in the materials is correct and we will only verify the provided information when and where possible. However, we will not ascertain the correctness of the information contained in the materials like an auditor in giving an audit opinion.
To hold discussions with relevant personnel in order to have a better understanding on the Appraised Asset.
To conduct a limited scope on-site inspection to have better understand on the operation of the Gold Mines. However, our inspection is not designed to produce an error-free asset list or to conduct a comprehensive due diligence on the Gold Mines and the assets of any company.
To conduct appropriate research and technical consultation in order to obtain sufficient information for arriving at our conclusions. The extent of research and consultation is at our discretion.
To value the Appraised Asset using the appropriate premise of value and method(s).
To document our findings and conclusion in our appraisal report.

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APPENDIX VII

THE BASIS OF VALUATION AND ASSUMPTIONS

The Appraised Asset is valuated on the basis of fair value in continued use, as a going concern. The continued use premise assumes that the Appraised Asset will be used for the purpose for which it was conceived or is currently carried out.

Our valuation has been made on the assumption that, as at the Date of Valuation,

the existing legally interested parties in the Appraised Asset have free and uninterrupted rights to use or assign the Appraised Asset for the whole of the unexpired terms as granted and any premiums/ administrative costs payable have already been fully paid;
the existing legally interested parties in the Appraised Asset successfully completed the detailed mine development program and obtained the expected result within the scheduled time frame;
the detailed mine development program and the subsequent mining operations in the Gold Mines confirmed the quality and quantity expected as in the various geology reports;
the relevant Enterprise Legal Person Business Licences and/or business registration documents (including Tax Registration Certificate) are able to renew after their expiration from time to time in order to achieve the planned extraction phase;
the subsequent feasibility studies and governmental endorsement confirmed the quality and quantity discovered during the mine development stage under various reserve classification commonly adopt in the world or in China (the Solid Minerals Resource Classification (GB/ T17766-1999));
the subject Mining Operation Permits are able to renew after the respective expiration dates from time to time in order to achieve the planned extraction phase (see Note), and business;
all required licences, certificates, consents, or other legislative or administrative authorities from any local, provincial, or national government or private entity or organisation have been or can readily be obtained or renewed on which the valuation contained in our report are based;
the Appraised Asset successfully yielded the economic benefits as projected;

Note: According to GN 14 of the IVS, “The Minerals Industry generally has a planned extraction phase, though this phase is often extended through Mineral Reserve additions. Once extraction is completed, no more known economically recoverable asset remains in place at that time”.

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

there will not be material changes in the government policies or political, legal (including legislation or regulations or rules), fiscal (including interest rate and exchange rate), market or economic conditions, and the bases or rates of taxation in the PRC, where the Appraised Asset is situated;
the prospective earnings would provide a reasonable return to the existing legally interested parties in the Appraised Asset and that the existing legally interested parties in the Appraised Asset have adequate working capital to implement the scheduled exploration program, the mining operations and the operation of the by-products processing plants from time to time;
the existing legally interested parties in the Appraised Asset have the rights to transport, produce and sell the extracted gold from the Gold Mines and its by-products after processing to the market, both locally and internationally;
the existing legally interested parties in the Appraised Asset have adopted reasonable and necessary security measures and have considered several contingency plans against any disruption (such as fire, change of government policy, labour dispute, implementation of serious statutory mining safety measures, geologic formation structurally deformed, soil erosion and other types of unexpected accidence) to the scheduled detailed mine development program and mining operations;
the management of, and the legally interested parties, in Hongwen Gold have adopted reasonable and necessary measures against any effect of the litigation and non-compliance and contravention of the PRC laws and regulations as disclosed in this circular to the Appraised Asset, and that the relevant risks will not affect the normal operation of Hongwen Gold to the Gold Mines; and
the Appraised Asset, as a going concern, can be freely disposed and transferred free of all encumbrances for its existing or approved uses in the market to both local and overseas purchasers without payment of any premium to the government.

Should this not be the case, it will have adverse impact to the reported findings and conclusion herein.

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APPENDIX VII

FACTORS CONSIDERED IN THE VALUATION

Unless otherwise stated, the valuation of the Appraised Asset has taken account of all pertinent factors affecting Hongwen Gold and its ability, if successful, to generate future investment returns as part of a going concern business. The factors considered in the valuation included, but were not limited to, the following:

the nature and the characteristics of the Appraised Asset, including the historical background and the ground work for the Mining Operation Permits;
the use of the Mining Operation Permits as part of a going concern business of Hongwen Gold;
the cost and financial information as contained in various documents;
technical review of the mining operations and resource/reserve estimation by the technical experts;
business advices of the by-product processing portion of the Appraised Asset;
the nature of the mining rights such as the remaining life and its characteristics;
the nature and the going concern business of Hongwen Gold;
the existing legally interested parties in the Appraised Asset are able to renew the existing Mining Operation Permits and be part of a going concern business of Hongwen Gold;
the quality of the mining facilities;
the capability of the existing legally interested parties in the Appraised Asset to raise fund to finance the exploration program, the construction of the mine and its subsequent operations;
the capability and determination of the existing legally interested parties in the Appraised Asset to follow its planned development schedule;
the capability and determination of the existing legally interested parties in the Appraised Asset to maintain its clientele and its expansion in the future;
the capability and determination of the existing legally interested parties in the Appraised Asset to continue the existing marketing strategy of its predicted product, if successful;
the capability and determination of the existing legally interested parties in the Appraised Asset to construct and implement the scheduled production process to produce relevant mineral resources to attract customers as predicted;

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

the capability and determination of the existing legally interested parties in the Appraised Asset to follow the government and industry management quality standards and to review/up-lift its standards to catch the industry need from time to time;
the capability and determination of the existing legally interested parties in the Appraised Asset to protect its mining operations, if successful, against any disruption of the normal operation of the Gold Mines, including but not limited to the litigation as disclosed in this circular;
the capability and determination of the existing legally interested parties in the Appraised Asset to maintain a cost effective and stable supply chain of the materials to produce its predicted products;
the capability and determination of the existing legally interested parties in the Appraised Asset to maintain an experienced management team as part of its going concern business;
the economic and industry data affecting the Appraised Asset and the gold mining industry in China;
the market-derived investment returns of similar business; and
the risks facing Hongwen Gold and the Appraised Asset.

