Hidili Industry International Development Limited — Proxy Solicitation & Information Statement 2009

Oct 16, 2009

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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Hidili Industry International Development Limited �鼎實業國際發展有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1393)

DISCLOSEABLE TRANSACTION

FORMATION OF A JOINT VENTURE FOR ACQUISITION OF COAL MINES AND CONNECTED TRANSACTIONS

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

A letter from the Board is set out on pages 1 to 11 of this circular and a letter from the Independent Board Committee to the Independent Shareholders is set out on page 12 of this circular. A letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 13 to 22 of this circular.

16 October 2009

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM THE BOARD
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
FORMATION OF A JOINT VENTURE AND
DISCLOSEABLE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
INFORMATION OF THE GROUP AND
THE JOINT VENTURE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
CONNECTED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
EQUITY REPURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
MINING RIGHT PLEDGE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
EQUITY PLEDGE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
INFORMATION OF LIUPANSHUI HIDILI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
REASONS FOR AND BENEFITS OF THE FORMATION OF
THE JOINT VENTURE AND CONNECTED TRANSACTIONS . . . . . . . . . . . . . . . . . . .	9
IMPLICATIONS UNDER THE LISTING RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . .	12
LETTER FROM VEDA CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
APPENDIX — GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23

— i —

DEFINITIONS

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

• “Announcement”

the announcement of the Company dated 25 September 2009 in relation to, among other things, the Connected Transactions

• “Articles” the articles of association of the Company, as amended from time to time

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

• “Board” the board of Directors

• “Capital Contribution” the increase of the registered capital of Shenzhen Hengxin from RMB100 million to RMB270 million pursuant to the Capital Contribution Agreement

• “Capital Contribution Agreement” the agreement dated 25 September 2009 entered into between Sichuan Hidili, CITIC Trust and Shenzhen Hengxin in relation to the increase of the registered capital of Shenzhen Hengxin from RMB100 million to RMB270 million

• “CITIC Trust”

• 中信信託有限責任公司 (CITIC Trust Company Limited*), a limited liability company established in the PRC

• “CITIC Trust First Injection”

• the first injection in the sum of RMB250 million made by CITIC Trust to subscribe RMB107.8 million of the registered capital of Shenzhen Hengxin pursuant to the Capital Contribution Agreement

• “CITIC Trust Second Injection”

the second injection in the sum of RMB250 million made by CITIC Trust to subscribe RMB24.5 million of the registered capital of Shenzhen Hengxin pursuant to the Capital Contribution Agreement

• “Company”

• Hidili Industry International Development Limited �鼎實業國際 發展有限公司 , a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Stock Exchange

• “connected person(s)”

has the meaning ascribed to it under the Listing Rules

— ii —

DEFINITIONS

• “Connected Transactions”

the transactions contemplated under the Equity Repurchase Agreement, Mining Right Pledge Agreement and Equity Pledge Agreement

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

• “Equity Pledge Agreement” the agreement dated 25 September 2009 entered into between Sichuan Hidili as pledgor and CITIC Trust as pledgee in relation to the granting of security over CITIC Trust’s 51% equity interests in Shenzhen Hengxin

“Equity Repurchase Agreement” the agreement dated 25 September 2009 entered into between Sichuan Hidili and CITIC Trust in relation to the repurchase of CITIC Trust’s 49% equity interest in Shenzhen Hengxin by Sichuan Hidili

• “First Contribution” completion of both Sichuan Hidili First Injection and CITIC Trust First Injection pursuant to the Capital Contribution Agreement

• “Group” the Company and its subsidiaries

• “HK$”

Hong Kong dollars, the lawful currency of Hong Kong

• “Hong Kong”

the Hong Kong Special Administrative Region of the PRC

• “Independent Board Committee”

the independent committee of the Board, comprising all the independent non-executive Directors, established to advise the Independent Shareholders in respect of the Connected Transactions contemplated thereunder

• “Independent Financial Adviser” or “Veda Capital”

Veda Capital Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Connected Transactions

• “Independent Shareholders”

• “Joint Venture”

• Shareholders who have no interest in the Connected Transactions Shenzhen Hengxin after the completion of the Capital Contribution by Sichuan Hidili and CITIC Trust pursuant to the Capital Contribution Agreement

— iii —

DEFINITIONS

• “Latest Practicable Date” 12 October 2009, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange “Liupanshui Hidili” 六盤水�鼎實業有限公司 (Liupanshui Hidili Industry Company Limited*), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company

• “Mining Right Pledge Agreement” the agreement dated 25 September 2009 entered into between Liupanshui Hidili as pledgor and CITIC Trust as pledgee in relation to the granting of security over Liupanshui Hidili’s mining right of Xinda Coal Mine

• “PRC” the People’s Republic of China which, for the purpose of this announcement, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

• “Repurchase” the repurchase of 49% equity interests of Shenzhen Hengxin pursuant to the Equity Repurchase Agreement

• “RMB” Renminbi, the lawful currency of the PRC “Second Contribution” completion of both Sichuan Hidili Second Injection and CITIC Trust Second Injection pursuant to the Capital Contribution Agreement

• “SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Share(s)” share(s) of HK$0.10 each in the capital of the Company “Shareholder(s)” holder(s) of the Share(s) “Shareholding Period” the twelve months period of holding of 49% equity interest by CITIC Trust from the First Contribution pursuant to the Capital Contribution Agreement

— iv —

DEFINITIONS

“Shenzhen Hengxin” 深圳市�信鼎立商貿有限公司 (Shenzhen Hengxin Dingli Commercial Trading Company Limited), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company before the Capital Contribution “Sichuan Hidili” 四川�鼎實業有限公司 (Sichuan Hidili Industry Company Limited), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company

“Sichuan Hidili First Injection” the first injection in the sum of RMB150 million made by Sichuan Hidili to subscribe RMB12.2 million of the registered capital of Shenzhen Hengxin pursuant to the Capital Contribution Agreement

• “Sichuan Hidili Second Injection” the second injection in the sum of RMB250 million made by Sichuan Hidili to subscribe RMB25.5 million of the registered capital of Shenzhen Hengxin pursuant to the Capital Contribution Agreement

• “Stock Exchange” The Stock Exchange of Hong Kong Limited “Xinda Coal Mine” 興達煤礦 (Xinda Coal Mine*) “%” per cent.

In this circular, for purpose of illustration only, amounts quoted in RMB have been converted into HK$ at the rate of RMB$1.00 to HK$1.1346. Such exchange rate has been used, where applicable, for purpose of illustration only and does not constitute a representation that any amounts were or may have been exchanged at this or any other rates or at all.

