Newton Resources Ltd — Annual Report 2015

Mar 23, 2016

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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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1231)

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

The Board wishes to announce the audited consolidated annual results of the Group for FY 2015 together with the comparative figures for FY 2014 as follows:–

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2015

Notes Revenue 3 Cost of sales Gross profit Selling and distribution costs Administrative expenses Finance (expense)/income, net 5 Loss from operations Equity-settled share option expense Loss before tax 4 Income tax expense 6 Loss for the year Total comprehensive loss for the year Attributable to: Owners of the Company Non-controlling interests LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY Basic and diluted (RMB cent) 8	2015 RMB’000 3,421 (2,139) 1,282 (2,013) (38,315) (6,598) (45,644) – (45,644) – (45,644) (45,644) (45,351) (293) (45,644) (1.13)	2014 RMB’000 1,263 (1,065) 198 (60) (51,164) 5,212 (45,814) (206) (46,020) (422) (46,442) (46,442) (46,116) (326) (46,442) (1.15)

Details of the dividends payable and proposed for the year are disclosed in note 7.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31 December 2015

Notes Non-current assets Property, plant and equipment 9 Intangible assets Prepaid land lease payments Current assets Inventories 10 Trade receivable 11 Prepayments, deposits and other receivables 12 Cash and bank balances Current liabilities Trade payables 13 Other payables and accruals 14 Interest-bearing bank borrowings Income tax payable Net current assets Total assets less current liabilities Non-current liabilities Long-term payables Net assets Equity Equity attributable to owners of the Company Share capital Reserves Non-controlling interests Total equity	2015 RMB’000 710,408 49,938 3,307 763,653 13,916 3,142 40,786 530,233 588,077 4,345 70,234 284,852 7,634 367,065 221,012 984,665 7,660 977,005 331,960 642,971 974,931 2,074 977,005	2014 RMB’000 713,835 49,999 3,408
		767,242
		7,969 – 45,238 601,855
		655,062
		361 61,100 315,560 7,634
		384,655
		270,407
		1,037,649
		15,000
		1,022,649
		331,960 688,322
		1,020,282 2,367
		1,022,649

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2015

At 1 January 2014 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year Capital contribution from non-controlling interests Equity-settled share option arrangements At 31 December 2014 and 1 January 2015 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year Transfer of share option reserve upon the expiry of share options At 31 December 2015		Attributable to owner	Attributable to owner	s of the Company	Total RMB’000 1,066,192 (46,116) – (46,116) – 206 1,020,282 (45,351) – (45,351) – 974,931	Non- controlling interests RMB’000 1,453 (326) – (326) 1,240 – 2,367 (293) – (293) – 2,074	Total equity RMB’000 1,067,645 (46,442) – (46,442) 1,240 206 1,022,649 (45,644) – (45,644) – 977,005
	Share capital RMB’000 331,960 – – – – – 331,960 – – – – 331,960	Share premium account RMB’000 719,871 – – – – – 719,871 – – – – 719,871	Capital reserves RMB’000 80,864 – – – – – 80,864 – – – – 80,864	Share option reserve Accumulated losses RMB’000 RMB’000 9,014 (75,517) – (46,116) – – – (46,116) – – 206 – 9,220 (121,633) – (45,351) – – – (45,351) (9,220) 9,220 – (157,764)

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CONSOLIDATED STATEMENT OF CASH FLOWS Year ended 31 December 2015

Notes Cash flows from operating activities Loss before tax Adjustments for: Depreciation of items of property, plant and equipment 4 Amortisation of prepaid land lease payments 4 Amortisation of intangible assets 4 Write-down of inventories to net realisable value 4 Finance expense/(income), net 5 Equity-settled share option expense Cash flows before working capital changes Increase in inventories Increase in trade receivable Decrease/(increase) in prepayments, deposits and other receivables Increase in restricted bank deposits Increase in trade payables Increase in other payables and accruals Cash used in operations Interest received Bank charges paid Net cash flows used in operating activities Cash flows from investing activities Purchase of items of property, plant and equipment Addition of intangible assets Net cash flows used in investing activities Cash flows from financing activities New bank borrowing Repayment of bank borrowings Interest paid Capital contribution from non-controlling interests Net cash flows used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net Cash and cash equivalents at end of year ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Restricted bank deposits Cash and cash equivalents at end of year	2015 RMB’000 (45,644) 10,363 101 61 1,073 6,598 – (27,448) (7,020) (3,142) 2,814 (2) 3,984 656 (30,158) 22,516 (181) (7,823) (6,739) – (6,739) 23,673 (72,816) (7,627) – (56,770) (71,332) 600,665 (292) 529,041 530,233 (1,192) 529,041	2014 RMB’000 (46,020) 10,458 101 89 807 (5,212) 206 (39,571) (4,272) – (416) (2) 93 783 (43,385) 16,259 (175) (27,301) (17,628) (7,160) (24,788) – (68,805) (9,300) 1,240 (76,865) (128,954) 729,700 (81) 600,665 601,855 (1,190) 600,665

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Notes:

1. CORPORATE INFORMATION

The Company is a limited liability company incorporated in the Cayman Islands. The registered office of the Company is located at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

During the year, the principal activity of the Company is investment holding and the principal activities of its subsidiaries include mining, processing and sale of iron concentrates and gabbro-diabase and stone products in the PRC.

2.1. BASIS OF PRESENTATION

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) (which include all International Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretations) issued by the International Accounting Standards Board and the disclosure requirements of the Companies Ordinance. They have been prepared under the historical cost convention. These financial statements are presented in RMB and all values are rounded to the nearest thousand except when otherwise indicated.

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Group has adopted the following revised standards for the first time for current year’s financial statements.

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions Annual Improvements to IFRSs 2010-2012 Cycle Annual Improvements to IFRSs 2011-2013 Cycle

The adoption of the above revised standards has had no significant financial effect on these financial statements.

In addition, the Company has adopted the amendments to the Listing Rules issued by the Stock Exchange relating to the disclosure of financial information with reference to the Companies Ordinance during the current financial year. The main impact to the financial statements is on the presentation and disclosure of certain information in the financial statements.

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2.3 ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in these financial statements.

IFRS 9	Financial Instruments3
Amendments to IFRS 10 and	Sale or Contribution of Assets between an Investor and
IAS 28	its Associate or Joint Venture6
Amendments to IFRS 10,	Investment Entities: Applying the Consolidation Exception1
IFRS 12 and IAS 28
Amendments to IFRS 11	Accounting for Acquisitions of Interests in Joint Operations1
IFRS 14	Regulatory Deferral Accounts5
IFRS 15	Revenue from Contracts with Customers3
IFRS 16	Leases4
Amendments to IAS 1	Disclosure Initiative1
Amendments to IAS 7	Statement of Cash Flow2
Amendments to IAS 12	Recognition of Deferred Tax Assets for Unrealised Losses2
Amendments to IAS 16 and IAS 38	Clarification of Acceptable Methods of Depreciation and
	Amortisation1
Amendments to IAS 16 and IAS 41	Agriculture: Bearer Plants1
Amendments to IAS 27	Equity Method in Separate Financial Statements1
Annual Improvements 2012-2014 Cycle	Amendments to a number of IFRSs1

• 1 Effective for annual periods beginning on or after 1 January 2016

• 2 Effective for annual periods beginning on or after 1 January 2017

• 3 Effective for annual periods beginning on or after 1 January 2018

• 4 Effective for annual periods beginning on or after 1 January 2019

• 5 Effective for an entity that first adopts IFRSs for its annual financial statements beginning on or after 1 January 2016 and therefore is not applicable to the Group

• 6 No Mandatory effective date yet determined but is available for adoption

The Group has already commenced an assessment of the impact of these new or revised standards and amendments to standards, certain of which may be relevant to the Group’s operations and may give rise to changes in accounting policies, changes in disclosures and remeasurement of certain items in the financial statements. The Group is not yet in a position to ascertain their impact on its results of operations and financial position.