ESTABLISHMENT OF TITLES

Due to the purpose of this engagement, the management of the Company was requested to provide us with necessary documents to support that the legally interested parties in the Appraised Asset have free and uninterrupted rights to assign or to transfer the Appraised Asset (a part of or the whole of) free of all encumbrances and any premiums/administrative costs payable have already been paid in full. However, our procedures to value as agreed with the management of the Company did not require us to conduct legal due diligence on the legality and formality on the way that the legally interested parties obtained the Appraised Asset and the relevant Mining Operation Permits from the relevant authorities. We agreed with the management of the Company that this should be the responsibility of the legal advisor to the management of the Company. Thus, no responsibility or liability is assumed from our part to the origin and continuity of the titles to the Appraised Asset.

For the sake of valuation, we have been provided with copies of the title documents and legal opinions issued by (the “Legal Opinion”), lawyers qualified to practice in China. According to the Legal Opinion, Hongwen Gold has obtained full legal and beneficial title free from all encumbrances in respect of the Appraised Asset.

According to the Legal Opinion, Hongwen Gold is the beneficial owner of the Gold Mines, and Hongwen Gold and the Gold Mines passed the annual review in 2008. Hongwen Gold obtained approval letter from the Ministry of Industry and Information Technology of the PRC dated 24 May 2010 for conducting gold mining business for a period commencing

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APPENDIX VII

from 24 May 2010 to 24 May 2014 on specified mines. The Legal Opinion also states that 90% of share interest of Hongwen Gold is owned by (translated as “Shenzhen Wan Kai Sheng Trading Company Limited” and hereinafter referred to as “Shenzhen Wan Kai Sheng”), which was directly wholly owned by (translated as “Shenzhen Zhou De Sheng Trading Company Limited” and hereinafter referred to as “Shenzhen Zhou De Sheng”), and subsequently indirectly wholly owned by (translated as “Champion City Investments Limited” and hereinafter referred to as “Champion City”). According to the information provided, Champion City is wholly owned by the Target Company (as defined in this circular). The Legal Opinion concluded that Hongwen Gold, Shenzhen Wan Kai Sheng, Shenzhen Zhou De Sheng and Champion City are legally established entities. However, we have not inspected the original documents filed in the relevant authorities to verify the ownership or to verify any amendment which may not appear on the copies handed to us. We need to state that we are not legal professionals and are not qualified to ascertain the titles and to report any encumbrances that may be registered against the Appraised Asset. In the course of preparing our report, we have relied solely on the copy of the Legal Opinion with regards to the existing legally interested parties in the Appraised Asset. No responsibility or liability is assumed in relation to those opinions or copies of documents.

In our valuation, we have assumed that the legally interested parties in the Appraised Asset have obtained all the approval and/or endorsement from the relevant authorities for operation, and that there would be no legal impediment (especially from the regulators) for the legally interested parties to continue the ownership of the Appraised Asset. Should this not be the case, it will affect our conclusion in this report significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.

APPROACH TO VALUE

In the process of valuation, we have considered the three generally accepted business enterprise appraisal approaches to value, namely the Market Approach, the Income Approach and the Asset-based Approach. As we are valuing the Appraised Asset on fair value basis and not on the value-in-use basis, we consider that the most appropriate approach to value is the Market Approach.

The Market Approach

The Market Approach is basically a comparison method to value a business enterprise by comparison to the prices at which other similar business nature companies or interests changed hands in arm’s-length transactions. The underlying theory of this approach is one would not pay more than one would have to pay for an equally desirable alternative. Therefore, the valuer will seek valuation guidance for valuation indication from the prices of other similar companies or equity interests in companies that were sold recently. The right transactions used in analysing for valuation indication need to be sales on an arm’s-length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell. Then, based on those transactions, derive multiples (i.e. financial ratios) to apply to the fundamental financial variables of the subject

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

business enterprise and to arrive at an indicated value of the subject business enterprise. Examples of such multiples are price-to-earnings, price-to-sales (or revenue), price-to-book and price-to-EBITDA (earnings before interest, taxes, depreciation and amortisation).

There are two methods of the Market Approach known as the Guideline Publicly Traded Company Method (by using similar company daily stock transaction prices) and the Guideline Merged and Acquired Company Method. Both methods need to rely on analysing available similar transacted comparables, and the big difference is on the structure of transactions – daily stock transaction prices in public market or mergers and acquisitions as occurred. For the sake of the standards of value in this engagement, we have considered the Guideline Merged and Acquired Company Method.

The Guideline Merged and Acquired Company Method uses multiples derived from actual sales of closely held businesses and mergers and acquisitions transactions involving publicly traded companies. So far as we are aware, we have identified and made reference to mergers and acquisitions transactions of similar companies (closely held) which were principally engaged in the gold mining related business in the PRC and undertaken by companies listed on The Stock Exchange of Hong Kong Limited. In the course of our analysis, we have collected a total of 14 guideline transactions throughout the observed period. Of the 14 guideline transactions, we identified 7 transactions which provided sufficient data (prepared by technical person) to enable a comparative analysis in order to form a representative industry benchmark for the valuation. These transaction records were published in various company circulars which contained technical reports or summary and detail of transactions. Non-completed transactions and transactions without a qualified person technical review were disregard due to insufficient data necessary for the analysis. We took the view that in using the Market Approach, comparable transaction(s) with a highest degree of comparability is more important than a wide inadequate comparative population of guideline transactions. We have referenced the respective consideration per tonne of resources ratio (the “Consideration/Resources Ratio”) as our basis of valuation. The comparable transactions were selected on the following criteria:

The comparable transactions were within 12 months on or before the Date of Valuation;
The comparable gold mines are located in the PRC;
The comparable transactions were related to listed companies in Hong Kong;
The comparable gold mines are either in operation or subject to further development; and
Detailed technical resource data is available in the respective transaction records.