• for identification purpose only

— v —

LETTER FROM THE BOARD

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Hidili Industry International Development Limited �鼎實業國際發展有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1393)

Executive Directors: Mr. Xian Yang (Chairman) Mr. Sun Jiankun Mr. Wang Rong

Independent non-executive Directors:

Mr. Chan Chi Hing Mr. Chen Limin Mr. Huang Rongsheng

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office: 16th Floor, Dingli Mansion No. 81 Renmin Road Panzhihua Sichuan 617000 The PRC

16 October 2009

To the Shareholders

Dear Sir/Madam,

DISCLOSEABLE TRANSACTION FORMATION OF A JOINT VENTURE FOR ACQUISITION OF COAL MINES AND CONNECTED TRANSACTIONS

INTRODUCTION

The Board announced in the Announcement that on 25 September 2009, Sichuan Hidili, a wholly-owned subsidiary of the Company, entered into the Capital Contribution Agreement with CITIC Trust and Shenzhen Hengxin, an indirect wholly-owned subsidiary of the Company prior to the Capital Contribution, pursuant to which the parties agreed to reorganise Shenzhen Hengxin into a joint venture company and increase the

— 1 —

LETTER FROM THE BOARD

registered capital of Shenzhen Hengxin from RMB100 million (which was fully paid up by Sichuan Hidili) to RMB270 million by introducing new capital contribution in the sum of RMB500 million (approximately HK$567.3 million) from CITIC Trust and further capital contribution in the sum of RMB400 million (approximately HK$453.8 million) from Sichuan Hidili. The remaining RMB730 million of the capital contribution will be placed into the reserve fund of Shenzhen Hengxin. Upon completion of the Capital Contribution, Sichuan Hidili and CITIC Trust will respectively own 51% and 49% of Shenzhen Hengxin. The Joint Venture is formed for acquiring coal mines in Pan county, Guizhou Province and Fuyuan county, Yunnan Province. Such amount of capital contribution was arrived at by the parties after considering the total acquisition cost required for acquiring those coal mines, which is estimated to be RMB2,000 million. The total acquisition cost of RMB2,000 million will be financed by the registered capital and reserve fund of Shenzhen Hengxin of RMB1,000 million upon completion of the Capital Contribution and the banking facilities of RMB1,000 million obtained by Shenzhen Hengxin from China Construction Bank for a term of 5 years on 28 August 2009. As at the Latest Practicable Date, the Group has not yet entered into any agreement for such acquisition. To the extent that any such acquisition constitutes notifiable transaction for the Company, the Company will comply with the relevant disclosure requirements under Chapter 14 and/ or Chapter 14A of the Listing Rules.

On 25 September 2009, Sichuan Hidili entered into the Equity Repurchase Agreement with CITIC Trust to repurchase CITIC Trust’s 49% equity interest in Shenzhen Hengxin by the end of the Shareholding Period. The consideration for the Repurchase is determined by the actual total amount of capital contribution made by CITIC Trust pursuant to the Capital Contribution Agreement plus a premium of 9% per annum on that amount.

On 25 September 2009, for the purpose of securing the payment of the consideration payable under the Equity Repurchase Agreement, Liupanshui Hidili, an indirect wholly-owned subsidiary of the Company as pledgor, entered into the Mining Right Pledge Agreement with CITIC Trust as pledgee in relation to the granting of security over Liupanshui Hidili’s mining rights in Xinda Coal Mine and Sichuan Hidili as pledgor entered into the Equity Pledge Agreement with CITIC Trust as pledgee in relation to the granting of security over Sichuan Hidili’s 51% equity interest in Shenzhen Hengxin.

Upon completion of the Capital Contribution, CITIC Trust will become a connected person of the Company because it is a substantial shareholder of Shenzhen Hengxin, which is and will continue to be treated as a subsidiary of the Company before and after the completion of the Capital Contribution. The transactions contemplated under the Equity Repurchase Agreement, Mining Right Pledge Agreement and Equity Pledge Agreement will therefore constitute connected transactions of the Company, which are subject to the requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

As the applicable percentage ratios will exceed 2.5% and the consideration for the Repurchase is over HK$10,000,000, the transaction contemplated under the Equity Repurchase Agreement constitutes nonexempt connected transaction of the Company, which is subject to the reporting and announcement requirements under Rules 14A.45 to 14A.47 of the Listing Rules and the Independent Shareholders’ approval requirements under Rules 14A.48 to 14A.54 of the Listing Rules at the Company’s general meeting. The Equity Pledge Agreement and the Mining Right Pledge Agreement with CITIC Trust are a security arrangement for securing the payment of the consideration payable by Sichuan Hidili under the Equity Repurchase Agreement. As the applicable percentage ratios will exceed 2.5% and the value of the assets under the Equity Pledge Agreement and the Mining Right Pledge Agreement is over HK$10,000,000, the transactions contemplated under the Equity Pledge Agreement and the Mining Right Pledge Agreement constitute non-exempt connected transactions of the Company, which are subject to the reporting and announcement requirements under Rule 14A.63 of the Listing Rules and the Independent Shareholders’ approval requirements under Rules 14A.48 to 14A.54 of the Listing Rules at the Company’s general meeting. As no Shareholder has material interests in the Connected Transactions, no Shareholder is required to abstain from voting on the proposed resolution in respect of the Connected Transactions.

The Independent Board Committee, comprising all the independent non-executive Directors, was established to consider and advise the Independent Shareholders as to whether the terms of the Equity Repurchase Agreement, the Mining Right Pledge Agreement and the Equity Pledge Agreement are fair and reasonable and whether the Connected Transactions are in the interests of the Company and the Shareholders as a whole. Veda Capital has been appointed to advise the Independent Board Committee and the Independent Shareholders in this respect.

On 23 September 2009, a written shareholder’s approval was obtained from Sanlian Investment Holding Limited which holds 1,097,631,000 Shares (representing approximately 53.3% of the existing issued share capital of the Company) for the entering into of the Connected Transactions. Such 53.3% shareholding interest represents the deemed shareholding interest of Mr. Xian Yang, the Chairman of the Board, who has no interest in such transactions (other than in the capacity as a Shareholder). Pursuant to Rule 14A.43 of the Listing Rules, the Company has made an application to the Stock Exchange applying for a waiver from the requirement to hold a Shareholders’ meeting to approve the Connected Transactions, on the basis that Sanlian Investment Holding Limited is not required to abstain from voting if a Shareholders’ meeting were convened to approve such transactions, and that written approval of the entering into of the Connected Transactions has already been obtained from Sanlian Investment Holding Limited, which holds more than 50% in nominal value of the Shares giving the right to attend and vote at the shareholders’ meeting to approve such transaction. Waiver from the Stock Exchange was granted on 28 September 2009.

The purpose of this circular is to provide you with further information in relation to, among other matters, (i) the Capital Contribution Agreement; (ii) the Connected Transactions; (iii) the letter of recommendation from the Independent Board Committee; and (iv) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders.

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LETTER FROM THE BOARD

FORMATION OF A JOINT VENTURE AND DISCLOSEABLE TRANSACTION

On 25 September 2009, Sichuan Hidili, a wholly-owned subsidiary of the Company, entered into the Capital Contribution Agreement with CITIC Trust and Shenzhen Hengxin, an indirect wholly-owned subsidiary of the Company prior to the Capital Contribution, pursuant to which the parties agreed to reorganise Shenzhen Hengxin into a joint venture company and increase the registered capital of Shenzhen Hengxin from RMB100 million (which was fully paid up by Sichuan Hidili) to RMB270 million by introducing new capital contribution from CITIC Trust and further capital contribution from Sichuan Hidili.