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3. REVENUE AND SEGMENT INFORMATION

Revenue represents the net invoiced value of goods sold, net of trade discounts and returns and various types of government surcharges, where applicable.

Operating Segment Information

For management purposes, the Group is organised into business units based on their products and services and has two reportable operating segments, the “Iron Concentrates” segment and the “Gabbro-Diabase and Stone” segment.

Iron Concentrates

– mining, processing and sale of iron concentrates

Gabbro-Diabase and Stone – mining, processing and sale of gabbro-diabase and stone products

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment results, which is a measure of adjusted loss before tax. The adjusted loss before tax is measured consistently with the Group’s loss before tax except that interest income, finance costs as well as head office and corporate expenses are excluded from such measurement.

Segment assets exclude cash and bank balances and other unallocated head office and corporate assets, which are managed on a group basis.

Segment liabilities exclude interest-bearing bank and other borrowings, income tax payable and other unallocated head office and corporate liabilities, which are managed on a group basis.

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Year end 31 December 2015 Segment Revenue: Sales to external customers Segment Results Reconciliation: Interest income Corporate and other unallocated expenses Interest expenses Loss before tax Segment assets Corporate and other unallocated assets Total assets Segment liabilities Corporate and other unallocated liabilities Total liabilities Other segment information: Write-down of inventories to net realisable value Depreciation and amortisation Corporate and other unallocated depreciation Capital expenditure Corporate and other unallocated capital expenditure	Iron Concentrates RMB’000 – (7,337) 675,710 39,073 – 7,337 –	Gabbro- Diabase and Stone RMB’000 3,421 (8,387) 118,977 32,350 1,073 2,651 6,717	Total RMB’000 3,421 (15,724) 21,272 (42,230) (8,962) (45,644) 794,687 557,043 1,351,730 71,423 303,302 374,725 1,073 9,988 537 10,525 6,717 219 6,936

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Year end 31 December 2014 Segment Revenue: Sales to external customers Segment Results Reconciliation: Interest income Corporate and other unallocated expenses Interest expenses Loss before tax Segment assets Corporate and other unallocated assets Total assets Segment liabilities Corporate and other unallocated liabilities Total liabilities Other segment information: Write-down of inventories to net realisable value Depreciation and amortisation Corporate and other unallocated depreciation Capital expenditure Corporate and other unallocated capital expenditure	Iron Concentrates RMB’000 – (11,451) 684,587 41,943 – 8,336 2,990	Gabbro- Diabase and Stone RMB’000 1,263 (8,473) 107,742 26,807 807 1,076 8,535	Total RMB’000 1,263 (19,924) 18,004 (34,622) (9,478) (46,020) 792,329 629,975 1,422,304 68,750 330,905 399,655 807 9,412 1,236 10,648 11,525 126 11,651

Information about major customers

During the year ended 31 December 2015, there were two customers from Gabbro-Diabase and Stone segment with whom transactions have exceeded 10% of the Group’s revenue, representing revenue of RMB2,653,000 and RMB414,000 respectively (2014: one customer from Gabbro-Diabase and Stone segment of RMB989,000).

Geographical segment

As the Group’s revenue from the external customers and the majority of the Group’s non-current assets are located in the PRC in both years, no geographical information is presented.

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4. LOSS BEFORE TAX

The Group’s loss before tax is arrived at after charging:

	2015	2014
	RMB’000	RMB’000
Cost of inventories sold	2,139	1,065
Depreciation of items of property, plant and equipment	10,363	10,458
Amortisation of intangible assets	61	89
Amortisation of prepaid land lease payments	101	101
Write-down of inventories to net realisable value	1,073	807

5. FINANCE (EXPENSE)/INCOME

An analysis of the Group’s net finance (expense)/income is as follows:

Interest income Interest on bank borrowings Other borrowing costs Net foreign exchange losses Bank charges Finance (expense)/income, net	2015 RMB’000 21,272 (7,641) (1,321) (18,727) (181) (6,598)	2014 RMB’000 18,004 (7,841) (1,637) (3,139) (175)
		5,212

6. INCOME TAX

The provision for PRC corporate income tax (“CIT”) is based on the CIT rate applicable to the entities located in or deemed to be operating in Mainland China as determined in accordance with the relevant income tax rules and regulations of the PRC for the years ended 31 December 2015 and 2014.

No provision for Hong Kong profits tax had been made as the Group had no estimated assessable profits arising in Hong Kong during the years ended 31 December 2015 and 2014.

	2015	2014
	RMB’000	RMB’000
Current tax – Mainland China
Charge for the year	–	422

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7. DIVIDEND

The directors do not recommend the payment of a dividend in respect of the year ended 31 December 2015 (2014: Nil).

8. LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

The calculation of basic loss per share amounts is based on the loss for the year attributable to owners of the Company, and the weighted average number of ordinary shares of 4,000,000,000 in issue during the years ended 31 December 2015 and 2014.

The calculations of basic and diluted loss per share are based on:

Loss Loss attributable to owners of the Company, used in the basic and diluted loss per share calculation Shares Weighted average number of ordinary shares in issue during the year used in the basic and diluted loss per share calculation	2015 RMB’000 (45,351) ’000 4,000,000	2014 RMB’000 (46,116) ’000 4,000,000

The pre-IPO share options of the Company had an anti-dilutive effect on the basic loss per share amount for the year ended 31 December 2015 and 2014 and were ignored in the calculation of diluted loss per share.

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9. PROPERTY, PLANT AND EQUIPMENT

Cost: At 1 January 2014 Additions Transfer in/(out) Disposals/write-off At 31 December 2014 and 1 January 2015 Additions Transfer in/(out) At 31 December 2015 Accumulated depreciation: At 1 January 2014 Provided for the year Disposals/write-off At 31 December 2014 and 1 January 2015 Provided for the year At 31 December 2015 Net carrying amount: At 31 December 2015 At 31 December 2014	Buildings Motor vehicles, fixtures and others RMB’000 RMB’000 62,239 6,570 – 143 – – – (989) 62,239 5,724 – 212 – – 62,239 5,936 (1,341) (1,773) (2,952) (1,497) – 989 (4,293) (2,281) (2,952) (835) (7,245) (3,116) 54,994 2,820 57,946 3,443	Machinery Mining infrastructure RMB’000 RMB’000 90,599 154,650 1,016 – 6,832 9,697 – – 98,447 164,347 678 17 5,365 211 104,490 164,575 (10,016) (2,575) (5,996) (13) – – (16,012) (2,588) (6,538) (38) (22,550) (2,626) 81,940 161,949 82,435 161,759	Construction in progress RMB’000 414,289 10,492 (16,529) – 408,252 6,029 (5,576) 408,705 – – – – – – 408,705 408,252	Total RMB’000 728,347 11,651 – (989) 739,009 6,936 – 745,945 (15,705) (10,458) 989 (25,174) (10,363) (35,537) 710,408 713,835

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10. INVENTORIES

The Group’s inventories are carried at cost or net realisable value.

Raw materials and spare parts Semi-finished products Finished products Inventory provision	2015 RMB’000 3,927 5,707 6,162 15,796 (1,880) 13,916	2014 RMB’000 3,979 – 4,797 8,776 (807) 7,969

11. TRADE RECEIVABLE

The Group trades only with recognised and creditworthy third parties. The Group’s trading terms with its customers generally require deposits received in advance, except for creditworthy customers to whom credits are granted. The credit period is generally ranging from seven days to six months. The Group seeks to maintain strict control over its outstanding receivables and overdue balances are reviewed regularly by the management. The Group has not held any collateral or other credit enhancements over its trade receivable balance. Trade receivable is non-interest-bearing.

