Kinetic Development Group Limited — Interim / Quarterly Report 2014

Aug 18, 2014

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

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KINETIC MINES AND ENERGY LIMITED 力量礦業能源有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1277)

ANNOUNCEMENT OF UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014

FINANCIAL HIGHLIGHTS

As the No. 6 coal seam of the Group’s Dafanpu Coal Mine which produces environmental friendly low-sulphur thermal coal has entered into commercial production stage, together with the smooth and full operation of the Xiaojia Station and the coal trading business in Qinhuangdao during the period, the Group’s turnover increased significantly from RMB48.5 million for the six months ended 30 June 2013 to RMB376.0 million for the six months ended 30 June 2014.

During the six months ended 30 June 2014, the Dafanpu Coal Mine produced a total of approximately 2.26 million tonnes of raw coal and processed a portion of the raw coal into an aggregate of 1.46 million tonnes of coal products. Sales generated during the same period was approximately 1.24 million tonnes.

The consolidated profit attributable to equity shareholders of the Company for the six months ended 30 June 2014 amounted to RMB26.1 million (six months ended 30 June 2013: loss RMB72.1 million).

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The board of directors (the “Board”) of Kinetic Mines and Energy Limited (the “Company”) announces the unaudited consolidated interim results of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2014, together with the comparative figures for the corresponding period ended 30 June 2013 as follows:

CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2014 — unaudited (Expressed in Renminbi)

Notes Turnover 5 Cost of sales Gross profit Other revenue 6 Selling expenses Administrative expenses Profit/(loss) from operations Share of profits/(losses) of an associate Finance costs 7(a) Profit/(loss) before taxation 7 Income tax (expense)/credit 8 Profit/(loss) attributable to equity shareholders of the Company for the period Other comprehensive income for the period: Exchange differences on translation of financial statements of operations outside the PRC Total comprehensive income/(loss) attributable to equity shareholders of the Company for the period Basic and diluted earnings/(loss) per share (RMB) 9 Interim dividend per share (RMB) 10

Six months ended 30 June 2014 2013 RMB’000 RMB’000 376,034 48,475 (256,561) (47,054) 119,473 1,421 241 162 (2,719) (3,608) (34,323) (52,319) 82,672 (54,344) 6,413 (683) (51,724) (39,396) 37,361 (94,423) (11,268) 22,357 26,093 (72,066) 223 (511) 26,316 (72,577) 0.003 (0.009) – –

– 2 –

CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

As at 30 June 2014 — unaudited

(Expressed in Renminbi)

Notes Non-current assets Property, plant and equipment 11 Intangible assets Interest in an associate Deferred tax assets Prepayments for machinery Current assets Inventories Trade and other receivables 12 Pledged deposits Restricted cash Cash at bank and in hand Current liabilities Trade and other payables 13 Bank loans 14 Net current liabilities Total assets less current liabilities Non-current liabilities Trade and other payables 13 Bank loans 14 Accrual for reclamation costs Net assets Capital and reserves Share capital Reserves Total equity	At 30 June 2014 RMB’000 1,335,925 706,569 34,344 75,054 1,995 2,153,887 31,548 143,779 5,070 – 37,648 218,045 308,730 750,000 1,058,730 840,685 1,313,202 – 500,000 1,942 501,942 811,260 54,293 756,967 811,260	At 31 December 2013 RMB’000 1,290,220 714,639 27,931 86,322 12,434
		2,131,546
		17,284 148,726 5,055 24,857 146,237
		342,159
		303,679 875,000
		1,178,679
		836,520
		1,295,026
		8,285 500,000 1,797
		510,082
		784,944
		54,293 730,651
		784,944

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NOTES TO THE CONSOLIDATED INTERIM FINANCIAL INFORMATION

1 GENERAL INFORMATION

Kinetic Mines and Energy Limited (the “Company”) was incorporated in the Cayman Islands on 27 July 2010, as an exempted company with limited liability under the Company Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The Company and its subsidiaries (together referred to as the “Group”) are principally engaged in the extraction and sales of coal products.

The shares of the Company have been listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) since 23 March 2012.