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Details of the selected comparable transactions are set out as follows,

	Date of sales and				Consideration/
	purchase		Location of		Resources
Acquirer (Stock code)	agreement	Date of circular	the mine	Consideration1	Ratio2
					(HKD per gram
				(HKD million)	metal)
Global Green Tech	1 December 2009	1 February 2010	Hunan	1,478.19	67.81
Group Limited3
(274.HK)
China Precious Metal	28 June 2009	24 August 2009	Inner Mongolia	401.60	35.78
Resources Holdings
Company Limited4
(1194.HK)
Inno-Tech Holdings	9 June 2009	11 September 2009	Jiangxi	240.79	362.56
Limited5 (8202.HK)
Bright International	16 September 2009	7 April 2010	Hebei	11,414.20	174.58
Group Limited6
(1163.HK)
Bright International	16 September 2009	7 April 2010	Shandong	1,365.22	97.10
Group Limited7
(1163.HK)
Ming Fung Jewellery	20 August 2009	21 January 2010	Inner Mongolia	396.97	136.80
Group Limited8
(860.HK)
Sino Prosper State Gold	25 January 2010	31 May 2010	Inner Mongolia	256.19	36.69
Resources Holdings
Limited9 (766.HK)

Source: Website of Hong Kong Exchanges and Clearing Limited

Notes:

The considerations stated above comprised various combinations of cash, consideration shares, promissory notes or convertible bonds.
The Consideration/Resource Ratio for each of the transactions has been adjusted for the effective interest being acquired as disclosed in the respective circular. Adopted confidence level for calculating the ratio for resources classified as 332 or above is 1.0, for 333 is 0.6, for 334 is 0.
The gold mines are covered by a mining license and an exploration permit, have 0.217 million tonnes (“Mt”) Indicated resource averaging 13.36g/t with 2.9t gold and 2.937 Mt Inferred resource average 10.73g/t with 31.5t gold. The mines are in mining and production stage.
The company acquired seven gold mines covered by seven mining licenses with the total 0.320Mt 122b resource averaging 6.8g/t with 2.177t gold, 0.274 Mt 332 resource average 9.43g/t with 2.587t gold, and 0.973 Mt 333 resource average 11.07g/t with 10.767t gold. Two of the mines are in operation stage and the others have completed exploration but have no mining activities.

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

The company acquired a gold mine with 0.447Mt 333 resources and 1.015 Mt 334 resources. Under the Australian Code for Mineral Resources and Ore Reserves Reporting of Exploration Results (the JORC Code), 332 and 333 materials are placed in the Inferred Resources category, and 334 materials are categorized as Unclassified or Exploration Potential.
The company acquired eleven gold mines with total 112b/332 resources of 1.39Mt with 20.2t gold, 333/Inferred resources of 4.43 Mt with 75.3t gold, and 334 resources of 7.369 Mt with 105t gold under Chinese Classification System. According to the respective technical report, it is opined that, broadly, 111b and 121b resource can be comparable with measured resource, 122b, 332 resource can be comparable with indicated resource and 333 resource can be comparable with inferred resource under JORC Code. Four mines were in operation stage, five were in Bownfield status, and the rest have completed exploration.
The company acquired two gold mines with total Indicated resources of 0.080Mt with 1.1t gold, 333/ Inferred resources of 1.677Mtwith 21.6t gold under Chinese Classification System. According to the respective technical report, it is opined that, broadly, 111b and 121b resource can be comparable with measured resource, 122b, 332 resource can be comparable with indicated resource and 333 resource can be comparable with inferred resource under JORC Code. One mine was in Brownfield status and the other one had completed exploration
The company acquired one gold mine is covered by a mining license with total 122b resources of 0.276 Mt with 2.525t gold, 333 resources of 0.066736 Mt with 0.628t gold. According to the respective technical report, it is opined that, broadly, 111b and 121b resource can be comparable with measured resource, 122b, 332 resources can be comparable with indicated resource and 333 resources can be comparable with inferred resource under JORC Code. One mine was in Brownfield status and the other one had completed exploration
The company acquired a gold mine with total 122b resources of 0.338Mt with 2.193t gold, 333 resources of 0.790Mt with 7.982t gold and 334 resources of 0.761Mt with 7.393t gold under Chinese Classification System. According to the respective technical report, it is opined that, generally, 112b resource can refer to indicated resources, 333 resource is similar to inferred resource and 334 resources are not classified as a JORC resource. The mine is in mining and production stage.

Out of the above selected comparables, we have considered the transactions of Inno-Tech Holdings Limited in Jiangxi and Bright International Group Limited in Shandong are less relevant due to lack of indicated resources.

Considerations have been adjusted to reflect the gold market as of different dates of transaction. Gold spot prices quoted from Bloomberg were referenced in the course of adjustment. The adjusted consideration were calculated as follows,

[Gold][Prices][at][Date][of][Valuation] consideration x[Benchmarked]

Benchmarked Gold Prices at acquisition

In our comparative analysis, we noted that the adopted ratios varied among the comparable transactions and we used the weighted average method to leverage the variances. Based on the comparable transactions identified above, a weighted average Consideration/ Resources Ratio of 128.80 (HKD/g) has been adopted to conclude our valuation.

It is understood that mines at different status such as developing or operating may require different level of capital expenditures and operation costs for their going concern business. However, we take the view that under a perfect and rational market, a rational buyer normally will purchase a mine only if the present value of the expected economic benefits generated by the historical capital expenditures and operation costs is at least equal

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

to the purchase price. Likewise, a rational seller normally will not sell if the present value of the expected economic benefits generated by his historical capital expenditures and operation costs is more than the selling price. Thus, a sale generally will occur only at an amount equal to the economic benefits generated by the historical capital expenditures and costs of the mine being valued. In other words, the historical capital expenditures and operation costs are already factored in the transaction price.