Based on the invoice date, the ageing of the trade receivable as at the end of the Reporting Period was within three months (2014: Nil).

The trade receivable was past due for less than three months. The Group considers that no provision for impairment is necessary in respect of this balance as there has not been a significant change in credit quality and the balance is still considered fully recoverable.

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12. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Advances to suppliers Other tax receivables Deposits Bank interest receivables Prepaid land lease payments, current portion Others	2015 RMB’000 21,921 12,799 2,983 888 101 2,094 40,786	2014 RMB’000 24,624 12,308 3,879 2,132 101 2,194
		45,238

The carrying amounts of prepayments, deposits and other receivables closely approximate to their respective fair values.

None of the above assets is either past due or impaired. The financial assets included in the above relate to receivables for which there was no recent history of default.

13. TRADE PAYABLES

An ageing analysis of the trade payables as at the end of the reporting period, based on the invoice date, is as follows:

Within 6 month 6 months to 1 year Over 1 year	2015 RMB’000 4,165 6 174 4,345	2014 RMB’000 144 45 172
		361

The trade payables are non-interest-bearing and normally settled on 60-day terms.

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14. OTHER PAYABLES AND ACCRUALS

Payables to suppliers or contractors for the addition of items of property, plant and equipment Gabbro-diabase resources fees payable, current portion Accrued interest expenses Other payables Total	2015 RMB’000 33,267 14,320 4,707 17,940 70,234	2014 RMB’000 33,464 7,160 3,372 17,104
		61,100

In respect of the mining permit for gabbro-diabase at the Yanjiazhuang Mine, the fourth instalment of the gabbrodiabase resources fees payable, which amounts to RMB7.16 million, together with the associated cost of funds, was due to be paid by the Group in August 2015 but has remained unpaid. In view of the unfavourable economic and market outlook, the management has been in communication with and preparing for the application to the relevant government authority for more favourable payment terms which include the extension of payment schedule for the remaining resources fees payable.

Except for the current portion of gabbro-diabase resources fees payable which is unsecured and bears interest at the RMB loan prime rate, other payables are unsecured and non-interest-bearing.

15. CONTINGENT LIABILITIES

Since March 2013, a subsidiary of the Group was involved in litigation as a defendant regarding construction sum payable arising out of the ordinary course of business of the Group. In May 2013, a local court in the PRC issued a verdict to freeze (i) two properties of the plaintiff and (ii) the bank accounts or other assets up to RMB36 million of the Company’s subsidiary, pending the outcome of the case. Consequently, certain bank accounts of such subsidiary with an aggregate balance of approximately RMB1.2 million were frozen by the local court as of 31 December 2015. In November 2013, the local court designated an independent firm of quantity surveyors (the “Surveying Company”) to assess the value of the construction work that had been completed by the plaintiff. In 2014, the Surveying Company has submitted the assessment to the local court, and court hearings were held in this respect in April 2015 and January 2016. Both parties have different views on the appraised results, and the court has been facilitating the negotiation between the parties in respect of the appraised results. Such subsidiary has also filed a counterclaim against the plaintiff regarding the quality issues of the completed construction work. During the Reporting Period, such counterclaim is pending the decision of the relevant court to assess the ratification costs of the completed construction work.

Based on the available information and the advice of the Group’s PRC legal counsels on the case, it is anticipated that the litigation would not have any material adverse impact to the financial position and operations of the Group.

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CHAIRMAN’S STATEMENT

In 2015, the PRC economic growth was up to market expectations, despite a faster-than-expected slowdown in the PRC economy. Although the domestic iron ore industry was delighted with a surge in steel export, it continued to struggle in a difficult operating environment with the persisting oversupply, sluggish demand, low price and tightening environmental protection requirements.

The Group’s management kept exploring new opportunities beyond the realm of iron ore. The Group has continued exploiting the crushed stone and railway ballast business during the Reporting Period with the support and coordination of the local government. It has completed the second crushed stone and railway ballast production facility with the hope of bringing in new momentum and opportunities through tapping into the demand resulting from the highway and high-speed railway infrastructure developments in the neighbourhood. During the Reporting Period, the Group recorded revenue of approximately RMB3.4 million from the gabbro-diabase and stone business.

Unfortunately, the trial production of iron concentrates at the Yanjiazhuang Mine has not yet resumed in the Reporting Period despite the management’s continuing efforts and endeavours to resolve the issues with the local villagers and government. In addition, the importance attached by the PRC government to environmental protection as well as the sluggish iron concentrate price caused by the persistent oversupply of iron ore have posed greater uncertainties over the future development of the Group’s iron concentrate business. The Group will endeavour to resolve local issues and obtain the necessary consents from the Safety Authority and other production-related consents, priming for the resumption of the operation in an economically viable scale after resolving all these issues and as and when the market improves.

In particular, due to the deteriorating air quality in Mainland China, especially in Beijing and Hebei Province, the PRC authorities are prompted to further tighten environmental protection requirements towards heavily polluting industries such as mining. To cope with the potential impacts of such policies on the Group’s businesses, the management will keep abreast of the latest regulatory requirements and changes and adopt appropriate environmental and other measures from time to time.

Going forward, the Group will make further efforts at sales and marketing to gradually bring the gabbrodiabase and stone business into commercial scale. Furthermore, the Group will cautiously explore mergers and acquisitions and other investment opportunities to achieve sustainable development, and to diversify the Group’s business and its income stream.

In closing, I would like to express my deepest gratitude to my fellow Board members for their invaluable counsel to the Group. My heartfelt appreciation must also go to the management team and staff for their dedication and commitment in this challenging environment.

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MANAGEMENT DISCUSSION AND ANALYSIS

Market Overview

In 2015, the PRC’s gross domestic product (“GDP”) grew by approximately 6.9% as compared with the last year, thereby achieving the growth target set by the PRC government at the beginning of the year. Nevertheless, the PRC economy entered the “new normal” with domestic economic slowdown, much slower growth in fixed asset investment and slackening real estate development, all of which affected downstream engineering, construction and steel industries.

As iron ore supply continued to outstrip demand, iron ore price was battered by the persisting oversupply and continued setting record lows. In view of the sluggish demand for and falling prices of steel, most of the domestic steel mills took the initiative to scale down their production. In terms of steel export to overseas markets, steel export increased during the year. Nonetheless, European countries and the United States of America were taking systematic anti-dumping measures against the PRC, such as imposing new customs duties on steel imported from Mainland China. These developments have significantly raised the costs of, and barriers for export of steel by, the PRC steel mills. As such, the economic efficiency of the iron ore industry as an upstream industry in the PRC dwindled significantly and iron ore producers were facing enormous operating pressure.

Moreover, the PRC government has been strictly implementing laws, regulations and policies regarding environmental protection and production safety towards heavy polluting industries, such as mining, in recent years. As a result, the iron ore industry needed to pour more resources into environmental protection, safety and other aspects and, therefore, faced additional operating pressure to satisfy the new requirements set by the PRC government.

Meanwhile, the PRC economy is in a stage of structural transformation. Under the Twelve Five-Year Plan, the investment-driven and manufacturing-oriented economy has gradually become more consumption and service-led. Most industries are incorporating more information technologies, agricultural productivity is being enhanced, and consumption and services are turning into the next driver for economic growth. Over half of the population is expected to become urban dwellers. In 2015, the added-value of the tertiary industry as a percentage of the PRC’s GDP exceeded that of the secondary industry by 10%. Consumers’ spending contributed about 66.4% of economic growth, considerably higher than that for the last year. Therefore, the PRC economic growth in 2015 has hardly benefited iron ore consumption, and the growth in steel consumption was much less significant. However, in view of the active implementation of the “One Belt, One Road” economic initiative and other economic stimuli by the PRC government, future demand for iron ore and construction-related materials is expected to rise. Given the PRC government’s goal of eliminating excessive capacity and lowering leverage, capital shortage and the slowdown in economic development in Mainland China are expected to persist in the near future, and it is probable that iron ore price will continue to drop.