Capital Contribution Agreement

Date: 25 September 2009

Parties:

• (1) Sichuan Hidili

• (2) CITIC Trust

• (3) Shenzhen Hengxin

Capital Contribution

Pursuant to the Capital Contribution Agreement, Sichuan Hidili agreed to make a further capital contribution of RMB400 million to Shenzhen Hengxin, so that the total capital contribution made by Sichuan Hidili amounts to RMB500 million, RMB137.7 million of which is allocated as registered capital (representing 51% of the registered capital of Shenzhen Hengxin after the Capital Contribution) and the remaining amount of RMB362.3 million will be placed into the reserve fund of Shenzhen Hengxin. CITIC Trust agreed to invest into Shenzhen Hengxin by making a capital contribution in the sum of RMB500 million (approximately HK$567.3 million), RMB132.3 million of which will be contributed as registered capital (representing 49% of the registered capital of Shenzhen Hengxin after the Capital Contribution) and the remaining amount of RMB367.7 million will be placed into the reserve fund of Shenzhen Hengxin. Such amount of capital contribution was arrived at by the parties after considering the total acquisition cost required for acquiring coal mines in Pan County, Guizhou Province and Fuyuan county, Yunnan Province, which is estimated to be RMB2,000 million. The Company will finance its capital contribution of RMB400 million through internal resources. CITIC Trust will finance its capital contribution of RMB500 million through the issue of trust fund to the public and inject in the form of registered capital.

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LETTER FROM THE BOARD

For the purposes of acquiring the coal mines in Pan County, Guizhou Province and Fuyuan county, Yunnan Province, on 28 August 2009, Shenzhen Hengxin has obtained banking facilities of RMB1,000 million from China Construction Bank for a term of 5 years and the Group has entered into various contracts with China Construction Bank to guarantee the provision of such banking facilities.

As at the Latest Practicable Date, the Group has not yet entered into any agreement for acquiring the coal mines in Pan County, Guizhou Province and Fuyuan county, Yunnan Province. To the extent that any such acquisition constitutes notifiable transaction for the Company, the Company will comply with the relevant disclosure requirements under Chapter 14 and/or Chapter 14A of the Listing Rules.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, CITIC Trust (prior to the Capital Contribution) and the ultimate beneficial owner of CITIC Trust are third parties independent of the Company and connected persons of the Company.

The increase of the registered capital of Shenzhen Hengxin contemplated under the Capital Contribution Agreement are as follows:

Registered capital Reserve fund RMB million RMB million Upon incorporation Registered capital paid up by Sichuan Hidili 100.0 — Upon the First Contribution Sichuan Hidili First Injection 12.2 137.8 CITIC Trust First Injection 107.8 142.2 120.0 280.0 Upon the Second Contribution Sichuan Hidili Second Injection 25.5 224.5 CITIC Trust Second Injection 24.5 225.5 50.0 450.0 Upon completion of the Capital Contribution Sichuan Hidili 137.7 362.3 CITIC Trust 132.3 367.7 270.0 730.0	Total contribution RMB million 100.0
	150.0 250.0
	400.0
	250.0 250.0
	500.0
	500.0 500.0
	1,000.0

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LETTER FROM THE BOARD

The Capital Contribution will be contributed in two installments:

• (1) After the signing of the Capital Contribution Agreement, Sichuan Hidili is entitled to make the Sichuan Hidili First Injection. Upon completion of Sichuan Hidili First Injection, CITIC Trust agreed to make the CITIC Trust First Injection. Upon the First Contribution, the registered capital of Shenzhen Hengxin will be increased to RMB220 million, among which 51% was contributed by Sichuan Hidili and 49% was contributed by CITIC Trust. Sichuan Hidili First Injection is expected to be completed by the end of October 2009.

• (2) If the First Contribution is completed within 24 months of the date of the Capital Contribution Agreement, Sichuan Hidili is entitled to make the Sichuan Hidili Second Injection. Upon completion of Sichuan Hidili Second Injection, CITIC Trust agreed to make the CITIC Trust Second Injection.

Upon completion of the Capital Contribution:

• (1) Shenzhen Hengxin will be owned as to 51% by Sichuan Hidili and 49% by CITIC Trust; and

• (2) the board of directors of Shenzhen Hengxin will comprise 5 directors, 3 of which will be nominated by Sichuan Hidili and 2 of which will be nominated by CITIC Trust. CITIC Trust is not entitled to Shenzhen Hengxin’s profit distribution and will not involve in the daily operation of Shenzhen Hengxin.

INFORMATION OF THE GROUP AND THE JOINT VENTURE PARTIES

The Group

The Company was incorporated in the Cayman Islands and registered as an exempted company with limited liability on 1 September 2006 and has been listed on the Stock Exchange since 21 September 2007.

The Group is one of the largest integrated coal enterprises in South West China and is principally engaged in coal mining and processing and sales of clean coal, coke, alloy pig iron and related by-products.

Sichuan Hidili

Sichuan Hidili is a limited liability company established in the PRC and is wholly-owned subsidiary of the Company. Its principal activities are coal mining and investment holding.

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LETTER FROM THE BOARD

Shenzhen Hengxin

Shenzhen Hengxin is a limited liability company established in the PRC in April 2009 and was then wholly owned by Sichuan Hidili with a registered capital of RMB100 million. Shenzhen Hengxin is formed for acquiring coal mines in Pan county, Guizhou Province and Fuyuan county, Yunnan Province. Its principal activities are coal mining and investment holding.

As at the Latest Practicable Date and prior to the Capital Contribution, Shenzhen Hengxin has not yet commenced business and has no assets other than the registered capital of RMB100 million, which was fully paid up by Sichuan Hidili. As at 31 August 2009 and prior to the drawdown of the banking facilities with China Construction Bank, Shenzhen Hengxin has no liabilities.

CITIC Trust

CITIC Trust is a limited liability company established in the PRC. Its principal business activity is investment holding. CITIC Trust and its ultimate beneficial owners are third parties independent of the Company and connected persons of the Company.

CONNECTED TRANSACTIONS

Equity Repurchase Agreement

Date: 25 September 2009

Parties:

• (1) Sichuan Hidili

• (2) CITIC Trust

Repurchase

On 25 September 2009, Sichuan Hidili entered into the Equity Repurchase Agreement with CITIC Trust, pursuant to which Sichuan Hidili will repurchase, subject to completion of the Capital Contribution, CITIC Trust’s 49% equity interest in Shenzhen Hengxin from CITIC Trust by the end of the Shareholding Period. The consideration for the Repurchase is determined by the actual total amount of capital contribution made by CITIC Trust pursuant to the Capital Contribution Agreement plus a premium of 9% per annum on that amount. The 9% premium is payable by Sichuan Hidili to CITIC Trust every six month from the First Contribution. The remaining amount of the consideration will be settled by Sichuan Hidili to CITIC Trust by the end of the Shareholding Period.

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LETTER FROM THE BOARD

The 9% premium was determined after arm’s length negotiation between Sichuan Hidili and CITIC Trust with reference to the borrowing costs in the open financing market.