We take the view that future capital expenditures and operation costs are based on the buyer’s inherent business model, level of affordability, scale of operation desired, project financing available, so on and so forth, and are already taken into consideration in their purchase price consideration. This is one of the reasons for the variances among the comparable transactions. As the comparable transactions and the subject are similar in status, by using the weighted average method, such variances could be leveraged.

VALUATION COMMENTS

As we are valuing the entire equity interest of Hongwen Gold, no discount on minority or premium on the controlling shareholding has been taken.

By definition, ownership interests in closely held companies are typically not readily marketable, and, by definition not as liquid and as easily converted to cash compared to similar interests in the public companies. Therefore, a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly held company. However, the valuation concluded was solely based on the historical comparable transaction record of closely held gold mine companies and thus such factor should have been reflected in the considerations of these comparable transactions.

We noted that price of gold is quite volatile and reaching its relative high in recent days, this may be due to the low interest rate and the economic crisis in Europe. Should there be any adverse news on political, economic and social globally in the future, the price of gold may be affected. From conservative perspective, we opted to adopt a discount of, say, 20% in our valuation.

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VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

APPENDIX VII

MATTER THAT MIGHT AFFECT THE VALUE REPORTED

In the absence of any endorsed feasibility study report or reserve estimation report under any internationally recognised mineral resource and reserve classification systems (see Note) as at the date of this report, our work is preliminary in nature and suitable only for making a reference. We need to state that this report is not a detailed evaluation of the feasibility of developing a mine and its subsequent expansion plan as proposed in the Business Plan; rather, it is an objective evaluation of the future operation, as part of a going concern business of Hongwen Gold.

No allowance has been made in our valuation for any charges, mortgages, outstanding premium or amounts owing on the Appraised Asset. Also, no allowance has been made in our valuation for any expenses or depreciation or taxation, which may be incurred in effecting a sale of the Appraised Asset. Unless otherwise stated, it is assumed that the Appraised Asset is free from all encumbrances, restrictions, and outgoings of an onerous nature which could affect its value.

In our valuation, we have assumed that the Appraised Asset is able to sell and purchase in the market without any legal impediment (especially from the regulators). Should this not be the case, it will affect the reported value significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.

Unless otherwise stated in the Legal Opinion, as at the date of this report, we are unable to identify any adverse news against the Appraised Asset which may affect in the reported value in our report. Thus, we are not in the position to report and comment on its impact (if any) to the Appraised Asset. However, should it be established subsequently that such news did exist as at the Date of Valuation, we reserve the right to adjust the value reported herein.

We understand that Hongwen Gold is facing risks of litigation, and we were further advised by the Legal Opinion that such risks may not have significant impact to the normal operation of Hongwen Gold and the reserves/resources estimation of the Gold Mines. Should this not be the case, it will have adverse impact to our valuation.

We are not aware of the content of any environmental audit or other environmental investigation or soil survey which may have been carried out on the subject mines and which may draw attention to any contamination or the possibility of any such contamination. In undertaking our work, we have been instructed to assume that no contaminative or potentially contaminative uses have ever been carried out in the subject mines. We have not carried out any investigation into past or present uses, either of the properties or of any

Note: Such as the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, prepared by The Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia, generally known as the JORC Code, the United Nations International Framework Classification for Fossil Energy and Mineral Resources, and other systems commonly encountered in the gold industry include those of the London Stock Exchange’s Chapter 19, the U.S. Securities and Exchange Commission’s Industry Guide, and the U.S. Geological Survey’s Circular 891.

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VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

APPENDIX VII

neighbouring land, to establish whether there is any contamination or potential for contamination to the subject mines from these uses or sites, and have therefore assumed that none exists. However, should it be established subsequently that contamination, seepage or pollution exists at the subject mines or on any neighbouring land, or that the premises have been or are being put to a contaminative use, this might reduce the value now reported.

INSPECTION AND INVESTIGATIONS

We had conducted a limited scope on-site inspection of the Gold Mines, and due to the agreed-upon procedures basis, we were unable to inspect those parts which were covered, unexposed or inaccessible or not being arranged for inspection. We cannot express an opinion about or advice upon the condition of the Gold Mines and our report should not be taken as making any implied representation or statement about the conditions of the Gold Mines. No structural survey, drilling, sampling, investigation, test or examination, or any means of geological test or engineering or survey has been made in the Gold Mines. No tests were carried out to any utilities (if any) and we are unable to identify those utilities covered, unexposed or inaccessible. The inspection we made was designed to give us have a better understanding on the operation of the Gold Mines, and it is not intended to produce an error-free asset lists nor a title due diligence on the Gold Mines. The readers should read this Company’s circular in details to have a better understanding on the risks, financial information, tangible assets and business model of the subject company.

It is emphasised that the inspection and the use of our report do not purport to be a conditional survey of the Gold Mines. We have assumed that the Gold Mines were free of rot and inherent danger or serious geologic formation structurally deformed and soil erosion. If the management of the Company is proposing to purchase any interest relating to the Gold Mines and wants to satisfy them as to the condition of it, then the management of the Company should obtain a third party surveyor’s detailed inspection and report of their own before deciding whether or not to enter into an agreement for sale and purchase.

The purpose of our inspection is not to have a full scope investigation on the quantity and the quality of the Gold Mines; rather, it is designed to give us a better understanding of the Gold Mines and its surrounding areas. No responsibility or liability is assumed.

We have not carried out on-site measurements or drilling or testing or sampling to verify the correctness of the dimensions, specifications and areas of the Gold Mines, but have assumed that the figures shown on the documents and handed to us are correct. All dimensions, measurements and areas are approximations.