As for the gabbro-diabase and stone business, the implementation of infrastructure investment projects such as highways and high-speed railways in Hebei and surrounding provinces are expected to boost the demand for crushed stone and railway ballast. However, the slowdown in the PRC property market heavily impacted the commercial stone material industry, which depends on real estate and other construction projects. The Group is preparing to target the home decoration market, which is expected to grow in tandem with the rise in living standard in the PRC. As natural stone is a premium home decoration material, the management hopes to seize the opportunity and develop a new business line for the Group.

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Business Review

In 2015, the Group continued to explore the crushed stone and railway ballast business in a cautious manner and studied possibilities to produce other stone products with the aim of bringing in cash flows. On the other hand, it strived to mitigate the disputes over land expropriation and other local problems through exploring employment arrangements with local villagers.

Iron Concentrate Business

During the Reporting Period, iron ore supply continued to outstrip demand and iron ore price continued setting record lows. In view of the tightening environmental protection policies towards heavy polluting industries, such as mining in Hebei, due to the PRC government’s concern over environmental protection and pollution in and around Beijing, coupled with the drop in the demand and the low market price of iron ore, the iron ore industry continued to encounter operating difficulties and challenges. Such policies may also have an adverse impact on the resumption of the Group’s iron concentrate business.

Despite the Group’s close communication with the local government and the government’s staunch support, local issues such as disputes over land expropriation have not been fully resolved, thus preventing the Group from resuming its trial production of iron concentrates at the Yanjiazhuang Mine during the Reporting Period. Disturbances caused by neighbouring villages and their inhabitants to the Group’s mine site have been mitigated to a certain extent through assistance of and mediation with local government and village representatives. As a result, the Group was able to explore other business development possibilities in the area. The Group has recruited local villagers to produce crushed stone, railway ballast and gabbro-diabase products in order to create job opportunities for, as well as foster a closer relationship with, the neighbouring areas, thereby paving the way for mutual growth.

With respect to the renewal of production safety permit for iron mining, the Group has submitted the required documents to the relevant authorities for approval, and the representatives from the Safety Authority have completed on-site inspection, assessment and acceptance procedures and confirmed the Group’s production safety qualification. While it may take longer time for the government authorities to coordinate and arrange the issuance of the permit as the PRC government is tightening the policies on environmental protection and the management could not ascertain the timing for the Group to obtain the permit, which has presented uncertainties over the future development of its iron concentrate business. The Group will continue to follow up on the progress for the renewal of the production safety permit.

Given the weak prevailing iron concentrate price and that the impacts of various government policies have presented uncertainties over the future development of the Group’s iron concentrate business, the Group will endeavour to resolve the local issues and obtain the necessary consents from the Safety Authority and other production-related consents, priming for the resumption of the operation in an economically viable scale after resolving all these issues and as and when the market improves. In this respect, the Group will keep abreast of the latest status and renewal progress of licences, keep a close eye on future market development and price trend of iron concentrates, maintain the production and ancillary facilities in reasonably satisfactory conditions, and keep up the high awareness of mine safety and environmental protection measures.

The Group’s expansion plans of the Yanjiazhuang Mine were also hindered by the disputes arising from land expropriation. During the Reporting Period, the relevant construction works remained suspended. For details, please refer to the section headed “Capital Expenditure and Infrastructure Development”.

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Gabbro-Diabase and Stone Business

While the Group’s iron concentrate business was dragged by the weak domestic and overseas economy and sluggish product demand as well as the disputes over land expropriation at the Yanjiazhuang Mine and neighbouring areas, the Group has been proactively developing the gabbro-diabase and stone business with a view to creating new cash flow from the production and sale of gabbro-diabase, crushed stone, railway ballast and decorative slab products.

There was a slight improvement in business performance during FY 2015 as compared to last year as the Group has received initial favourable response from its customer for crushed stone and expanded the business network to the toll road contractor sector.

Driven by the policies implemented by the PRC government, the development of highways, high-speed railways and other infrastructures has accelerated, and the demand for crushed stones as highway paving materials and ballast for railways has increased drastically. In order to seize this market opportunity, the Group has devoted all its efforts to the construction of the second crushed stone and railway ballast production facility and the sales and marketing and building customer network for crushed stone and railway ballast during the year. The Group has commenced the crushing of rocks into ballast railway paving materials for sale in 2015. With the Group’s efforts in fine-tuning its production facility and enhancing its sales and marketing, the Group’s crushed stones and railway ballast started to receive initial market acceptance. During the Reporting Period, the Group recorded revenue of approximately RMB3.4 million from this business.

In relation to sales and marketing, the Group is in the process of expanding its quality and experienced marketing team for the sale of a variety of stone products, who will visit customers in different regions, and establish and enlarge our customer base. The Group has also visited the stone product production facilities operated by the peers so as to keep abreast of industry updates and to exchange production expertise with the aim of boosting the Group’s productivity and profitability. Furthermore, the Group is still trying out the scheme to award employees based on their production outputs. This scheme provides the Group with the flexibility to recruit the local labour force so as to lay the foundation for resolving the land expropriation disputes, and also better utilise the surplus manpower resulting from the suspension of the iron concentrate business.

With respect to the application for the production safety permit for the gabbro-diabase business, the Group has submitted the required documents to the relevant authorities for approval, and the representatives from the Safety Authority have completed on-site inspection, assessment and acceptance procedures and confirmed the Group’s production safety qualification. However, the management could not ascertain the time required for obtaining the permit, as it may take time for the government authorities to coordinate and arrange the issuance of the permit since the PRC governement is tightening the policies on environmental protection, and it is beyond the Group’s control, thereby presenting uncertainties over the future development of the Group’s gabbro-diabase and stone business. The Group will continue to follow up on the progress for the application for production safety permit.

In respect of the mining permit for gabbro-diabase at the Yanjiazhuang Mine, the fourth instalment of the gabbro-diabase resources fees payable, which amounts to RMB7.16 million, together with the associated cost of funds, was due to be paid by the Group in August 2015 but has remained unpaid. In view of the unfavourable economic and market outlook, the management has been in communication with and preparing for the application to the relevant government authority for more favourable payment terms which include the extension of payment schedule for the remaining resources fees payable.

Following the general environmental and emission-reducing trends in the PRC and aiming to build an environmental-friendly mine, the Group has installed environmental protection facilities at the crushed stone and railway ballast production facilities and other gabbro-diabase production sites with a view to mitigating any negative impact on the environment arising from the production process. The Group places a high priority on production safety in respect of its crushed stone and railway ballast production facility and makes every effort to provide its staff with a safe working environment.

– 19 –

Going forward, the Group aims to expand the customer reach in the crushed stone and railway ballast business. As urbanisation speeds up and living standard rises in the PRC, there are opportunities in the market of home decoration stone materials. Natural stone is expected to become popular material for home decoration, and the market for decorative stones is expected to grow. To capture this opportunity, the management is conducting feasibility study on diversifying the Group’s product offering by (i) sourcing and offering different stone materials, together with the Group’s gabbro-diabase, suitable for production of decorative slabs; and (ii) strengthening the Group’s stone processing capabilities for cutting, processing and polishing different stone materials into decorative slabs so as to increase their commercial value. The management plans to launch various decorative slab products with an aim to tap into the home decoration market after the pilot products have been tested in the market.

Further discussion of the infrastructure developments for the gabbro-diabase and stone business carried out during the Reporting Period is set out in the section headed “Capital Expenditure and Infrastructure Development”.

Capital Expenditure and Infrastructure Development

During the Reporting Period, the Group incurred capital expenditure amounting to approximately RMB6.9 million, mainly on the construction of the second crushed stone and railway ballast production facility.