Mining Right Pledge Agreement

Date: 25 September 2009

Parties:

• (1) Liupanshui Hidili as pledgor

• (2) CITIC Trust as pledgee

Equity Pledge Agreement

Date: 25 September 2009

Parties:

• (1) Sichuan Hidili as pledgor

• (2) CITIC Trust as pledgee

On 25 September 2009, for the purpose of securing the payment of the consideration payable under the Equity Repurchase Agreement, Liupanshui Hidili as pledgor entered into the Mining Right Pledge Agreement with CITIC Trust as pledgee in relation to the granting of security over Liupanshui Hidili’s mining rights in Xinda Coal Mine and Sichuan Hidili as pledgor entered into the Equity Pledge Agreement with CITIC Trust as pledgee in relation to the granting of security over Sichuan Hidili’s 51% equity interest in Shenzhen Hengxin.

As at 31 August 2009, the book value of Xinda Coal Mine was approximately RMB196 million (net of amortization).

As at 31 August 2009, the book value of Sichuan Hidili’s equity holding in Shenzhen Hengxin was RMB100 million, representing the entire 100% equity holding immediately before the Capital Contribution. Upon completion of the Capital Contribution, Sichuan Hidili would have made a capital contribution of RMB500 million to Shenzhen Hengxin.

— 8 —

LETTER FROM THE BOARD

INFORMATION OF LIUPANSHUI HIDILI

Liupanshui Hidili is a company established in the PRC with limited liability and is an indirect wholly-owned subsidiary of the Company. Its principal activities are coal mining and investment holding.

REASONS FOR AND BENEFITS OF THE FORMATION OF THE JOINT VENTURE AND CONNECTED TRANSACTIONS

The mining resource consolidation program of small to medium coal mines imposed by the government offered the Company opportunities to selectively acquire quality resources of coking coal in Yunnan Province and Guizhou Province. Also, the economic depression provides the Company access to attain working capital and project funding at low financing cost for its expansion. The Directors believe that it would be in the Group’s interests to acquire coal mines with relatively low cost. Besides, the Directors consider that the terms of the Equity Repurchase Agreement, the Mining Right Pledge Agreement and the Equity Pledge Agreement are determined on normal commercial terms with reference to the appropriation of funding in the open financial market.

In conclusion, the Directors believe that the terms and conditions of the Capital Contribution Agreement and the Connected Transactions are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

The Capital Contribution Agreement

The subscription of the registered capital in Shenzhen Hengxin by Sichuan Hidili under the Capital Contribution Agreement constitutes a discloseable transaction of the Company under Rule 14.06(2) of the Listing Rules on the basis that the calculations of the relevant percentage ratios are within the range of 5% and 25%.

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LETTER FROM THE BOARD

The Connected Transactions

Upon the formation of the Joint Venture, CITIC Trust will become a connected person of the Company because it is a substantial shareholder of Shenzhen Hengxin, which is and will continue to be treated as a subsidiary of the Company before and after the completion of the Capital Contribution. The transactions contemplated under the Equity Repurchase Agreement, Mining Right Pledge Agreement and Equity Pledge Agreement will therefore constitute connected transactions of the Company, which are subject to the requirements under Chapter 14A of the Listing Rules.

As the applicable percentage ratios will exceed 2.5% and the consideration for the Repurchase is over HK$10,000,000, the transaction contemplated under the Equity Repurchase Agreement constitutes nonexempt connected transaction of the Company, which is subject to the reporting and announcement requirements under Rules 14A.45 to 14A.47 of the Listing Rules and the Independent Shareholders’ approval requirements under Rules 14A.48 to 14A.54 of the Listing Rules at the Company’s general meeting. The Equity Pledge Agreement and the Mining Right Pledge Agreement with CITIC Trust are a security arrangement for securing the payment of the consideration payable by Sichuan Hidili. As the applicable percentage ratios will exceed 2.5% and the value of the assets under the Equity Pledge Agreement and the Mining Right Pledge Agreement is over HK$10,000,000, the transactions contemplated under the Equity Pledge Agreement and the Mining Right Pledge Agreement constitute non-exempt connected transactions of the Company, which are subject to the reporting and announcement requirements under Rule 14A.63 of the Listing Rules and the Independent Shareholders’ approval requirements under Rules 14A.48 to 14A.54 of the Listing Rules at the Company’s general meeting. As no Shareholder has material interests in the Connected Transactions, no Shareholder is required to abstain from voting on the proposed resolution in respect of the Connected Transactions.

The Independent Board Committee, comprising all the independent non-executive Directors, was established to consider and advise the Independent Shareholders as to whether the terms of the Equity Repurchase Agreement, the Mining Right Pledge Agreement and the Equity Pledge Agreement are fair and reasonable and whether the Connected Transactions are in the interests of the Company and the Shareholders as a whole. Veda Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

— 10 —

LETTER FROM THE BOARD

On 23 September 2009, a written shareholder’s approval was obtained from Sanlian Investment Holding Limited which holds 1,097,631,000 Shares (representing approximately 53.3% of the existing issued share capital of the Company) for the entering into of the Connected Transactions. Such 53.3% shareholding interest represents the deemed shareholding interest of Mr. Xian Yang, the Chairman of the Board, who has no interest in such transactions (other than in the capacity as a Shareholder). Pursuant to Rule 14A.43 of the Listing Rules, the Company has made an application to the Stock Exchange applying for a waiver from the requirement to hold a Shareholders’ meeting to approve the Connected Transactions, on the basis that Sanlian Investment Holding Limited is not required to abstain from voting if a Shareholders’ meeting were convened to approve such transactions, and that written approval of the entering into of the Connected Transactions has already been obtained from Sanlian Investment Holding Limited, which holds more than 50% in nominal value of the Shares giving the right to attend and vote at the Shareholders’ meeting to approve such transaction. Wavier from the Stock Exchange was obtained on 28 September 2009.

INDEPENDENT BOARD COMMITTEE

Your attention is drawn to the letter from the Independent Board Committee set out on page 12 of this circular and the letter of advice from Veda Capital to the Independent Board Committee and the Independent Shareholders in relation to the Connected Transactions and the principal factors and reasons considered by it in concluding its advice is set out on pages 13 to 22 of this circular.

RECOMMENDATION

The Board, including the Independent Board Committee, considers that the terms of the Equity Repurchase Agreement, the Mining Right Pledge Agreement and the Equity Pledge Agreement are fair and reasonable as far as the Independent Shareholders are concerned and the Connected Transactions are on normal commercial terms, and in the ordinary and usual course of business of the Company, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

ADDITIONAL INFORMATION

Your attention is drawn to the further information set out in the Appendix to this circular.

Yours faithfully, For and on behalf of the Board

Xian Yang

Chairman

— 11 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [116 x 44] intentionally omitted <==

Hidili Industry International Development Limited �鼎實業國際發展有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1393)

16 October 2009

To the Independent Shareholders

Dear Sirs or Madams,

CONNECTED TRANSACTIONS

We refer to the circular dated 16 October 2009 issued by the Company to the Shareholders (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings when use in this letter, unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders on whether the terms of the Equity Repurchase Agreement, the Mining Right Pledge Agreement and the Equity Pledge Agreement are fair and reasonable so far as the Independent Shareholders are concerned and whether the Connected Transactions are in the interests of the Company and the Shareholders as a whole. Veda Capital has been appointed as the independent financial adviser to advise us and the Independent Shareholders in this respect.