2 BASIS OF PREPARATION

The consolidated interim financial information has been prepared in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”), including compliance with Hong Kong Accounting Standard (“HKAS”) 34, Interim Financial Reporting, issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). It was authorised for issue on 18 August 2014.

The consolidated interim financial information has been prepared in accordance with the same accounting policies adopted in the 2013 annual financial statements, except for the accounting policy changes that are expected to be reflected in the 2014 annual financial statements. Details of these changes in accounting policies are set out in note 3.

The preparation of consolidated interim financial information in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

This announcement contains consolidated interim financial information and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2013 annual financial statements. The consolidated interim financial information and notes thereon do not include all of the information required for a full set of financial statements prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”).

The consolidated interim financial information is unaudited, but has been reviewed by KPMG in accordance with Hong Kong Standard on Review Engagements 2410, Review of interim financial information performed by the independent auditor of the entity, issued by the HKICPA.

The financial information relating to the financial year ended 31 December 2013 that is included in the consolidated interim financial information as being previously reported information does not constitute the Company’s statutory financial statements for that financial year but is derived from those financial statements. Statutory financial statements for the year ended 31 December 2013 are available from the Company’s registered office. The auditors have expressed an unqualified opinion on those financial statements in their report dated 24 March 2014.

As at 30 June 2014, the Group’s current liabilities exceeded its current assets by RMB840,685,000 which indicated the existence of an uncertainty that may cast doubt on the Group’s ability to continue as a going concern. As at 30 June 2014, the Group had unutilised banking facilities totalling RMB1,100,000,000. The Directors have evaluated all the relevant facts available and are of the opinion that the Group will have the necessary liquid funds to finance its working capital and capital expenditure requirements. Accordingly, the interim financial information has been prepared on a going concern basis.

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3 CHANGES IN ACCOUNTING POLICIES

The HKICPA has issued a number of new HKFRSs and amendments to HKFRSs that are first effective for the current accounting period of the Group and the Company. Of these, the following developments are relevant to the Group’s interim financial statements:

• Amendments to HKFRS 10, HKFRS 12 and HKAS 27, Investment entities

• Amendments to HKAS 32, Offsetting financial assets and financial liabilities

• Amendments to HKAS 36, Recoverable amount disclosures for non-financial assets

• HK(IFRIC) 21, Levies

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

Amendments to HKFRS 10, HKFRS 12 and HKAS 27, Investment entities

The amendments provide consolidation relief to those parents which qualify to be an investment entity as defined in the amended HKFRS 10. Investment entities are required to measure their subsidiaries at fair value through profit or loss. These amendments do not have an impact on the Group’s interim financial report as the Company does not qualify to be an investment entity.

Amendments to HKAS 32, Offsetting financial assets and financial liabilities

The amendments to HKAS 32 clarify the offsetting criteria in HKAS 32. The adoption of the amendments does not have an impact on the Group’s interim financial report because the Group has not offset financial instruments.

Amendments to HKAS 36, Recoverable amount disclosures for non-financial assets

The amendments to HKAS 36 modify the disclosure requirements for impaired non-financial assets. Among them, the amendments expand the disclosures required for an impaired asset or cash-generating unit whose recoverable amount is based on fair value less costs of disposal. The amendments do not have an impact on the Group’s interim financial report as the Group does not have any impaired non-financial assets.

HK(IFRIC) 21, Levies

The interpretation provides guidance on when a liability to pay a levy imposed by a government should be recognised. The amendments do not have an impact on the Group’s interim financial report as the guidance is consistent with the Group’s existing accounting policies.

4 SEGMENT REPORTING

Management has determined operating segments with reference to the reports reviewed by the chief operating decision maker of the Group that are used to assess the performance and allocate resources.

The chief operating decision maker of the Group assesses the performance and allocates the resources of the Group as a whole, as all of the Group’s activities are considered to be primarily dependent on the performance of the extraction and sales of coal products. Therefore, the Group’s management considers that there is only one operating segment under the requirements of HKFRS 8, Operating Segments. In this regard, no segment information is presented for the period.