Iron Concentrate Business

Due to the land expropriation disputes and the disturbances around, the remaining construction of Phase Two and Phase Three expansion plans was suspended during the Reporting Period. In addition, as a result of lawsuit, details of which are set out in the section headed “Contingent Liabilities”, the construction of certain projects undertaken by the plaintiff was also suspended and the Group did not incur any capital expenditure of the iron concentrate business during the Reporting Period.

Capital expenditure of the iron concentrate business during the years ended 31 December 2015 and 2014 are indicated below:

Construction costs Mining infrastructure Equipment and others Total	2015 RMB’million – – – –	2014 RMB’million 2.0 0.8 0.2
		3.0

During the years ended 31 December 2015 and 2014, there were no new contract and commitment entered into by the Group for iron concentrate business including those related to infrastructure projects (road and railway), subcontracting agreements and purchases of equipment.

It is expected that when disputes and disturbances regarding the iron concentrate production at the Yanjiazhuang Mine are smoothed out, the Group will further proceed with the relevant constructions so as to support the development of its iron concentrate business as and when appropriate.

– 20 –

Gabbro-Diabase and Stone Business

During the Reporting Period, the Group had mainly constructed the second crushed stone and railway ballast production facility. Also, the Group had fine-tuned the first crushed stone production facility for better product quality.

Capital expenditure of the gabbro-diabase and stone business during the years ended 31 December 2015 and 2014 are indicated below:

Construction costs Equipment and others Total	2015 RMB’million 0.7 6.0 6.7	2014 RMB’million 4.9 3.6
		8.5

During the Reporting Period, the new contracts and commitments entered into by the Group for the gabbrodiabase and stone business including those related to infrastructure projects (road and railway), subcontracting agreements and purchases of equipment amounted to approximately RMB5.8 million (2014: approximately RMB7.8 million).

Exploration Activities

During the Reporting Period, the Group did not have any exploration activity nor incur any expense or capital expenditure in that activity at the Yanjiazhuang Mine.

Production Costs of the Yanjiazhuang Mine

Iron Concentrate Business

During the years ended 31 December 2015 and 2014, the Group’s iron concentrate production had yet to resume and therefore no production cost of iron concentrates was recorded.

Gabbro-Diabase and Stone Business

The Group’s production costs for the gabbro-diabase and stone business amounted to approximately RMB2.1 million, as recognised in the cost of sales during the Reporting Period (2014: RMB1.1 million).

– 21 –

The following table presents, for the periods indicated, the Group’s production costs for the gabbro-diabase and stone business:

Processing costs – Subcontracting fees – Material costs – Staff costs – Utilities and others Overheads – Depreciation and amortisation – Hauling – Staff costs – Others Total production costs for the gabbro-diabase and stone business	2015 RMB’000 1,691 3 19 5 1,718 240 2 119 60 421 2,139	2014 RMB’000 852 8 55 13
		928
		101 5 17 14
		137
		1,065

Iron Ore Resources and Reserve Estimates

As at 31 December 2015, details of the Group’s mineral resource and ore reserve estimates at the Yanjiazhuang Mine under the JORC Code were summarised as below:

Summary of mineral resources*

Percentage of ownership JORC Mineral Resource Category Yanjiazhuang Mine 99% Measured Indicated Total	As at 31.12.2015 Average iron grade TFe (Mt) (%) 99.56 22.53 211.96 21.03 311.52 21.51	As at 31.12.2014 Average iron grade TFe (Mt) (%) 99.56 22.53 211.96 21.03 311.52 21.51

– 22 –

Summary of ore reserves*

Percentage of ownership JORC Ore Reserve Category Yanjiazhuang Mine 99% Proved Probable Total	As at 31.12.2015 Average iron grade TFe (Mt) (%) 85.56 21.39 174.21 19.97 259.77 20.43	As at 31.12.2014 Average iron grade TFe (Mt) (%) 85.56 21.39 174.21 19.97 259.77 20.43

• Please refer to the independent technical report in the Company’s prospectus dated 21 June 2011 for details of the assumptions and parameters used to calculate these iron ore resource and reserve estimates and quality of iron grade.

The mining permit of the Yanjiazhuang Mine is valid until 26 July 2017. Taking into consideration that government policies in environmental protection, production safety and other mining-related aspects are constantly affected by pollution and other factors, the Group will continue to closely observe these government policies, and timely start the renewal application process for the mining permit of the Group’s Yanjiazhuang Mine.

Mining production activities

There was no iron concentrate production at the Yanjiazhuang Mine in FY 2015 and FY 2014.

Gabbro-Diabase Resource Estimates

During the Reporting Period, the Group conducted mining activities with a very limited scale at the Yanjiazhuang Mine and the gabbro-diabase resources at the Yanjiazhuang Mine were estimated at approximately 207 million cubic metres and categorised as an Indicated Resource under the JORC Code as at 31 December 2015 and 2014.

The Group has a mining permit for gabbro-diabase resources, which is valid until 26 July 2017. The mining permit allows the Group to mine the relevant ore resources up to approximately 15.8 million cubic metres. As the 31 December 2015, the Group conducted mining activities with a very limited scale at the Yanjiazhuang Mine, and the gabbro-diabase ore resources was largely the same as that as at 31 December 2014.

In respect of the mining permit for gabbro-diabase at the Yanjiazhuang Mine, the fourth instalment of the gabbro-diabase resources fees payable, which amounts to RMB7.16 million, together with the associated cost of funds, was due to be paid by the Group in August 2015 but has remained unpaid. In view of the unfavourable economic and market outlook, the management has been in communication with and preparing for the application to the relevant government authority for more favourable payment terms which include the extension of payment schedule for the remaining resources fees payable.

Taking into consideration that government policies in environmental protection, production safety and other mining-related aspects are constantly affected by pollution and other factors, the Group will continue to closely observe these government policies, and timely start the renewal application process for the mining permit of the Group’s Yanjiazhuang Mine.

– 23 –

Production Safety and Environmental Protection

The Group has been placing high attention on production safety and environmental protection. Therefore, the Yanjiazhuang Mine has established a department responsible for production safety and management. This department has been consistently promoting safety standards and strengthening environmental protection measures so as to increase the Group’s sense of social responsibility and safety awareness. During FY 2015, the Yanjiazhuang Mine had no record of significant safety incident.

Considering the deteriorating air quality in Mainland China, especially in Beijing and Hebei Province, it is anticipated that the PRC authorities are prompted to further tighten the relevant environmental policies towards heavily polluting industries, such as mining. To cope with the potential policy impact on its business, the Group will keep abreast of the latest regulatory requirements and changes and adopt appropriate environmental and other measures from time to time to facilitate its operation and production at the Yanjiazhuang Mine.

Dividend

The Directors do not recommend the payment of a final dividend in respect of FY 2015 (2014: Nil).

Financial Review

During the Reporting Period, the Group generated a revenue of approximately RMB3.4 million from the sale of crushed stone, railway ballast and gabbro-diabase products (2014: approximately RMB1.3 million).

The Group had not resumed the trial production and sale of iron concentrates during the Reporting Period.

There was a slight improvement in business performance during FY 2015 as compared to last year as the Group had received initial favourable response from its customer for crushed stone and expanded the business network to the toll road contractor sector.

The net loss for FY 2015 was approximately RMB45.6 million (2014: approximately RMB46.4 million). The loss attributable to owners of the Company amounted to approximately RMB45.4 million (2014: approximately RMB46.1 million). The basic and diluted loss per share for FY 2015 was approximately RMB1.13 cents (2014: approximately RMB1.15 cents).