Our engagement and the agreed procedures to work did not include an independent land survey to verify the legal boundaries and the exact location of the Gold Mines. We need to state that we are not in the land survey profession in China, therefore, we are not in the position to verify or ascertain the correctness of the legal boundaries and location of the Gold Mines that appeared on the documents handed to us. No responsibility from our part is assumed. The management of the Company or interested parties in the Gold Mines should conduct its own due diligence work.

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

Due to the nature of this engagement, no investigation has been made of the legal title, licence rights or any liabilities attached to the Gold Mines or its related entity or permits. All legal documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal title and licence rights of the Gold Mines or the Appraised Asset. We have not verified the original documents (if any) furnished to us. Any responsibility for our misinterpretation of the legal documents, therefore, cannot be accepted.

SOURCES OF INFORMATION AND ITS VERIFICATION

For the purpose of our work, we were furnished with various geology reports and other documents related to the Appraised Asset on a going concern basis. The information has been utilised without further verification. We have had no reason to doubt the truth and accuracy of the information that we have been furnished. No responsibility is assumed for the accuracy of the provided information.

For the purpose of this valuation, we were furnished with various copies of the above named or unnamed documents related to this report and these copies have been referenced without further verifying with the relevant bodies and/or authorities. We need to state that we are not attorney of laws by nature, therefore, we are not in the position to advise and comment on the legality and effectiveness of the documents provided by the management of the Company. No responsibility is assumed.

We have relied solely on the information provided by the management of the Company or its appointed personnel without further verification and have fully accepted advice given to us on such matters as planning approvals or statutory notices, procedures to obtain necessary approvals, locations, titles, easements, tenure, occupation, clientele, products (type and class), site areas and all other relevant matters.

Our procedures to value did not include undertaking a feasibility study of the proposed expansion of Hongwen Gold. Accordingly we do not express an opinion as to the merit or demerit of any future expansion (if any).

Unless otherwise stated, we have not carried out a valuation on a redevelopment basis on the Gold Mines and the study of possible alternative development options and the related economics do not come within the scope of our report.

We are not contracted to conduct a due diligence to review the existing mining industry and the official policy on grating out mining right of mineral resources in China. In the course of our work, we have solely depended on the advice given by the management of the Company. We are unable to accept any responsibility for the reliability of the advice.

Also, we are not contracted to conduct a detailed geological study or pre-feasibility study or feasibility study or mining report, thus, the report is not a detailed valuation of the feasibility of developing the Gold Mines. In the course of our work, we have solely

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

depended on the various geology reports and advice given by the management of the Company or its appointed personnel. We are unable to accept any responsibility for the reliability of the advice.

Our engagement did not include an independent land or geological survey to verify the information provided. Since we are not the authorised person to conduct geological survey in China and the enormous resources required in conducting a detailed inspection and survey, we were further instructed to conduct our work based on the information given. We are unable to accept any responsibility for the reliability of the information given.

Information furnished by others, upon which all or portions of our report are based, is believed to be reliable but has not been verified in all cases. Our procedures to value or work do not constitute an audit, review, or compilation of the information provided. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our report.

When we adopted the work products from other professions, external service/data providers and/or the management of the Company and/or its appointed personnel in our valuation, the assumptions and caveats adopted by them in arriving at their opinions also applied in our valuation. The procedures we have taken do not require us to examine all the evidences, like an auditor, in reaching at our opinion. As we have not performed an audit, we are not expressing an audit opinion in our valuation.

We are unable to accept any responsibility for the information that has not been supplied to us by the management of the Company or its appointed personnel. We have sought and received confirmation from the management of the Company that no material factors have been omitted from the information supplied. The report is based upon the assumption of full disclosure between the Company and us of material and latent facts that may affect the valuation. No responsibility is assumed for withheld information (if any).

Unless otherwise stated, the base currency of our report is Hong Kong Dollar (“HKD”).

LIMITING CONDITIONS IN THIS SUMMARY REPORT

This summary report is provided strictly for the sole use of the Company, and the valuer accepts no responsibility whatsoever to any other person. Neither the whole nor any part of this report or any reference made hereto may be included in any published documents, circular or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the publication of this report in this circular to the Company’s shareholders’ reference.

Our findings and conclusion in this summary report are valid only for the stated purpose and only for the Date of Valuation. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this report, and we accept no responsibility whatsoever to any other person.

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

No responsibility is taken for changes in market conditions and no obligation is assumed to revise this summary report to reflect events or change of government policy or financial condition or other conditions, which occur subsequent to the date hereof.

In our valuation, we have assumed that no significant adverse impact to the Appraised Asset arisen from the litigation as disclosed in the Letter from The Board and the Legal Opinion. Should some or all of the assumptions prove to be inaccurate at a later date, it will affect the reported value significantly.

Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.

The Company is required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our report except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.

CONCLUSION

Based on the investigation, analysis, stated assumptions, limitations, reasoning and data outlined above, and on the valuation methods employed, it is our opinion that as of the Date of Valuation, the fair value of the Appraised Asset (before taking into consideration of any transaction costs), was reasonably stated by the amount of HONG KONG DOLLARS NINE HUNDRED MILLION ONLY (HKD900,000,000.00).

STATEMENTS

This report is based on generally accepted procedures and practices that rely extensively on assumptions and considerations, not all of which can be easily quantified or ascertained exactly. While we have exercised our professional judgment in performing the report, the readers are urged to consider carefully the nature of such assumptions which are disclosed in this report and should exercise caution in interpreting this report.

Our report is prepared in line with the guidelines contained in the IVS as well as the the Business Valuation Standards 2005 published by the Hong Kong Business Valuation Forum and the HKIS Valuation Standards on Trade-related Business Assets and Business Enterprises, First Edition, 2004 published by the HKIS. The valuation has been undertaken by valuer (see end Note), acting as external valuer, qualified for the purpose of the valuation.