No geographic information is shown as the Group’s operating result is entirely derived from its business activities in the People’s Republic of China (“PRC”).

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5 TURNOVER

The principal activities of the Group are the extraction and sales of coal products. Turnover represents the sales value of goods supplied to customers, excluding value added taxes, other sales taxes or any trade discounts.

	Six months ended	30 June
	2014	2013
	RMB’000	RMB’000
Sales of coal products	376,034	48,475

The Group’s customer base includes four external customers (six months ended 30 June 2013: two) with whom transactions have exceeded 10% of the Group’s revenues for the six months ended 30 June 2014. Total revenues from sales of coal products to these four customers amounted to approximately RMB288.9 million (six months ended 30 June 2013: RMB42.6 million) and such revenues were generated in the PRC.

6 OTHER REVENUE

Interest income Exchange losses — net	Six months ended 30 June 2014 2013 RMB’000 RMB’000 241 174 – (12 241 162	Six months ended 30 June 2014 2013 RMB’000 RMB’000 241 174 – (12 241 162
		162

7 PROFIT/(LOSS) BEFORE TAXATION

Profit/(loss) before taxation is arrived at after charging:

(a) Finance costs:

	Six months ended	30 June
	2014	2013
	RMB’000	RMB’000
Interest expenses on bank loans	51,724	39,396

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(b) Staff costs:

Salaries, wages, bonuses and benefits Contribution to defined contribution plans	Six months ended 30 June 2014 2013 RMB’000 RMB’000 46,462 46,994 4,190 1,933 50,652 48,927	Six months ended 30 June 2014 2013 RMB’000 RMB’000 46,462 46,994 4,190 1,933 50,652 48,927
		48,927

(c) Other items:

	Six months ended	30 June
	2014	2013
	RMB’000	RMB’000
Cost of inventories	114,043	43,814
Operating lease charges	2,261	1,193
Auditor’s remuneration	480	485
Depreciation	32,251	20,687
Amortisation of intangible assets	8,070	3,014

Cost of inventories for the six months ended 30 June 2014 included RMB72,763,000 (six months ended 30 June 2013: RMB37,285,000) relating to staff costs, depreciation and amortisation of intangible assets, which amounts are included in the respective amounts disclosed separately above for each of these types of expenses.

8 INCOME TAX

Deferred tax Origination and reversal of temporary differences Income tax expense/(credit)	Six months ended 30 June 2014 2013 RMB’000 RMB’000 11,268 (22,357 11,268 (22,357	Six months ended 30 June 2014 2013 RMB’000 RMB’000 11,268 (22,357 11,268 (22,357
		(22,357

• (a) Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands (“BVI”), the Company and its subsidiary, Blue Gems Worldwide Limited, are not subject to any income tax in the Cayman Islands and BVI respectively.

• (b) No provision has been made for Hong Kong Profits Tax as the Group did not generate any assessable profit subject to Hong Kong Profits Tax during the six months ended 30 June 2014 (six months ended 30 June 2013: nil).

• (c) The Group’s subsidiaries in the PRC are subject to corporate income tax of 25% for the six months ended 30 June 2014 (six months ended 30 June 2013: 25%).

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9 EARNINGS/(LOSS) PER SHARE

The calculation of basic earnings per share for the six months ended 30 June 2014 is based on the profit attributable to equity shareholders of the Company of RMB26,093,000 and the 8,430,000,000 shares in issue during the period.

The calculation of basic loss per share for the six months ended 30 June 2013 is based on the loss attributable to equity shareholders of the Company of RMB72,066,000 and the 8,430,000,000 shares in issue during the period.

There were no dilutive potential ordinary shares during the six-month periods ended 30 June 2014 and 2013, and therefore, diluted earnings/(loss) per share is the same as the basic earnings/(loss) per share.

10 DIVIDENDS

The Board does not recommend the payment of an interim dividend for the six months ended 30 June 2014 (six months ended 30 June 2013: nil).

11 PROPERTY, PLANT AND EQUIPMENT

During the six months ended 30 June 2014, the Group’s additions of property, plant and equipment amounted to RMB77,957,000 (six months ended 30 June 2013: RMB150,627,000).