Having considered the terms of the Equity Repurchase Agreement, the Mining Right Pledge Agreement and the Equity Pledge Agreement and taken into account the advice of the Independent Financial Adviser, we are of the view that the terms of the Equity Repurchase Agreement, the Mining Right Pledge Agreement and the Equity Pledge Agreement are fair and reasonable as far as the Independent Shareholders are concerned and the Connected Transactions are on normal commercial terms, and in the ordinary and usual course of business of the Company, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

Yours faithfully,

The Independent Board Committee

Chan Chi Hing Chen Limin Huang Rongsheng Independent non-executive Directors

— 12 —

LETTER FROM VEDA CAPITAL

The following is the full text of a letter of advice from Veda Capital to the Independent Board Committee and the Independent Shareholders in relation to the proposed Connected Transactions, which has been prepared for the purpose of inclusion in this circular.

Veda Capital Limited

Suite 1302, 13th Floor Takshing House 20 Des Voeux Road Central, Hong Kong

16 October 2009

To the Independent Board Committee and the Independent Shareholders of Hidili Industry International Development Limited

Dear Sirs,

CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the proposed Connected Transactions, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in this circular (the “ Circular ”) dated 16 October 2009 issued by the Company, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 25 September 2009, Sichuan Hidili, a wholly-owned subsidiary of the Company, entered into the Capital Contribution Agreement with CITIC Trust and Shenzhen Hengxin, an indirect wholly owned subsidiary of the Company prior to the Capital Contribution, pursuant to which the parties agreed to reorganise Shenzhen Hengxin into a joint venture company and increase the registered capital of Shenzhen Hengxin from RMB100 million (which was fully paid up by Sichuan Hidili) to RMB270 million by introducing new capital contribution in the sum of RMB500 million (approximately HK$567.3 million) from CITIC Trust and further capital contribution in the sum of RMB400 million (approximately HK$453.8 million) from Sichuan Hidili. The remaining RMB730 million of the capital contribution will be placed into the reserve fund of Shenzhen Hengxin. Upon completion of the Capital Contribution, Sichuan Hidili and CITIC Trust will respectively own 51% and 49% of Shenzhen Hengxin.

— 13 —

LETTER FROM VEDA CAPITAL

On the same date, Sichuan Hidili entered into the Equity Repurchase Agreement with CITIC Trust to repurchase CITIC Trust’s 49% equity interest in Shenzhen Hengxin by the end of the Shareholding Period. Also, for the purpose of securing the payment of the consideration payable under the Equity Repurchase Agreement, Liupanshui Hidili, an indirect wholly-owned subsidiary of the Company as pledgor, entered into the Mining Right Pledge Agreement with CITIC Trust as pledgee in relation to the granting of security over Liupanshui Hidili’s mining rights in Xinda Coal Mine and Sichuan Hidili as pledgor entered into the Equity Pledge Agreement with CITIC Trust as pledgee in relation to the granting of security over Sichuan Hidili’s 51% equity interest in Shenzhen Hengxin.

Upon completion of the Capital Contribution, CITIC Trust will become a connected person of the Company because it is a substantial shareholder of Shenzhen Hengxin, which is and will continue to be treated as a subsidiary of the Company before and after the completion of the Capital Contribution. The transactions contemplated under the Equity Repurchase Agreement, Mining Right Pledge Agreement and Equity Pledge Agreement will therefore constitute connected transactions of the Company, which are subject to the requirements under Chapter 14A of the Listing Rules.

As the applicable percentage ratios will exceed 2.5% and the consideration for the Repurchase is over HK$10,000,000, the transaction contemplated under the Equity Repurchase Agreement constitutes nonexempt connected transaction of the Company, which is subject to the reporting and announcement requirements under Rules 14A.45 to 14A.47 of the Listing Rules and the Independent Shareholders’ approval requirements under Rules 14A.48 to 14A.54 of the Listing Rules at the Company’s general meeting. Also, as the applicable percentage ratios will exceed 2.5% and the value of the assets under the Equity Pledge Agreement and the Mining Right Pledge Agreement is over HK$10,000,000, the transactions contemplated under the Equity Pledge Agreement and the Mining Right Pledge Agreement constitute non-exempt connected transactions of the Company, which are subject to the reporting and announcement requirements under Rules 14A.63 of the Listing Rules and the Independent Shareholders’ approval requirements under Rules 14A.48 to 14A.54 of the Listing Rules at the Company’s general meeting.

— 14 —

LETTER FROM VEDA CAPITAL

As set out in the Board Letter, a written shareholder’s approval was obtained from Sanlian Investment Holding Limited which holds 1,097,631,000 Shares (representing approximately 53.3% of the existing issued share capital of the Company) for the entering into of the Connected Transactions. Such 53.3% shareholding interest represents the deemed shareholding interest of Mr. Xian Yang, the Chairman of the Board, who has no interest in such transactions (other than in the capacity as a Shareholder). Pursuant to Rule 14A.43 of the Listing Rules, the Company has made an application to the Stock Exchange applying for a waiver from the requirement to hold a Shareholders’ meeting to approve the Connected Transactions, on the basis that Sanlian Investment Holding Limited is not required to abstain from voting if a Shareholders’ meeting were convened to approve such transactions, and that written approval of the entering into of the Connected Transactions has already been obtained from Sanlian Investment Holding Limited, which holds more than 50% in nominal value of the Shares giving the right to attend and vote at the shareholders’ meeting to approve such transaction. As advised by the Company, the waiver has been granted by the Stock Exchange to the Company on 28 September 2009.

The Independent Board Committee comprising all the independent non-executive Directors (namely Mr. Chan Chi Hing, Mr. Chen Limin and Mr. Huang Rongsheng) has been established to advise the Independent Shareholders as to (i) whether the Connected Transactions are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) whether the Connected Transactions are in the interest of the Company and the Independent Shareholders as a whole. The appointment of Veda Capital has been approved by the Independent Board Committee.

BASIS OF OUR ADVICE

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company, Directors and management of the Company. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, Directors and management of the Company and for which they are solely and wholly responsible for, were true and accurate at the time when they were made and continue to be true until the date of despatch of the Circular.

— 15 —

LETTER FROM VEDA CAPITAL

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading. We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company or its subsidiaries.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In giving our recommendation to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Connected Transaction, we have taken into consideration the following factors and reasons:

Financial information of the Group

For the financial year ended 31 December 2008

According to the annual report of the Company for the year 2008 (the “ AR 2008 ”), the turnover of the Group was approximately RMB2,488.45 million for the year ended 31 December 2008, which represented an increase of approximately 138.69% as compared to the corresponding figure of approximately RMB1,042.54 million for the year ended 31 December 2007. As set out in AR 2008, the increase in turnover was primarily attributable to the increase in sales volumes and average selling prices of the principal products and byproducts resulting from the expansion of operation in Pan County, Guizhou Province and the rapid growth in average selling prices of clean coal and coke throughout the first three quarters of 2008.