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APPENDIX VII VALUATION REPORT OF QINGLONG MANZU AUTONOMOUS COUNTY HONGWEN GOLD COMPANY LIMITED

We retain a copy of this summary report and the detailed valuation report together with the data from which it was prepared, and these data and documents will, according to the Laws of Hong Kong, keep for a period of 6 years from the date of this report and to be destroyed thereafter. We considered these records confidential, and we do not permit access to them by anyone, with the exception for law enforcement authorities or court order, without the Company’s authorisation and prior arrangement made with us.

We hereby certify that the fee for this service is not contingent upon our conclusion and we have no significant interest in the Appraised Asset and the Company.

Yours faithfully, For and on behalf of

LCH (Asia-Pacific) Surveyors Limited

Joseph Ho Chin Choi BSc PgD RPS (GP) Managing Director

Contributing valuers in the report:

Elsa Ng Hung Mui BSc MSc MHKIS RPS(GP) Jonas Lam King Yin BASc Sam Lai Siu Nam BBA

Note: Mr. Joseph Ho Chin Choi, a member of the HKIS, has been conducting asset valuations and advisory work in Hong Kong, Macau, Taiwan, mainland China, Japan, South East Asia, Australia, Scotland, Germany, Poland, Finland, Guyana, Brazil, Argentina, Canada and the United States of America for various purposes since 1988. He obtained the Examination Certificate of the Uniform Standards of Professional Appraisal Practice issued by the American Society of Appraisers in 1996. He has extensive experience in the valuation of various types of intangible assets and power plants, toll road, health products and foodstuffs, mineral extracting, coal and coke, agricultural property assets, financial services, luxurious consumer goods, pharmaceutical and biotechnology, electronic consumer products manufactory, telecommunication, media and information technology related businesses for the listed companies in Hong Kong, Taiwan, mainland China, Singapore, Malaysia, the United Kingdom, Canada and the United States of America. At present, he is a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published by the HKIS and a Registered Business Valuer registered with the Hong Kong Business Valuation Forum.

– 510 –

GENERAL INFORMATION

APPENDIX VIII

1. RESPONSIBILITY STATEMENT

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

2. DIRECTORS’, CHIEF EXECUTIVE’S AND SUBSTANTIAL SHAREHOLDERS’ INTERESTS IN SECURITIES

(a) Directors’ and chief executives’ interests and short positions in the shares, underlying shares and debentures of the Company or any associated corporation

As at the Latest Practicable Date, the interests and short positions of the Directors and/or their associates in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)), as recorded in the register maintained by the Company under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO and the Model Code for the Securities Transactions by Directors of Listed Companies set out at Appendix 10 of the Listing Rules (“Model Code”) were as follows:

Long positions of Directors’ Interests in shares of the Company

	Number of ordinary shares of the Company held	Number of ordinary shares of the Company held	Number of ordinary shares of the Company held	Number of ordinary shares of the Company held
				Approximate
				percentage
				of total
	Nature of	Interest in	Total	issued share
Name of Directors	interest	shares	interests	capital
Mr. Fung Siu To, Clement	Personal (i)	600,000	600,000	0.01%
Mr. Cheng Ming Kit	Personal (i)	20,000	20,000	0.00%

Note:

(i) Shares were held by the respective Directors in their capacity as beneficial owner.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor chief executives of the Company and their associates had any personal, family, corporate or other interests had registered an interest or short position in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), as recorded in the register maintained by the Company under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO and the Model Code.

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GENERAL INFORMATION

APPENDIX VIII

Directors’ right to acquire share or debentures

Save as disclosed under paragraph 2(a) of this Appendix, at no time during the year was the Company, its subsidiaries, its fellow subsidiaries or its holding companies a party to any arrangements to enable the Directors to acquire benefits by means of the acquisition of Shares in, or debentures of, the Company or any other body corporate.

(b) Discloseable interests and short positions of substantial Shareholders under the SFO

At the Latest Practicable Date, according to the register kept by the Company pursuant to section 336 of SFO, and so far as is known to any Directors or chief executive of the Company, the following persons had, or were deemed or taken to have, an interest or short position in the shares or underlying shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group:

				Percentage of
		Capacity and	Number of	the Company’s
		Nature of	ordinary share	issued share
Name of Shareholders	Notes	Interest	held	capital
Max Sun Enterprises	(i)	Beneficially	868,605,530	10.77%
Limited		owned
Chow Tai Fook Nominees	(ii)	Interest in a	868,605,530	10.77%
Limited		controlled
		corporation

Notes:

(i) Max Sun Enterprises Limited is wholly owned by Chow Tai Fook Nominees Limited.

(ii) So far is known to the Directors, Chow Tai Fook Nominees Limited is wholly-owned by Dato’ Dr. Cheng Yu Tung.

Save as disclosed above, the Directors are not aware of any person had or were deemed or taken to have, an interest or short position in the shares or underlying shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or will be directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group.

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GENERAL INFORMATION

APPENDIX VIII

(c) Substantial Shareholders in other members of the Group

As at the Latest Practicable Date, so far as is known to the Directors or chief executives of the Company and save as otherwise disclosed in this circular, there is no person (other than a Director or chief executive of the Company or his controlled corporations or a member of the Group) who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

3. LITIGATION

As at the Latest Practicable Date, the Company applied for interpleader relief from the High Court of Hong Kong (the “Court”) for the purpose of seeking an order or direction from the Court regarding the allotment and issue of the second tranche and third tranche consideration shares for the acquisition of the entire share capital of Jade Honest Limited. The interpleader applications are solely for the purpose of applying to Court for a determination of whether the vendors (on the one hand) or the nominee (on the other) under such acquisition is entitled to be allotted and issued the second and third tranche consideration shares, and that neither the vendors nor the nominee has instituted any proceedings against the Company in respect of these Shares.

In March 2010, (Xihui Zhilai Coal Industrial Company Limited) (“Zhilai”), an indirect subsidiary in which the Company holds 51% interest, brought legal action against a customer claiming a sum of RMB13,713,753.79 (Cost of goods delivered of RMB13,314,324.07 and a surplus of 3%, RMB399,429.72) together with overdue interest and related legal fee in relating to a sale and purchase agreement. As at the Latest Practicable Date, Zhilai had recovered RMB13,314,324.07.