Certain machinery and equipment of the Group with a carrying amount of RMB68,578,000 were pledged as security for bills payable of the Group as at 31 December 2013 (Note 13).

12 TRADE AND OTHER RECEIVABLES

As of the end of the reporting period, the ageing analysis of trade debtors and bills receivable (which are included in trade and other receivables) based on the invoice date (or date of revenue recognition, if earlier) and net of allowance for doubtful debts is as follows:

Within 1 month 1 to 3 months Trade debtors and bills receivable, net of allowance for doubtful debts Other receivables, prepayments and deposits	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 69,055 56,564 6,437 – 75,492 56,564 68,287 92,162 143,779 148,726	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 69,055 56,564 6,437 – 75,492 56,564 68,287 92,162 143,779 148,726
		56,564 92,162
		148,726

Trade debtors and bills receivable are generally due within 30 to 180 days from the date of billing.

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13 TRADE AND OTHER PAYABLES

Current: Bills payable (i) Payables for construction Other payables and accruals Amounts due to related parties Non-current: Bills payable (i)	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 – 74,570 190,480 161,913 86,095 60,115 32,155 7,081 308,730 303,679 – 8,285 308,730 311,964	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 – 74,570 190,480 161,913 86,095 60,115 32,155 7,081 308,730 303,679 – 8,285 308,730 311,964
		303,679
		8,285
		311,964

(i) Bills payable as at 31 December 2013 were secured by certain machinery and equipment of the Group (Note 11).

As of the end of the reporting period, the ageing analysis of bills payable (which are included in trade and other payables), based on the invoice date, is as follows:

			At 30 June	At 31 December
			2014	2013
			RMB’000	RMB’000
Within	6	months	–	82,855

14 BANK LOANS

(a) As of the end of the reporting period, the bank loans were repayable as follows:

Within 1 year After 1 year but within 2 years	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 750,000 875,000 500,000 500,000 1,250,000 1,375,000	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 750,000 875,000 500,000 500,000 1,250,000 1,375,000
		1,375,000

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(b) As of the end of the reporting period, the Group’s secured and unsecured bank loans were as follows:

Secured bank loans Unsecured bank loans	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 400,000 525,000 850,000 850,000 1,250,000 1,375,000	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 400,000 525,000 850,000 850,000 1,250,000 1,375,000
		1,375,000

As at 30 June 2014, the Group’s secured bank loans of RMB400,000,000 were secured by its mining rights for the Dafanpu Coal Mine. The Group’s unsecured bank loans amounted to RMB850,000,000, of which RMB350,000,000 was guaranteed by the Company and Mr. Zhang Li, a director of the Company.

As at 31 December 2013, the Group’s secured bank loans of RMB525,000,000 were secured by its mining rights for the Dafanpu Coal Mine, of which RMB125,000,000 was guaranteed by the Company and Mr. Zhang Li. The Group’s unsecured bank loans amounted to RMB850,000,000, of which RMB350,000,000 was guaranteed by the Company and Mr. Zhang Li.

15 NON-ADJUSTING EVENTS AFTER REPORTING PERIOD

The Group had no significant non-adjusting events subsequent to 30 June 2014.

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MANAGEMENT DISCUSSION AND ANALYSIS

OVERVIEW

Market Review

During the first half of 2014, against the complicated and difficult landscape both in China and abroad as well as the pressure of economic downturn, the PRC government implemented pre-emptive and mild adjustments while maintaining sustainable and consistent policies. A series of progressive, reformative and structural measures were directed against the weaker segments of the economy and the effect of these policies has begun to unfold. Economic indicators, including growth in fixed assets investments, industrial value-added, power generation and freight volume, had shown positive signs of change since the second quarter of 2014. The domestic economy in the PRC grew by 7.4% in the first half of 2014, during which, the second quarter of 2014 grew by 7.5%, slightly outperforming the first quarter of 2014 by 0.1% and reversing the downward trend early in the year 2014. Income of rural households (after adjusting for prices) and urban households recorded actual increases of 9.8% and 7.1%, respectively.