The profit attributable to Shareholders was approximately RMB1,003.35 million for the financial year ended 31 December 2008, which represented an increase of approximately 75.94% as compared to the corresponding figure of approximately RMB570.29 million for the year ended 31 December 2007. As advised by the Company, the increase in profit attributable to Shareholders was mainly due to the increase in turnover as mentioned above.

— 16 —

LETTER FROM VEDA CAPITAL

For the for six months ended 30 June 2009

According to the interim report of the Company for the six months ended 30 June 2009 (the “ IR 2009 ”), the turnover of the Group was approximately RMB635.85 million for the six months ended 30 June 2009, which represented a decrease of approximately 46.60% as compared to the corresponding figure of approximately RMB1,190.73 million for the six months ended 30 June 2008. As set out in IR 2009, the decrease in turnover was primarily attributable to both the drop in sales volume of the principal products and by-products and the average selling prices of clean coal and coke during such interim period resulting from the weak demand of coal products by the steel manufacturers.

The profit attributable to Shareholders was approximately RMB117.83 million for the six months ended 30 June 2009, which represented a decrease of approximately 77.96% as compared to the corresponding figure of approximately RMB534.55 million for the six months ended 30 June 2008. As advised by the Directors, the decrease in profit attributable to Shareholders was mainly due to the decrease in turnover as mentioned above.

Background Information of the Group and CITIC Trust

The Group is one of the largest integrated coal enterprises in South West China and is principally engaged in coal mining and processing and sales of clean coal, coke, alloy pig iron and related by-products.

Sichuan Hidili is a limited liability company established in the PRC and is a wholly-owned subsidiary of the Company. Its principal activities are coal mining and investment holding.

— 17 —

LETTER FROM VEDA CAPITAL

Shenzhen Hengxin is a limited liability company established in the PRC in April 2009 and was then wholly owned by Sichuan Hidili with a registered capital of RMB100 million. The principal activities of Shenzhen Hengxin are coal mining and investment holding. Pursuant to the Capital Contribution Agreement, the Company and CITIC Trust agreed to reorganise Shenzhen Hengxin into a joint venture company and increase the registered capital of Shenzhen Hengxin from RMB100 million (which was fully paid up by Sichuan Hidili) to RMB270 million by introducing new capital contribution in the sum of RMB500 million (approximately HK$567.3 million) from CITIC Trust and further capital contribution in the sum of RMB400 million (approximately HK$453.8 million) from Sichuan Hidili. The remaining RMB730 million of the capital contribution will be placed into the reserve fund of Shenzhen Hengxin. Upon completion of the Capital Contribution, Sichuan Hidili and CITIC Trust will respectively own 51% and 49% of Shenzhen Hengxin. As set out in the Board Letter, the Joint Venture is formed for acquiring coal mines in Pan county, Guizhou Province and Fuyuan county, Yunnan Province (the “ Proposed Acquisition ”). The amount of capital contribution was arrived at by the parties after considering the total acquisition cost required for acquiring those coal mines, which is estimated to be RMB2,000 million. The total acquisition cost of RMB2,000 million will be financed by the registered capital and reserve fund of Shenzhen Hengxin of RMB1,000 million upon completion of the Capital Contribution and the banking facilities of RMB1,000 million (the “ CCB Facilities ”) obtained by Shenzhen Hengxin from China Construction Bank (“ CCB ”) for a term of 5 years on 28 August 2009. As advised by the Company, as at the Latest Practicable Date, the Group has not yet entered into any agreement for the Proposed Acquisition. As advised by the Company, as at the Latest Practicable Date and prior to the Capital Contribution, Shenzhen Hengxin has not yet commenced business and has no assets other than the registered capital of RMB100 million, which was fully paid up by Sichuan Hidili.

Liupanshui Hidili is a company established in the PRC with limited liability and is an indirect wholly-owned subsidiary of the Company. Its principal activities are coal mining and investment holding.

CITIC Trust is a limited liability company established in the PRC. Its principal business activity is investment holding. As at the Latest Practicable Date, CITIC Trust and its ultimate beneficial owners are third parties independent of the Company and connected persons of the Company. Upon completion of the Capital Contribution, CITIC Trust will become a substantial shareholder of Shenzhen Hengxin, which is and will continue to be treated as a subsidiary of the Company before and after the completion of the Capital Contribution, and hence a connected person of the Company.

— 18 —

LETTER FROM VEDA CAPITAL

Reasons for the formation of the Joint Venture and Connected Transactions

As set out in the Board Letter, the mining resource consolidation program of small to medium coal mines imposed by the government offered the Company opportunities to selectively acquire quality resources of coking coal in Yunnan Province and Guizhou Province. Also, the economic depression provides the Company access to attain working capital and project funding at low financing cost for its expansion. The Directors believe that it would be in the Group’s interests to acquire coal mines with relatively low cost. Besides, the Directors consider that the terms of the Equity Repurchase Agreement, the Mining Right Pledge Agreement and the Equity Pledge Agreement are determined on normal commercial terms with reference to the appropriation of funding in the open financial market. In conclusion, the Directors believe that the terms and conditions of the Capital Contribution Agreement and the Connected Transactions are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Equity Repurchase Agreement

Pursuant to the Equity Repurchase Agreement, Sichuan Hidili will repurchase, subject to completion of the Capital Contribution, CITIC Trust’s 49% equity interest in Shenzhen Hengxin from CITIC Trust by the end of the Shareholding Period. The consideration for the Repurchase is determined by the actual total amount of capital contribution made by CITIC Trust pursuant to the Capital Contribution Agreement plus a premium of 9% per annum on that amount. The 9% premium is payable by Sichuan Hidili to CITIC Trust every six month from the First Contribution. The remaining amount of the consideration will be settled by Sichuan Hidili to CITIC Trust by the end of the Shareholding Period. As set out in the Board Letter, the 9% premium was determined after arm’s length negotiation between Sichuan Hidili and CITIC Trust with reference to the borrowing costs in the open financing market.

We noted from IR 2009 that it is the intention of the Company to finance the working and construction capital for development by seizing the low financing cost opportunity. The Company is to prudently utilize the financial leverage to finance the capital needed for acquisition of mines. In line with the macro economy and policies, the Company will selectively acquire quality resources of coking coal in Yunnan and Guizhou Province at relatively low cost. The Company aim to become an integrator for China’s small and mid scale coal mines. We also noted from IR 2009 that the Group has recorded a bank balance and cash of approximately RMB861.37 million and secured bank borrowings of approximately RMB1,260.00 million as at 30 June 2009. As set out in IR 2009 and advised by the Company, the bank borrowings (of which the highest bank borrowings amounted to RMB90 million) are repayable within one year and carry interest at market rates ranging from 5.31% to 8.22% per annum. As advised by the Company that the interest rate for CCB Facilities is 5.76% per annum.