The decrease in net loss was mainly attributed to the start-up and sale of crushed stone and railway ballast products, and the decrease in administrative expenses, which was caused by the Group’s effort to adopt various cost control measures and carry out organisational restructuring last year. However, the unfavourable foreign exchange movements in RMB against other currencies in the second half of 2015 resulted in the recognition of net foreign exchange loss of approximately RMB18.7 million for the Reporting Period (2014: approximately RMB3.1 million), which partly offset the decrease in net loss.

– 24 –

Revenue, Gross Profit and Gross Profit Margin

During the Reporting Period, the Group generated a revenue of approximately RMB3.4 million from the sale of crushed stone, railway ballast and gabbro-diabase products (2014: approximately RMB1.3 million).

The Group recorded a gross profit of approximately RMB1.3 million (2014: approximately RMB0.2 million) and a gross margin of approximately 38.2% during the Reporting Period (2014: approximately 15.4%).

There was a slight improvement in business performance during FY 2015 as compared to last year as the Group had received initial favourable response from its customer for crushed stone and expanded the business network to the toll road contractor sector.

Cost of Sales

Cost of sales mainly comprised operating costs incurred in relation to staff, materials, power and other utilities, hauling expenses, subcontracting fees, repairs and maintenance, depreciation and amortisation.

The Group’s cost of sales for FY 2015 amounted to approximately RMB2.1 million from the production of crushed stone, railway ballast and gabbro-diabase products (2014: approximately RMB1.1 million), further details are set out in the section headed “Production Costs of the Yanjiazhuang Mine”.

Administrative Expenses

Administrative expenses decreased by 25.2% to approximately RMB38.3 million during the Reporting Period, as compared to approximately RMB51.2 million for the Corresponding Prior Period. Since the second half of 2014, the Group has put its effort to adopt various cost control measures and go through an organisational restructuring, which helped to mitigate the overall administrative expenses in FY 2015.

Finance (Expense)/Income

The Group recorded finance expense of approximately RMB6.6 million during the Reporting Period, as compared to finance income of approximately RMB5.2 million in 2014. The main reason for such change was the increase in net foreign exchange loss by approximately RMB15.6 million to RMB18.7 million in 2015. The foreign exchange loss was derived from the HKD denominated bank borrowings as a result of the depreciation of RMB against the HKD during the Reporting Period.

Income Tax Expense

The income tax expense represented the current period provision for the CIT calculated at the CIT rate applicable to the entities located in or deemed to be operating in Mainland China as determined in accordance with the relevant income tax rules and regulations of the PRC for both financial years.

No income tax was recognised for the Reporting Period as the Group made a loss during the year. During 2014, the effective tax rate was –1%, which was mainly attributable to the non-recognition of tax losses of the Group as deferred tax assets. It is considered that it is premature to recognise the deferred tax assets as at 31 December 2015 and 2014. Further details about the Group’s income tax are set out in note 6.

– 25 –

Property, Plant and Equipment

As at 31 December 2015, the Group’s property, plant and equipment had a net book value of approximately RMB710.4 million (2014: approximately RMB713.8 million), representing 52.6% (2014: 50.2%) of total assets of the Group. The increase mainly represented the construction of the second crushed stone and railway ballast production facility during the Reporting Period.

Inventories

As at 31 December 2015, the Group’s inventories amounted to approximately RMB13.9 million (2014: approximately RMB8.0 million). The increase of 73.8% represented the semi-finished and finished products of crushed stone and railway ballast processed at the Yanjiazhuang Mine during the Reporting Period.

Other Payables and Accruals

As at 31 December 2015, the Group’s balances of other payables and accruals were approximately RMB70.2 million (2014: approximately RMB61.1 million). The increase of 14.9% was mainly attributable to the fourth instalment of the gabbro-diabase resources fees which had remained unpaid, as further discussed in the section headed “Business Review: Gabbro-Diabase and Stone Business” and note 14.

Liquidity and Financial Resources

As at 31 December 2015, the Group’s cash and cash equivalents amounted to approximately RMB529.0 million (2014: approximately RMB600.7 million), of which 98.8% are denominated in RMB and 1.2% are denominated in HKD (2014: 99.5% denominated in RMB and 0.5% denominated in HKD), representing 39.1% (2014: 42.2%) of total assets of the Group. In addition, the Group’s restricted bank balances were approximately RMB1.2 million as at 31 December 2015 and 2014, further details of which are set out in “Contingent Liabilities” section.

The Group’s net cash position (calculated as cash and cash equivalents less total borrowings) was approximately RMB244.1 million (2014: approximately RMB285.1 million). The liquidity ratio (calculated as current assets divided by current liabilities) was approximately 1.6 as at 31 December 2015 (2014: approximately 1.7).

During the Reporting Period, the Group paid approximately RMB6.7 million for the settlement of the Group’s addition of items of property, plant and equipment (2014: approximately RMB24.8 million for the settlement of the Group’s addition of items of property, plant and equipment and intangible assets).

Capital Structure and Gearing Ratio

The Group calculates its net gearing ratio by dividing its net debt (calculated as total borrowings less cash and cash equivalents) by its total equity.

As at 31 December 2015, the total equity of the Group amounted to approximately RMB977.0 million (2014: approximately RMB1,022.6 million).

As the Group had net cash position of approximately RMB244.1 million and RMB285.1 million as at 31 December 2015 and 2014, respectively, it is therefore not considered to have any net gearing as at these dates.

– 26 –

Loans, Indebtedness and Maturity Date

As at 31 December 2015, the Group’s HKD denominated bank borrowings amounted to HK$340.0 million (equivalent to approximately RMB284.9 million) (2014: HK$400.0 million (equivalent to approximately RMB315.6 million)). The bank borrowings were all unsecured and carried interest at floating rates. Maturity of bank borrowings was subject to the banks’ overriding right of repayment on demand. As at 31 December 2015, no property, plant and equipment or leasehold land or land use rights were pledged by the Group.

Funding and Treasury Policy

The Group has a funding and treasury policy to monitor its funding requirements and perform on-going liquidity review. This approach takes into consideration the maturity of its financial instruments, financial assets and projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank borrowings.

Exposure to Fluctuations in Exchange Rates

Substantially all of the Group’s operation are located in the PRC with transactions denominated and settled in RMB, while all bank borrowings of the Group are interest-bearing and denominated in Hong Kong dollars. In light of the recent depreciation in RMB against Hong Kong dollars, to mitigate the risk of foreign exchange loss arising from the conversion of any of the Group’s RMB deposits into Hong Kong dollars for servicing its Hong Kong dollars borrowings, the Group will closely observe the market interest rate and RMB exchange rate and consider the rearrangement of its sources of financing where appropriate. Currently, the Group does not have a foreign currency hedging policy.

Since the second half of 2015, there had been increase in volatility of the exchange rate of RMB and thereby increasing the Group’s exposure to foreign currency fluctuation. As a result of the depreciation of RMB against the HKD during the Reporting Period, the Group’s net foreign exchange loss had increased by RMB15.6 million to RMB18.7 million. This recent movement in the exchange rate of RMB is not expected to pose significant risk on the liquidity and financial position of the Group.

Segment Information

For management purposes, the Group is organised into business units based on their products and services and has two reportable operating segments, the “Iron Concentrates” segment and the “Gabbro-Diabase and Stone” segment. The revenue of the Group was derived from the “Gabbro-Diabase and Stone” operating segment during both years. Further details of the Group’s segment results are set out in note 3.

Furthermore, as the Group’s revenue from the external customers and the majority of the Group’s non-current assets are located in the PRC in both years, no geographical information is presented.

Further discussion on segment information are set out in the sections headed “Market Overview” and “Business Review”.

– 27 –

Capital Commitments

The Group’s commitments for capital expenditure were approximately RMB61.6 million as at 31 December 2015 (2014: approximately RMB61.2 million). This represented commitments for property, plant and equipment. The sources of funding for capital expenditure include unutilised net proceeds from the IPO of the Company and internally generated funds.