According to the statistics released by China Coal Market Online (http://www.cctd.com.cn), the coal output in the PRC for the first half of 2014 amounted to 1.79 billion tonnes, down 3.7% year on year. Coal sales volume in the same period amounted to 1.75 billion tonnes, down 3.8% year on year.

Besides, according to the figures from the General Administration of Customs of the PRC, nationwide coal imports during the first half of 2014, which underwent a growth decline, amounted to 160 million tonnes, a mere increase of 0.9% over the same period last year.

The PRC as a whole consumed approximately 1.73 billion tonnes of coal during the first half of 2014, down 2.1% year on year. Meanwhile, the PRC maintained an abundant coal inventory. Qinhuangdao port increased its supply to 7.27 million tonnes in the first week of July, an increase of 13.6% compared with the same period last year. Due to the increased pressure on coal inventory and price cuts from certain leading industry players to secure market shares, coal prices remained low in the first half of 2014. It is expected that coal prices will take some time to stabilise and rise, not until economic stimulus measures take effect and industrial production rallies.

Having said that, the PRC coal industry is still under the process of consolidation and upgrade. The market generally believes that coal enterprises and coal mines remaining in business have better efficiency. In the medium to long term, the industry consolidation and upgrade can secure a healthy development of the industry in general. The National Energy Administration of the PRC sets a target for the consolidation of the coal industry. For 2014, it aims to shut down 1,725 coal mines and eliminate obsolete production capacities of 117 million tonnes across the country. Among which, 800 coal mines with production capacities of 40.70 million tonnes would be closed; 402 coal mines with production capacities of 17.66 million tonnes would be upgraded; and 523 coal mines with production capacities of 59.12 million tonnes would be merged or restructured. Coal mines, each with an annual output of 90,000 tonnes and below should be gradually eliminated in the PRC. Illegal and unlawful mining activities and coal mines with safety threats are strictly prohibited. Small coal mines with poor safety

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conditions, low probability of reconstruction and high risk of coal and gas accidents should be closely monitored and quickly retired from the coal production sector. Small coal mines with rich resources and good potential for reconstruction should be encouraged to undergo mergers and restructurings with other coal enterprises for further upgrades.

On the other hand, national power consumption aggregated 2,627.6 billion kWh in the first half of 2014, up 5.3% year on year. Power plants officially commencing operation in the same period increased production capacities by 36.70 million kW, among which hydropower and thermal power accounted for 13.01 million kW and 15.03 million kW, respectively. The figures revealed that the power consumption by the country was still growing moderately, and thermal power remained a major source of power.

Given the current domestic coal prices in the PRC has hit its lowest since 2007 and some small and medium domestic coal enterprises and imported coal have already been eliminated by the market, the oversupply problem facing the coal market in the PRC is expected to improve in the second half of the year 2014.

Business Review

In 2013, the Xiaojia Station and its associated rail spur lines commenced operation. The designed annual production capacity of the Dafanpu Coal Mine ramped up to 5.0 million tonnes run-of-mine following the completion of the construction and commencement of production of the longwall top coal caving system of the No. 6 coal seam of the Dafanpu Coal Mine.

For the six months ended 30 June 2014, the Dafanpu Coal Mine produced a total of approximately 2.26 million tonnes of raw coal and processed a portion of raw coal into an aggregate of 1.46 million tonnes of fine coal. A total of approximately 1.24 million tonnes of fine coal were sold during the period.

The No. 6 coal seam is the best coal seam at the Dafanpu Coal Mine, with an average coal seam thickness of 23 metres. Its coal recovery percentage is higher than that of the No. 5 coal seam. Therefore, in order to enhance the production level and operating efficiency of the Dafanpu Coal Mine, the Group has transited to the No. 6 coal seam to continue mining since the end of 2013. The average washability yield and production volume of fine coal at the Dafanpu Coal Mine have surged after the No. 6 coal seam commenced commercial production in early 2014. With the increase in production volume and stringent cost control, the unit production costs significantly decreased accordingly.