— 19 —

LETTER FROM VEDA CAPITAL

We have considered the Capital Contribution Agreement and the Equity Repurchase Agreement as a financial arrangement in which CITIC Trust has offered a loan of RMB500 million to the Company and the Company shall repay the loan by the end of the Shareholding Period (the Shareholding Period represents a term of twelve months period of holding 49% equity interest in the Joint Venture by CITIC Trust from the First Contribution which is expected to be completed within 24 months from the date of the Capital Contribution Agreement and hence, the loan of RMB500 million has a maximum repayment period of 3 years) and in return for offering the RMB500 million loan, CITIC Trust will receive an interest rate of 9% and entitle for 49% interest in the Joint Venture during the Shareholding Period. We have enquired with the Company and were given to understand that the facility amount under the CCB Facilities was the maximum credit offered by CCB for the Proposed Acquisition and was determined after arm’s length negotiation between the Company and CCB. Further advised by the Company, it has approached or was approached by several PRC financial institutions for the financing of the Proposed Acquisition and these financial institutions verbally offered loan facilities to the Company. One of these financial institutions has issued a preliminary term sheet and we have reviewed such terms. The amount of credits being offered to the Company ranged from approximately RMB300 million to RMB1,000 million with interest rates ranged from approximately 6.5% to 12% per annum for a term ranging from 2 to 3 years. As advised by the Company, the proposed capital contribution to be made by CITIC Trust under the Capital Contribution Agreement are considered by the Company to be acceptable and reasonable after (i) balancing the terms of interest rate, credit availability, security pledge and timing of available of the funding; and (ii) taking into account that the premium rate of 9% falls within the range of interest rates offered by the PRC financial institutions which the Company had approached or was approached. Having taken into account of the above information and the required amount of assets being pledged, we concur with the Directors that the terms of the Equity Repurchase Agreement, the Equity Pledge Agreement and the Mining Right Pledge Agreement are fair and reasonable so far as the Independent Shareholders are concerned (further analysis on the Equity Pledge Agreement and the Mining Right Pledge Agreement have been set out in the below section headed “Mining Right Pledge Agreement and Equity Pledge Agreement”).

In addition, having considered (i) the liquidity position of the Company and the estimated cost for the Proposed Acquisition; (ii) the financing is in line with the development strategy of the Company; (iii) the premium rate of 9% is within the range of the interest rates offered by other PRC financial institutions to the Company; (iv) the size of the capital contribution to be made by CITIC Trust under the Capital Contribution Agreement given the interest rate on the Group’s bank borrowings, of which the highest bank borrowings amounted to RMB90 million, ranging from 5.31% to 8.22% per annum; and (v) the general tightening of credit in banking and financial industry after the global financial crisis, we concur with the view of the Directors that the Equity Repurchase Agreement are in normal commercial terms and are fair and reasonable and in the interest of the Company and Independent Shareholders as a whole.

— 20 —

LETTER FROM VEDA CAPITAL

Mining Right Pledge Agreement and Equity Pledge Agreement

As set out in the Board Letter, for the purpose of securing the payment of the consideration payable under the Equity Repurchase Agreement, Liupanshui Hidili as pledgor entered into the Mining Right Pledge Agreement with CITIC Trust as pledgee in relation to the granting of security over Liupanshui Hidili’s mining rights in Xinda Coal Mine and Sichuan Hidili as pledgor entered into the Equity Pledge Agreement with CITIC Trust as pledgee in relation to the granting of security over Sichuan Hidili’s 51% equity interest in Shenzhen Hengxin.

Also set out in the Board Letter, as at 31 August 2009, the book value of Xinda Coal Mine was approximately RMB196 million (net of amortization) and upon completion of the Capital Contribution, Sichuan Hidili would have made a capital contribution of RMB500 million to Shenzhen Hengxin. As advised by the Company, other than the registered capital of RMB100 million fully paid up by Sichuan Hidili, Shenzhen Hengxin has not yet commenced business and has no assets as at the Latest Practicable Date. Accordingly, after taking into account the capital contribution of RMB400 million to be made by the Company under the Capital Contribution Agreement, the asset value to be pledged under the Mining Right Pledge Agreement and Equity Pledge Agreement in aggregate amounted to approximately RMB696 million (the “ Security Value ”). As advised by the Company, the Security Value falls within the range of the value of pledge of assets requested by other PRC financial institutions for the financing.

Having considered (i) it is commercially justifiable to pledge asset to lender with value higher than the borrowing amount to compensate the lender’s lost in time value of the borrowing amount; (ii) during the Shareholding Period, the capital contributions made by both Sichuan Hidili and CITIC Trust may probably be utilized for the cost and expense of the Proposed Acquisition; and (iii) as advised by the Company, the terms of the Mining Right Pledge Agreement and Equity Pledge Agreement are determined by both parties after arm’s length negotiation, we consider the Mining Right Pledge Agreement and Equity Pledge Agreement are in normal commercial terms and are fair and reasonable and in the interest of the Company and the Independent Shareholders as a whole.

— 21 —

LETTER FROM VEDA CAPITAL

Financial effects

Net asset

As advised by the Company, upon completion of the Connected Transactions, there will not be significant impact to the net asset value of the Group.

Gearing

As set out in IR 2009, the unaudited consolidated total asset was approximately RMB8,366.35 million and the secured bank borrowings was approximately RMB1,260 million as at 30 June 2009. The gearing ratio of the Group (defined as bank borrowings over total assets) was approximately 15.06% as at 30 June 2009. As advised by the Company, upon completion of the Connected Transactions, there will not be significant impact to the gearing of the Group.

RECOMMENDATIONS

Having taken into account the principal factors and reasons set out above, we consider that the Connected Transactions are in normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Independent Shareholders as a whole.

Yours faithfully, For and on behalf of Veda Capital Limited Hans Wong Julisa Fong Managing Director Executive Director

— 22 —

GENERAL INFORMATION

APPENDIX

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’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITION IN SHARES

At the Latest Practicable Date, the Directors and chief executive of the Company had the following interests and/or short positions in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO) or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) in the Listing Rules, to be notified to the Company and the Stock Exchange:

				Approximate
				percentage
				of the issued
				share capital
		Number of		of the Company/
	Name of	issued ordinary	Nature of	percentage of
Name	the entity	shares held	interest	shareholding
Mr. Xian Yang	The Company	1,097,631,000	Interest of controlled	53.3%
(“Mr. Xian”)(Note 1)			corporation
Mr. Xian	Sanlian Investment	1,000	Beneficial owner	100%
	Holding Limited
	(“Sanlian Investment”)

— 23 —

GENERAL INFORMATION

APPENDIX

==> picture [423 x 233] intentionally omitted <==

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

Mr. Sun Jiankun The Company 15,380,000 Interest of controlled 0.8%
(“Mr. Sun”) corporation
(Note 2)
Mr. Sun Able Accord 1 Beneficial owner 100%
Enterprises Limited
(“Able Accord”)
Mr. Wang Rong The Company 15,380,000 Interest of controlled 0.8%
(“Mr. Wang”) corporation
(Note 3)
Mr Wang Pavlova Investment 1 Beneficial owner 100%
Limited (“Pavlova
Investment”)
----- End of picture text -----

Notes:

1. The 1,097,631,000 Shares are held by Sanlian Investment, the entire issued share capital of which is held by Mr. Xian. Accordingly, Mr. Xian is deemed to be interested in 1,097,631,000 Shares held by Sanlian Investment by virtue of the SFO. Mr. Xian is also the sole director of Sanlian Investment.