Save as disclosed above, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any member of the Group.

4. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group which did not expire or was not determinable by the Group within one year without payment of compensation (other than statutory compensation).

5. MATERIAL CHANGES

The Directors confirm that there was no material adverse change in the financial or trading position of the Company since 31 December 2009, being the date to which the latest published audited financial statements of the Company were made up.

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GENERAL INFORMATION

APPENDIX VIII

6. CONTRACTS OR ARRANGEMENT AND COMPETING BUSINESSES

As at the Latest Practicable Date, none of the Directors and his/her associates was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

None of the Directors has any direct or indirect interest in any assets which had been acquired, disposed of or leased to, or which are proposed to be acquired, disposed of or leased to, the Company or any of its subsidiaries since 31 December 2009 (the date to which the latest published audited financial statements of the Company were made up).

As at the Latest Practicable Date, there was no contract or arrangement entered into by any member of the Group subsisting in which any Director was materially interested and which was significant in relation to the business of the Group.

7. EXPERT’S QUALIFICATION AND CONSENT

The following are the qualifications of the experts, who have given opinions contained in and referred to in this circular:

Name	Qualification
CCIF CPA Limited	Certified Public Accountants
Savills	Independent valuer
LCH (Asia-Pacific) Surveyors Limited	Professional Surveyor
SRK Consulting	Independent technical adviser

As at the Latest Practicable Date, none of the above experts had any shareholding, directly or indirectly, in any member of the Enlarged Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group.

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of the references to its name and/or its opinion in the form and context in which they are included.

None of the above experts has any direct or indirect interest in any assets which had been acquired, or disposed of by, or leased to any member of the Enlarged Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Enlarged Group since 31 December 2009, the date to which the latest published audited consolidated financial statements of the Group were made up.

The letters and report from each of the above experts are given as of the date of this circular for incorporation herein.

– 514 –

GENERAL INFORMATION

APPENDIX VIII

8. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by members of the Enlarged Group within the two years immediately preceding the date of this circular:

(i) the Sale and Purchase Agreement;
(ii) the agreement dated 19 January 2010 entered into between the Company and Pelican Securities Limited in relation to the placing of 743,100,000 new Shares (the “Placing Agreement”);
(iii) the agreement dated 18 January 2010 entered into between the Company and Max Sun Enterprises Limited in respect of the subscription of 322,582,000 new Shares (the “Subscription Agreement”);
(iv) the Memorandum of Understanding (“MOU”) dated 8 December 2009 entered into between the Company and the Vendor in relation to the Acquisition;
(v) the agreement dated 3 November 2009 entered into between the Company and Guotai Junan Securities (Hong Kong) Limited (the “Placing Agent”), which the Placing Agent agreed to place, on a best effort basis, the Convertible Notes up to an aggregate principal amount of HK$124 million;
(vi) a sale and purchase agreement dated 24 December 2008 relating to the sale and purchase of 100 issued ordinary shares in Elegant Pool Limited and the assignment of a shareholder’s loan owed from Elegant Pool Limited to the Company in the amount of HK$54,286,676.00;
(vii) a sale and purchase agreement and a supplemental agreement dated 21 April 2008 and 5 May 2008, respectively, relating to sale and purchase of 100 issued share ordinary shares in Smart Wave Limited and the assignment of a shareholder’s loan owned from Smart Wave Limited to the Company in the amount of HK$33,764,402;
(viii) a framework agreement dated 10 October 2007, a sales and purchase agreement date 31 October 2007 and seven supplemental agreements dated 12 November 2007, 6 March 2008, 30 August 2008, 28 November 2008, 12 December 2008, 6 January 2009 and 31 March 2009 relating to the acquisition of entire issued share capital of Jade Honest Limited at a consideration of HK$2,100,000,000.

– 515 –

GENERAL INFORMATION

APPENDIX VIII

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours (public holidays excepted) at the principal place of business of the Company in Hong Kong at Unit 1007-08, 10th Floor, New World Tower I, 18 Queen’s Road Central, Hong Kong from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association of the Company and the Bye-laws;
(b) the annual reports of the Company for the three years ended 31 December 2007, 2008 and 2009, and the interim report of the Company for the six months ended 30 June 2009;
(c) the accountants’ reports on the Target Group and Hongwen Gold the text of which is set out in Appendix II to this circular;
(d) the letter from CCIF CPA Limited in respect of the pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
(e) the valuation report on properties, the text of which is set out in Appendix V to this circular;
(f) the valuation report of Qinglong Manzu Autonomous County Hongwen Gold Company Limited, the text of which is set out in Appendix VII to this circular;
(g) the technical report prepared by SRK Consulting, the text of which is set out in Appendix VI to this circular;
(h) the letters of consents referred to under the paragraph headed “Experts and consents” in this appendix;
(i) the material contracts referred to under the paragraph headed “Material contracts” in this appendix; and
(j) a copy of each circular of the Company issued pursuant to the requirements set out in Chapters 14 of the Listing Rules since 31 December 2009 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

– 516 –

GENERAL INFORMATION

APPENDIX VIII

10. MISCELLANEOUS

(a) The company secretary and qualified accountant of the Company is Mr. Yu Wing Cheung, who is a member of the Hong Kong Institute of Certified Public Accountants.
(b) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The principal place of business of the Company is at Unit 1007-08, 10th Floor, New World Tower I, 18 Queen’s Road Central, Hong Kong.
(c) The English text of this circular shall prevail over its Chinese text.