Rail transportation from the Xiaojia Station to Qinhuangdao has been in operation since the second half of 2013. This loading station enables the Group to transport the coal products produced at the Dafanpu Coal Mine and those procured from other third-party coal mine operators to Qinhuangdao through the Nanping Rail Line and the Datong-Qinhuangdao Rail Line, thereby strengthening the Group’s coal trading business in Qinhuangdao and reducing the unit transportation cost to Qinhuangdao. It also manifests the Group’s capability in achieving cost effective operation and obtaining operating profit despite the challenging business and market environments at present. When the domestic coal prices in China turn around and return to an upward trend, the Group’s edge in profitability will become more prominent.

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Prospects

In the second half of 2014, it is expected that the domestic coal prices will bottom out and stabilise as China’s major power plants have stocked up their inventories for the summer peak season at low prices in the first half of 2014. Also, domestic coal supply is expected to decline due to consolidation within the coal industry while downstream demand is expected to gradually increase. It is noted that the falling prices of domestic coal have a direct impact on the attractiveness of imported coal, thereby increasing the competitiveness of domestic coal in the market.

After the commencement of operation of the Xiaojia Station and ramping up the designed annual production capacity of the Dafanpu Coal Mine to 5.0 million tonnes run-of-mine, the Group has become one of the few coal supply chain enterprises with capabilities of mining, processing, rail transportation, warehousing at ports and trading and recorded a profit in the first half of 2014. Looking ahead, apart from focusing on the enhancement in the commercial production efficiency of the Dafanpu Coal Mine as well as the trading volume at Qinhuangdao, the Group strongly believes that it can gain a more dominant position in the coal market by acquiring more coal resources. Therefore, the Group will continue to identify quality and suitable coal investment projects for mergers and acquisitions. This is in line with its strategy of achieving synergies and economies of scale by increasing coal resources and coal reserves and integrating them with the Group’s business.

In the medium to long term, industrialisation, urbanisation and agricultural modernisation in the PRC will continue to develop steadily, and this will facilitate the persisting demand for electricity and thermal coal. The Group remains prudently optimistic towards the prospects of the coal industry.

FINANCIAL REVIEW

Turnover

Turnover of the Group increased from RMB48.5 million for the six months ended 30 June 2013 to RMB376.0 million for the six months ended 30 June 2014 as the No.6 coal seam of the Group’s Dafanpu Coal Mine has gone into commercial production since the beginning of 2014.

The increase in the Group’s turnover was largely in line with the increase in the Group’s sales volume. The Group’s coal sales volume significantly increased from 199,140 tonnes of fine coal for the six months ended 30 June 2013 to 1.24 million tonnes of fine coal for the six months ended 30 June 2014.

Cost of sales

For the six months ended 30 June 2014, the Group incurred cost of sales of RMB256.6 million. Cost of sales mainly comprises salaries of coal mine workers, costs of supplementary materials, fuel and electricity, depreciation, amortisation, surcharges of mining operations and transportation costs. The increase in the Group’s cost of sales was largely in line with the increase in turnover and sales volume at ports.

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Gross profit and gross profit margin

For the six months ended 30 June 2014, the Group recorded gross profit of RMB119.5 million and gross profit margin of 31.8% as compared to the gross profit of RMB1.4 million and gross profit margin of 2.9% for the six months ended 30 June 2013.

The increase in gross profit margin for the six months ended 30 June 2014 is mainly because the coal production volume at the Group’s Dafanpu Coal Mine increased significantly from 302,200 tonnes of fine coal for the six months ended 30 June 2013 to 1.46 million tonnes of fine coal for the six months ended 30 June 2014.

Other revenue

Other revenue of the Group increased from RMB0.16 million for the six months ended 30 June 2013 to RMB0.24 million for the six months ended 30 June 2014.

For the six months ended 30 June 2014, the Group’s other revenue represented interest income.

For the six months ended 30 June 2013, the Group’s other revenue mainly comprised interest income.

Selling expenses

Selling expenses of the Group decreased from RMB3.6 million for the six months ended 30 June 2013 to RMB2.7 million for the six months ended 30 June 2014. The selling expenses mainly comprised salaries of sales staff and marketing related expenses.