2. The 15,380,000 shares of the Company are held by Able Accord, the entire issued share capital of which is held by Mr. Sun. Accordingly, Mr. Sun is deemed to be interested in 15,380,000 shares held by Able Accord by virtue of the SFO. Mr Sun is also a director of Able Accord.

3. The 15,380,000 shares of the Company are held by Pavlova Investment, the entire issued share capital of which is held by Mr. Wang. Accordingly, Mr. Wang is deemed to be interested in 15,380,000 shares held by Pavlova Investment by virtue of the SFO. Mr. Wang is also a director of Pavlova Investment.

Saved as disclosed, at no time during the year was the Company, its holding company, or any of its subsidiaries or fellow subsidiaries, a party to any arrangements to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

— 24 —

GENERAL INFORMATION

APPENDIX

3. SUBSTANTIAL SHAREHOLDERS

At the Latest Practicable Date, so far as is known to the Directors and chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had an interest or short position in the shares or underlying shares of the Company or associated corporations which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who is, 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 member of the Group:

				Approximate
		Number of		percentage
		issued ordinary		of the issued
		shares held/		share capital
	Name of the	Amount of		of the Company/
	member of	registered	Nature of	Percentage of
Name	the Group	capital held	interest	equity holding
Sanlian Investment	The Company	1,097,631,000	Beneficial owner	53.3%
(Note 1)
Mr. Xian_(Note 1)_	The Company	1,097,631,000	Interest of controlled	53.3%
			corporation
Ms. Qiao Qian_(Note 2)_	The Company	1,097,631,000	Interest of spouse	53.3%
Mr. Yu Zhengyong	盤縣次凹子工貿	RMB1,000,000	Beneficial owner	20%
(Notes 3 and 4)	有限公司
	(Panxian Ciaozi
	Industry and Trading
	Company Limited*)
	(“Ciaozi”)
Mr. Tan Wenxing	盤縣黔榮實業有限公司	RMB9,800,000	Beneficial owner	49%
(Note 3)	(Panxian Qian Rong
	Industry Company
	Limited*)

— 25 —

GENERAL INFORMATION

APPENDIX

北京金字天正	攀枝花�鼎金字天正	RMB2,450,000	Beneficial owner	49%
智能控制股份	信息工程有限公司
有限公司	(Panzhihua Hidili
(Beijing Jin Zi Tian	Jin Zi Tian Zheng
Zheng Intelligent Control	Information System
Joint Stock Limited*)	Company Limited*)
雲南凱捷實業有限公司	盤縣盤翼選煤有限公司	RMB4,500,000	Beneficial owner	30%
(Yunnan Kaijie Industry	(Panxian Panyi Coal
Company Limited*)	Washing Company
(“Yunnan Kaijie”)	Limited*)
Yunnan Kaijie	盤縣盤鑫焦化有限公司	RMB21,000,000	Beneficial owner	30%
	Panxian Panxin
	Coking Company
	Limited*)
Mr. Liu Chang Sheng	盤縣天成煤業有限公司	RMB750,000	Beneficial owner	15%
(Notes 3 and 5)	(Panxian Tin Cheng
	Mining Company
	Limited*)
Mr. Chen Lao Ling	富源縣大河青坪	RMB1,600,000	Beneficial owner	10%
	煤業有限公司
	(Fuyuanxian Dahe
	Qing Ping Mining
	Company Limited*)

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GENERAL INFORMATION

APPENDIX

Notes:

1. The entire issued share capital of Sanlian Investment is owned by Mr. Xian. Mr. Xian is deemed to be interested in 1,097,631,000. Mr. Xian is the sole director of Sanlian Investment.

2. Ms. Qiao Qian is the spouse of Mr. Xian. By virtue of the SFO, Ms. Qiao Qian is also deemed, as spouse, to be interested in all the Shares in which Mr. Xian is deemed to be interested.

3. Mr. Yu Zhengyon and Mr. Tan Wenxing are independent third parties of the Company, save for their respective interest disclosed above.

4. At the Latest Practicable Date, Mr. Yu Zhengyong had paid up the registered capital of Ciaozi to the extent of RMB700,000.

Save as disclosed above, the Company has not been notified by any person (other than the Directors or the chief executive of the Company) who had/would have interests or short positions in the shares or underlying shares of the Company or its associated corporations which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or , who is, 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 member of the Group.

4. DIRECTORS’ SERVICE CONTRACTS

Each of the executive Directors has entered into a service agreement with the Company for a fixed term of three years commencing on 1 September 2007. Each of the independent non-executive Directors has been appointed by the Company for a fixed term of two years. Mr. Xian Yang, the Chairman of the Group, has entered into a deed of service agreement with Hidili Investment Holding Limited on 5 September 2006 for an initial term of three years commencing on 5 September 2006.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had entered, or proposed to enter, into any service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation other than statutory compensation.

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APPENDIX

5. COMPETING INTERESTS

None of the Directors and their respective associates have any interest in a business, which competes or is likely to compete with the businesses of the Group.

6. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors or the Independent Financial Adviser had any interest, direct or indirect, in any assets which have been, since 31 December 2008, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular which is significant in relation to the business of the Group.

7. EXPERT

The Independent Financial Adviser is a corporation licensed under the SFO to carry out type 6 regulated activity. The Independent Financial Adviser has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which it appears.

At the Latest Practicable Date, the Independent Financial Adviser had no shareholding in any member of the Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

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APPENDIX

8. MATERIAL ADVERSE CHANGES

The Directors are not aware of any material adverse changes in the financial or trading position of the Group since 31 December 2008, being the date to which the latest published audited financial statements of the Group were made up.

9. LITIGATION

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

10. MISCELLANEOUS

• (a) The company secretary of the Company is Ms. Chu Lai Kuen. She is an associate member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants.

• (b) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The principle place of business of the Company in Hong Kong is located at Room 1103, 11th Floor, Ka Wah Bank Centre, 232 Des Voeux Road Central, Hong Kong.

• (c) The share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

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

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GENERAL INFORMATION

APPENDIX

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any weekday (except public holidays) at Room 1103, 11th Floor, Ka Wah Bank Centre, 232 Des Voeux Road Central, Hong Kong for the period of 14 days from the date of this circular:

• (a) this circular;

• (b) the Articles;

• (c) the letter from the Independent Board Committee, the text of which is set out on page 12 of this circular;

• (d) the letter from the Independent Financial Adviser, the text of which is set out on pages 13 to 22 of this circular;

• (e) the written consent referred to under the section headed “Expert” in this Appendix;

• (f) the Capital Contribution Agreement;

• (g) the Equity Pledge Agreement;

• (h) the Equity Repurchase Agreement; and

• (i) the Mining Right Pledge Agreement.

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