Contingent Liabilities

Since March 2013, a subsidiary of the Group was involved in litigation as a defendant regarding construction sum payable arising out of the ordinary course of business of the Group. In May 2013, a local court in the PRC issued a verdict to freeze (i) two properties of the plaintiff and (ii) the bank accounts or other assets up to RMB36 million of the Company’s subsidiary, pending the outcome of the case. Consequently, certain bank accounts of such subsidiary with an aggregate balance of approximately RMB1.2 million were frozen by the local court as of 31 December 2015. In November 2013, the local court designated an independent firm of quantity surveyors (the “Surveying Company”) to assess the value of the construction work that had been completed by the plaintiff. In 2014, the Surveying Company has submitted the assessment to the local court, and court hearings were held in this respect in April 2015 and January 2016. Both parties have different views on the appraised results, and the court has been facilitating the negotiation between the parties in respect of the appraised results. Such subsidiary has also filed a counterclaim against the plaintiff regarding the quality issues of the completed construction work. Such counterclaim is currently pending the decision of the relevant court to assess the ratification costs of the completed construction work.

Based on the available information and the advice of the Group’s PRC legal counsels on the case, it is anticipated that the litigation would not have any material adverse impact to the financial position and operations of the Group.

Significant Investments, Acquisitions and Disposals

During the Reporting Period, the Group had no significant acquisitions and disposals.

The Group will continue to identify and evaluate opportunities for mergers and acquisitions and other investment opportunities in order to achieve sustainable development, and to diversify the Group’s business and its income stream in the long run.

– 28 –

Employees and Remuneration Policies

The Group

The Group Number of employees Type Production, sale and operation Management and administrative support Total	31 December 2015 142 Number of employees Approximate percentage to the total number of employees 99 70 43 30 142 100

As at 31 December 2015, the Group had a total of 142 (2014: 200) full-time employees in Hong Kong and Mainland China (excluding workers under the reward scheme based on production outputs and workers of the independent third-party contractors engaged in mining and hauling works). In the Reporting Period, the Group further adjusted its organisational structure for the purpose of making better alignment with its business development and changes. Certain employees had job rotation and adjustments while some of the employees had left the Group upon the expiry of their contracts or for other reasons. To cope with its business development, the Group has also filled up its job vacancy by recruitment of candidates with appropriate skills and experiences. As a result, the Group managed to reallocate its human resources with a gradual decrease in employee headcounts during the Reporting Period.

The Group formulates its human resources allocation and executes recruitment plans based on its development strategies. The remuneration packages of the employees are structured by reference to job nature (including geographical locations) and prevailing market conditions. The remuneration policy of the Group is subject to periodic review, and year-end bonuses and share options are available to reward employees in accordance with their individual performances and industry practice. Appropriate training programmes are also offered to ensure continuous staff training and development.

– 29 –

Use of Net Proceeds

The net proceeds raised from the IPO of the Company in 2011 amounted to approximately RMB1,052 million. As at 31 December 2015, the application of the net proceeds raised from the IPO of the Company is set out as below.

Three-phase expansion plan of the Yanjiazhuang Mine Payment of resource fees Development of the gabbro-diabase business Repayment of shareholders’ loans Working capital General working capital, acquisitions and financial management	Net proceeds from the Listing Revised use of proceeds Utilised Unutilised* RMB’million RMB’million RMB’million 368 154 214 95 – 95 173 91 82 105 105 – 32 32 – 279 183 96 1,052 565 487	Net proceeds from the Listing Revised use of proceeds Utilised Unutilised* RMB’million RMB’million RMB’million 368 154 214 95 – 95 173 91 82 105 105 – 32 32 – 279 183 96 1,052 565 487
		487

• In March 2014, the Board approved the change in application of the unutilised net proceeds raised from the IPO.

– 30 –

Outlook and Future Plans

Notwithstanding the local disputes and disturbances pertaining to the iron concentrate production at the Yanjiazhuang Mine and uncertainties surrounding the international and domestic economic environment and their challenges and obstacles to the Group’s business development, the management remains positive and keeps exploring different possibilities at the Yanjiazhuang Mine. The Group is progressively increasing its investment in the gabbro-diabase and stone business with a view to bringing this business to a commercial scale. In respect of crushed stone, railway ballast and gabbro-diabase products, the management will actively enlarge the Group’s customer base and markets through variety of product offering and consider expanding into other stone material markets in order to expand the scale of the gabbro-diabase and stone business in a steady and economically viable manner.

For the iron concentrate business, the Group will use its best efforts to maintain amicable communications with the local government and neighbouring villages so as to resolve the disputes over land expropriation and external problems hindering the iron concentrate production at the Yanjiazhuang Mine as soon as practicable, and with the aim to resume the production in a timely manner. Given the prevailing weak iron concentrate prices and that the impacts of various government policies have brought uncertainties to the iron concentrate business, the Group will endeavour to resolve the local issues and obtain the necessary consents from the Safety Authority and other production-related consents, priming for the resumption of the operation in an economically viable scale after resolving all these issues and as and when the market improves.

Regarding the permits, the tightening national requirements towards heavily polluting industries, such as mining, in recent years have posed greater difficulties to the Yanjiazhuang Mine in applying for and renewing its permits. Moreover, the government is exerting increased control over the issuance of permits. This, together with the adjustment of government policies, has caused delays in the approval and issuance of certain permits, including production safety permits, in relation to the Group’s operation at the Yanjiazhuang Mine. The Group will continue its communications with the relevant government authorities to facilitate the renewal and issuance of the production safety permits. In addition, the Group will pay close attention to the relevant requirements of the environmental protection, production safety and other government policies in the PRC concerning heavily polluting industries in order to arrange for the application and renewal of relevant permits at appropriate times and allow the Group to have a better understanding of their impacts on its business development.

Apart from the above businesses, the Group will cautiously explore mergers and acquisitions and other investment opportunities in order to achieve sustainable development, and to diversify the Group’s business and its income stream. In particular, given the uncertainties and challenges arising from the structural transformation of the PRC economy, the further tightening of the government policies on environmental protection, the elimination of excessive upstream capacity and oversupply of downstream production, the continual shortage of capital and tightening of fiscal policies of banks and financial institutions in the PRC, and the slowdown in the mining and iron ore industry and the PRC economic development in general, the Group will assess on an ongoing basis as to the respective impacts of these factors on the Group’s existing business, and will adopt necessary changes in the Group’s business and investment strategies so as to enable the Group to well adapt to the new environment.

– 31 –

CORPORATE GOVERNANCE PRACTICES

The Board strongly believes that corporate governance is an integral part of the Company’s mission in our pursuit of growth and value creation. The Board strives to attain and uphold a high standard of corporate governance and to maintain sound and well-established corporate governance practices for the interest of the Shareholders. During FY 2015, we adopted corporate governance principles that emphasise a quality Board, effective internal control systems, stringent disclosure practices, transparency and complete accountability towards all the stakeholders of the Company.

As part of the Company’s unwavering commitment to high standards of corporate governance, it has adopted all applicable Code Provisions and, where appropriate, Recommended Best Practices of the CG Code as set out in the Appendix 14 of the Listing Rules throughout the Reporting Period. So far as known to the Directors, there has been no material deviation from the CG Code during the Reporting Period, except for the Code Provisions A.6.7 and E.1.2 of the CG Code as set out hereunder.

Under the Code Provision A.6.7 of the CG Code, independent non-executive directors and other non-executive directors should attend AGMs and develop a balanced understanding of the views of shareholders. Due to other business engagements, two non-executive Directors were unable to attend the AGM held on 21 May 2015 (the “2015 AGM”).

Under the Code Provision E.1.2 of the CG Code, the chairman of the Board should attend the AGMs. Due to other business engagements, the chairman of the Board was unable to attend the 2015 AGM. A non-executive Director, who acted as the chairman of the 2015 AGM, together with other members of the Board who attended the meeting, were of sufficient calibre for answering questions at the 2015 AGM.