Administrative expenses

The Group’s administrative expenses decreased from RMB52.3 million for the six months ended 30 June 2013 to RMB34.3 million for the six months ended 30 June 2014. The administrative expenses mainly comprised of salaries and related personnel expenses of the administrative, finance and human resources departments, consultancy fees and other incidental administrative expenses.

Finance costs

Finance costs increased from RMB39.4 million for the six months ended 30 June 2013 to RMB51.7 million for the six months ended 30 June 2014. The increase in the Group’s finance costs was largely in line with the increase in the Group’s interest-bearing bank loans.

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Income tax

Under the current laws of the Cayman Islands and the British Virgin Islands (“BVI”), neither the Company nor its BVI subsidiary is subject to tax on its income or capital gains. Moreover, no provision has been made for Hong Kong Profits Tax as the Group did not generate any assessable profits subject to Hong Kong Profits Tax for the six-month periods ended 30 June 2014 and 2013.

The Group’s subsidiaries in the PRC are subject to corporate income tax of 25% for the sixmonth periods ended 30 June 2014 and 2013. The effective tax rate of the Group was 30.2% for the six months ended 30 June 2014. For the six months ended 30 June 2013, the Group did not have any income tax expense as the Group did not generate any taxable profits during the period. However, the Group recorded tax credit of RMB22.4 million for the six months ended 30 June 2013, primarily due to recognition of deferred income tax assets from the tax losses of the Group’s PRC subsidiaries.

Profit/(Loss) Attributable to Equity Shareholders of the Company

As a result of the foregoing, the Group’s recorded a profit attributable to equity shareholders of RMB26.1 million for the six months ended 30 June 2014 and a loss attributable to equity shareholders of RMB72.1 million for the six months ended 30 June 2013.

Dividend

No dividends were declared for the six-month periods ended 30 June 2014 and 2013.

OTHER FINANCIAL INFORMATION

Liquidity and Financial Resources

For the six months ended 30 June 2014, the Group’s cash at bank and in hand was mainly used in the development of the Group’s Dafanpu Coal Mine, to service the Group’s indebtedness and to fund the Group’s working capital. The Group financed its funding requirements mainly through a combination of interest-bearing bank loans and cash generated from operating activities. The Group’s gearing ratio decreased from 61.0% as at 31 December 2013 to 59.9% as at 30 June 2014. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash at bank and in hand. Total capital is calculated as equity plus net debt.

As at 30 June 2014, the Group’s cash at bank and in hand, amounting to RMB37.6 million, was denominated in Renminbi (44.5%) and Hong Kong dollars (55.5%).

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As at 30 June 2014, the Group’s bank borrowings were as follows:

Repayable within one year Repayable after one year but within two years	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 750,000 875,000 500,000 500,000 1,250,000 1,375,000	At 30 June 2014 At 31 December 2013 RMB’000 RMB’000 750,000 875,000 500,000 500,000 1,250,000 1,375,000
		1,375,000

Notes:

• (a) As at 30 June 2014, all the Group’s bank loans were denominated in RMB and carried interest rates from 7.04% to 8.40% per annum. All the Group’s bank loans were floating interest rate bank loans, except for a fixed rate bank loan of RMB500.0 million.

• (b) As at 30 June 2014, the Group’s secured bank loans of RMB400.0 million were secured by its mining rights. The Group’s unsecured bank loans amounted to RMB850.0 million, of which RMB350.0 million was guaranteed by the Company and Mr. Zhang Li, a director of the Company.

Contingent Liabilities

The Group had no material contingent liability as at 30 June 2014.

Capital Expenditures and Commitments

The Group incurred capital expenditure of approximately RMB78.0 million for the six months ended 30 June 2014, which was mainly related to the coal shafts and conveyor system and the coal washing plant of the Dafanpu Coal Mine.

The Group’s capital commitments as at 30 June 2014 amounted to RMB37.8 million which were mainly related to the purchase of machinery and equipment and development activities of the Dafanpu Coal Mine.