– 517 –

NOTICE OF THE SGM

==> picture [93 x 65] intentionally omitted <==

NEW TIMES ENERGY CORPORATION LIMITED *

(incorporated in Bermuda with limited liability)

(Stock code: 00166)

NOTICE IS HEREBY GIVEN THAT a special general meeting (the “Meeting”) of New Times Energy Corporation Limited (the “Company”) will be held at Board Room, Dynasty Club, 7/F South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong on Friday, 16 July 2010, at 10:30 a.m. for the purposes of considering and, if thought fit, passing (with or without modification) the following ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT :
1.1 the entering into the Agreement (as defined in the circular dated 24 June 2010 despatched to the shareholders of the Company (the “Circular”), a copy of which has been produced to the meeting and marked “A” and initialled by the chairman of the meeting for the purpose of identification) and a copy of which has been a copy of which has been produced to the meeting and marked “B”, and initialled by the chairman of the meeting for the purpose of identification) and the terms and conditions thereof and the performance by the Company for the transactions contemplated under the Agreement be and are hereby approved, confirmed and ratified;
1.2 the allotment and issue of the Consideration Shares (as defined in the Circular) to the Vendor (or its nominee(s)) (as defined in the Circular) on the terms as set out in the Agreement, be and are hereby approved;
1.3 the allotment and issue of the Additional New Shares (as defined in the Circular) to the Vendor (or its nominee(s))(as defined in the Circular) on the terms as set out in the Agreement, be and are hereby approved;
1.4 the taking of all steps and doing of all things by the Company and its subsidiaries as the directors of the Company may in their absolute discretion deem necessary, desirable or expedient to implement, give effect to and/or complete the Agreement and the transactions contemplated thereunder, including without limitation the allotment and issue of the Consideration Shares and the Additional New Shares, be and are hereby authorized, approved, confirmed and ratified; and

* For identification purpose only

– 518 –

NOTICE OF THE SGM

1.5 any one executive director of the Company be and is hereby authorized for and on behalf of the Company to do all such acts and things, to sign and execute any agreements, all such other documents, deeds, instruments and agreements and to take such steps as he/she may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Agreement all other matters contemplated thereunder and incidental thereto.”

Your faithfully, On behalf of the Board New Times Energy Corporation Limited Cheng Kam Chiu, Stewart Chairman

Hong Kong, 24 June 2010

Registered Office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head Office and Principal Place of Business: Unit 1007-08, 10th Floor New World Tower I 18 Queen’s Road Central Hong Kong

Notes:

A Shareholder entitled to attend and vote at the above meeting may appoint one or more than one proxy to attend and to vote in his stead. A proxy need not be a Shareholder of the Company.
Where there are joint registered holders of any Share, any one such person may vote at the meeting, either personally or by proxy, in respect of such Shares as if he was solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such Shares shall alone be entitled to vote in respect thereof.
In order to be valid, the form of proxy duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a certified copy thereof must be delivered to the office of the Company’s branch share registrars, Tricor Tengis Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
A form of proxy for use at the meeting is being despatched to the Shareholders of the Company together with a copy of this notice.

– 519 –

AI assistant

GoFintech Quantum Innovation Limited — Proxy Solicitation & Information Statement 2010

49098_rns_2010-06-23_82921fdb-fd21-4b4b-8b18-c94c83e0662c.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

**NEW TIMES ENERGY CORPORATION LIMITED ***

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF FORTUNE EASE HOLDINGS LIMITED AND NOTICE OF SPECIAL GENERAL MEETING

Financial advisor to the Company

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

**NEW TIMES ENERGY CORPORATION LIMITED ***

Independent non-executive Directors:

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF FORTUNE EASE HOLDINGS LIMITED

INTRODUCTION

THE AGREEMENT

Date

Parties

Assets to be acquired

Consideration

Adjustment to the Consideration

LETTER FROM THE BOARD

Conditions precedent

COMPLETION

CONSIDERATION SHARES AND ADDITIONAL NEW SHARES

UNDERTAKING BY THE VENDOR, MR. SUN AND HONGWEN GOLD

SHAREHOLDING STRUCTURE OF THE TARGET GROUP

(i) Immediately before Completion (ii) Immediately upon Completion

EFFECT ON SHAREHOLDING STRUCTURE OF THE COMPANY

REASONS FOR AND BENEFITS OF THE ACQUISITION

LETTER FROM THE BOARD

INFORMATION ON THE TARGET COMPANY, CHAMPION CITY, SHENZHEN ZHUO DE SHENG AND SHENZHEN WAN KAI SHENG

LETTER FROM THE BOARD

INFORMATION ON HONGWEN GOLD

INFORMATION ON THE GOLD MINES

LETTER FROM THE BOARD

LETTER FROM THE BOARD

1. Sanjia Gold Mine ( )

Mining methods

Mining schedule

Ore processing and equipment

LETTER FROM THE BOARD

2. Banbishan Gold Mine ( )

LETTER FROM THE BOARD

Mining method

Mining schedule

Ore processing and equipment

3. Qingheyan Gold Mine ( )

LETTER FROM THE BOARD

Mining method

Mining schedule

Ore processing and equipment

LETTER FROM THE BOARD

Gold resources estimate

LETTER FROM THE BOARD

Revenue model and major customers

TRANSPORTATION

Sanjia Gold Mine:

Banbishan Gold Mine:

Qingheyan Gold Mine:

MANAGEMENT EXPERTISE

Chief Operating Officer (Mining)

Chief Geologist (China)

LETTER FROM THE BOARD

Metallurgical Consultant

BUSINESS PLAN AND STRATEGY

LETTER FROM THE BOARD

SAFETY PRODUCTION POLICY

ENVIRONMENTAL PROTECTION POLICY

OVERVIEW OF THE GOLD INDUSTRY IN PRC

LETTER FROM THE BOARD

Demand for Gold in the PRC

Supply for Gold in the PRC

COMPETITION LANDSCAPE

INDUSTRY BARRIERS

FUTURE OPPORTUNITY

LAWS AND REGULATIONS RELATING TO MINERAL RESOURCES

Rights and Obligations of Holders of Exploration Permits

GoFintech Quantum Innovation Limited Proxy Solicitation & Information Statement 2010

NEW TIMES ENERGY CORPORATION LIMITED *

NEW TIMES ENERGY CORPORATION LIMITED *