Following the retirement of Mr. Wu Wai Leung, Danny as an independent non-executive Director and, among others, a member of the audit committee of the Company (the “Audit Committee”) at the conclusion of the 2015 AGM, the Board comprised a total of two executive Directors, four non-executive Directors and two independent non-executive Directors, which fell below the minimum number of independent non-executive directors required under Rules 3.10(1) and 3.10A of the Listing Rules and fell below the minimum number of members of the Audit Committee required under its terms of reference and Rule 3.21 of the Listing Rules. Upon the appointment of Mr. Shin Yick, Fabian as an independent non-executive Director with effect from 14 August 2015, the Company has been in compliance with Rules 3.10(1), 3.10A and 3.21 of the Listing Rules.

The Company continues to enhance its corporate governance practices appropriate to the conduct and growth of its business, and to review and improve such practices from time to time to ensure that business activities and decision making processes are regulated in a proper and prudent manner in accordance with international best practices.

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code as set out in Appendix 10 of the Listing Rules as its own code of conduct for dealing in securities of the Company by the Directors.

Specific enquiry has been made of all the Directors and all of them have confirmed that they have complied with the required standards as set out in the Model Code throughout FY 2015.

– 32 –

The Company has also established written guidelines (the “Code for Securities Transactions by Relevant Employees”) on no less exacting terms than the Model Code for securities transactions by employees who are likely to be in possession of unpublished inside information of the Company. Each of the relevant employees has been given a copy of the Code for Securities Transactions by Relevant Employees.

The Company was not aware of any incident of non-compliance with the Code for Securities Transactions by Relevant Employees throughout FY 2015.

Formal notifications are sent by the Company to its Directors and relevant employees reminding them that they should not deal in the securities of the Company during the “black-out period” specified in the Model Code.

AUDIT COMMITTEE AND REVIEW OF ANNUAL RESULTS

The Audit Committee currently comprises three independent non-executive Directors, including Mr. Tsui King Fai (Chairman of the Audit Committee), who possesses the appropriate professional qualification or accounting or related financial management expertise, Mr. Lee Kwan Hung and Mr. Shin Yick, Fabian. None of the members of the Audit Committee is a former partner of the Company’s existing external auditors. The specific written terms of reference of the Audit Committee are available on the websites of the Company and the Hong Kong Exchange and Clearing Limited. The principal duties of the Audit Committee include the review and supervision of the Group’s financial reporting process and internal controls. The Audit Committee has in conjunction with management reviewed the accounting principles and practices adopted by the Group and discussed internal controls and financial reporting matters including a review of the annual results and the audited consolidated financial statements of the Group for FY 2015 and the auditors’ report thereon.

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

During FY 2015, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any listed securities of the Company.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Monday, 16 May 2016 to Thursday, 19 May 2016 (both days inclusive), during which no transfer of the Shares will be registered. In order to be eligible to attend and vote at the forthcoming AGM, all transfer of the Shares accompanied by the relevant properly completed transfer forms and the relevant share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not later than 4:30 p.m. on Friday, 13 May 2016.

ANNUAL GENERAL MEETING

The AGM for FY 2015 is scheduled to be held on Thursday, 19 May 2016. A notice convening the AGM will be issued and disseminated to the Shareholders in due course.

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PROPOSED AMENDMENTS TO THE MEMORANDUM AND ARTICLES OF ASSOCIATION AND ADOPTION OF NEW MEMORANDUM AND ARTICLES OF ASSOCIATION

The Board proposes to make certain amendments to the Memorandum and Articles for, among others, conforming with the latest amendments to the Listing Rules and the Companies Ordinance, and the administrative efficiency and housekeeping purposes. The Directors propose to seek the approval of Shareholders by way of special resolution (“Special Resolution”) at the 2016 AGM to adopt a new set of Memorandum and Articles to replace the existing Memorandum and Articles. Full text of the Special Resolution will be contained in the notice of the 2016 AGM. A circular containing, inter alia, the amendments to the memorandum and article of association of the Company, together with the notice of the 2016 AGM, will be despatched to Shareholders in due course.

PUBLICATION OF ANNUAL RESULTS ANNOUNCEMENT AND ANNUAL REPORT

This results announcement is published on the websites of the Hong Kong Exchanges and Clearing Limited and the Company. The annual report 2015 will be despatched to the Shareholders and published on the above websites in due course.

GLOSSARY OF TERMS

In this announcement, unless the context otherwise requires, the following expressions have the meanings as mentioned below:

“AGM” an annual general meeting of the Company “Articles” the articles of association of the Company “Board” the board of Directors “CG Code” the Corporate Governance Code contained in Appendix 14 of the Listing Rules “Company” Newton Resources Ltd, a company incorporated in the Cayman Islands with limited liability, and the shares of which are listed on the main board of the Stock Exchange “Companies Ordinance” Companies Ordinance (Chapter 622 of the Laws of Hong Kong) “Director(s)” the director(s) of the Company “FY 2014” or the financial year ended 31 December 2014 “Corresponding Prior Period” “FY 2015” or the financial year ended 31 December 2015 “Reporting Period”

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“Group”	the Company and its subsidiaries
“HK$” or “HKD”	Hong Kong dollar, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“IPO”	the initial public offering of the Shares which were listed on the main board
	of the Stock Exchange on 4 July 2011
“JORC”	the Joint Ore Reserves Committee of the Australasian Institute of Mining
	and Metallurgy
“JORC Code”	the Australasian Code for Reporting of Exploration Results, Mineral
	Resources and Ore Reserves (2004 edition), as published by the JORC, as
	amended from time to time;
“Listing”	the listing of the Shares on the main board of the Stock Exchange on 4 July
	2011
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Memorandum and Articles”	the memorandum and articles of association of the Company
“Model Code”	the Model Code for Securities Transactions by Directors of Listed Issuers
	contained in Appendix 10 of the Listing Rules
“Phase Two”	the second phase of the Company’s three-phase expansion plan, to achieve
	total mining and ore processing capacities of 7,000,000 tpa to produce
	approximately 1,770,000 tpa of iron concentrates
“Phase Three”	the third phase of the Company’s three-phase expansion plan, to achieve
	total mining and ore processing capacities of 10,500,000 tpa to produce
	approximately 2,655,000 tpa of iron concentrates
“PRC” or “Mainland China”	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
“RMB”	Renminbi, the lawful currency of the PRC
“Safety Authority”	the relevant government authority for the granting of production safety
	permit(s) for iron mining and gabbro-diabase products
“Share(s)”	existing ordinary share(s) of HK$0.10 each in the share capital of the
	Company

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“Shareholder(s)” holder(s) of issued Share(s)

“Stock Exchange” The Stock Exchange of Hong Kong Limited “tonne(s)” equal to 1,000 kilograms “tpa” tonne(s) per annum “Yanjiazhuang Mine” Lincheng Xingye Mineral Resources Co., Ltd Yanjiazhuang Mine（臨城 興業礦產資源有限公司閆家莊礦）, an iron ore and gabbro-diabase mine located in Yanjiazhuang Mining Area, Shiwopu, Haozhuang Town, Lincheng County, Hebei Province, the PRC

By Order of the Board Newton Resources Ltd Cheng Kar Shun Chairman and Non-Executive Director

Hong Kong, 23 March 2016

As at the date of this announcement, the executive Directors are Mr. Li Changfa and Mr. Luk Yue Kan; the non-executive Directors are Dr. Cheng Kar Shun, Mr. Hui Hon Chung, Mr. Cheng Chi Ming, Brian and Mr. Wu Wai Leung, Danny; and the independent non-executive Directors are Mr. Tsui King Fai, Mr. Lee Kwan Hung and Mr. Shin Yick, Fabian.

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