Charge on Assets

As at 30 June 2014, the Group’s mining rights for the Dafanpu Coal Mine with a carrying value of RMB706.6 million was pledged to a bank for the relevant banking facilities granted to the Group.

Financial Risk Management

(a) Interest rate risk

The Group’s interest rate risk arises primarily from bank loans. Borrowings issued at variable rates expose the Group to cash flow interest rate risk, and borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group did not enter into any financial instruments to hedge against its interest rate risk for the six months ended 30 June 2014 but the Board will continue to closely monitor the Group’s loan portfolio in order to manage its interest rate risk exposure.

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(b) Foreign currency risk

The Company and its subsidiaries now comprising the Group are not exposed to significant foreign currency risk since their transactions and balances are principally denominated in their respective functional currencies. As the foreign currency risk is insignificant, the Group did not enter into any financial instruments to hedge against foreign currency risk for the six months ended 30 June 2014.

• (c) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. The Group utilises cash flow forecast and other relevant information to monitor its liquidity requirements and to ensure the Group has sufficient cash to support its business and operational activities.

Human Resources and Emolument Policy

As at 30 June 2014, the Group had a total of approximately 770 full-time employees in the PRC and Hong Kong. For the six months ended 30 June 2014, the total staff costs, including the directors’ emoluments, amounted to RMB50.7 million.

The Group’s emolument policies are formulated based on the performance and experience of individual employee and in line with the salary trends in the PRC and Hong Kong. Other employee benefits include performance-related bonuses, insurance and medical coverage and share options. Appropriate training programs are also provided to employees in order to ensure continuous staff training and development.

OTHER INFORMATION

CORPORATE GOVERNANCE

Corporate Governance Code

As the Company believes that good corporate governance can create value for the shareholders of the Company, the Board is committed to maintaining a high standard of corporate governance practices by putting strong emphasis on a quality board of Directors, sound internal controls and effective accountability to the shareholders as a whole.

The Board is of the view that the Company has complied with the code provisions of the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 of the Listing Rules for the six months ended 30 June 2014.

Directors’ and Relevant Employees’ Securities Transactions

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 of the Listing Rules as its own code for securities transactions by the Directors.

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All the Directors have confirmed, following specific enquiries by the Company, that they have fully complied with the required standards set out in the Model Code and the Company’s code of conduct for the six months ended 30 June 2014.

Relevant employees who are likely to be in possession of inside information of the Group are also subject to compliance with written guidelines on terms no less exacting than the required standards set out in the Model Code. Each of the relevant employees has been given a copy of the written guidelines.

No incident of non-compliance with these guidelines by the relevant employees was noticed by the Company.

Audit Committee

The audit committee of the Company comprises two independent non-executive directors, namely Ms. Liu Peilian and Mr. Dai Feng and one non-executive director, Ms. Zhang Lin. Ms. Liu Peilian is the chairman of the audit committee, who possess the appropriate professional qualification or accounting or related financial management expertise. The principal duties of the audit committee include the review and supervision of the Group’s financial reporting process and internal control system. The audit committee has reviewed the interim financial report of the Group for the six months ended 30 June 2014.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the six months ended 30 June 2014, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.

PUBLICATION OF INTERIM RESULTS AND INTERIM REPORT

The interim results announcement is published on the website of the Stock Exchange (http://www.hkexnews.hk) and the Company’s website at http://www.kineticme.com. The interim report for 2014 will be dispatched to the shareholders of the Company and published on the respective websites of the Stock Exchange and the Company in due course.

By Order of the Board Kinetic Mines and Energy Limited Zhang Li Chairman and Executive Director

18 August 2014

As at the date of this announcement, the board of directors of the Company comprises seven directors, of whom three are executive directors, namely Mr. Zhang Li (Chairman), Mr. Gu Jianhua (Chief Executive Officer) and Mr. Zhang Liang, Johnson; one is a non-executive director, namely Ms. Zhang Lin, and three are independent non-executive directors, namely Mr. Shi Xiaoyu, Ms. Liu Peilian and Mr. Dai Feng.

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