Newton Resources Ltd — Interim / Quarterly Report 2015

Aug 26, 2015

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)

INTERIM RESULTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2015

The Board wishes to announce the unaudited consolidated interim results of the Group for the Reporting Period together with the comparative figures for the Corresponding Prior Period as follows:–

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Six-month period ended 30 June 2015

Notes Revenue 3 Cost of sales Gross Profit Administrative expenses Finance income/(expenses), net 5 Loss from operations Equity-settled share option expense Loss before tax 4 Income tax expense 6 Loss for the period Total comprehensive loss for the period 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

Six-month period ended 30 June 2015 2014 RMB’000 RMB’000 (Unaudited) (Unaudited) – – – – – – (16,824) (26,527) 6,686 (1,068) (10,138) (27,595) – (203) (10,138) (27,798) – (422) (10,138) (28,220) (10,138) (28,220) (10,013) (28,073) (125) (147) (10,138) (28,220) (0.25) (0.70)

– 1 –

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 30 June 2015

Notes Non-current assets Property, plant and equipment Intangible assets Prepaid land lease payments Current assets Inventories 10 Prepayments, deposits and other receivables Cash and bank balances Current liabilities Trade payables 11 Other payables and accruals 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	30 June 2015 RMB’000 (Unaudited) 711,177 49,965 3,357 764,499 12,839 46,373 566,019 625,231 693 62,110 291,782 7,634 362,219 263,012 1,027,511 15,000 1,012,511 331,960 678,309 1,010,269 2,242 1,012,511	31 December 2014 RMB’000 (Audited) 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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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 period, 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. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of Preparation

The unaudited condensed consolidated interim financial information of the Group for the six-month period ended 30 June 2015 (the “Interim Financial Information”) have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting issued by the International Accounting Standards Board and the disclosure requirements of Appendix 16 of the Listing Rules.

The Interim Financial Information does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements for the year ended 31 December 2014.

2.2 Significant Accounting Policies

The accounting policies adopted in the preparation of the Interim Financial Information are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2014, except for the adoption of the following amendment and improvements to existing International Financial Reporting Standards (“IFRSs”), that are relevant and first effective for the current accounting period of the Company, as summarised below:

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

The adoption of the above amendment and improvements to IFRSs did not have any significant effect on the amounts reported and/or disclosures set out in the Interim Financial Information.

The Group has not early adopted any other accounting standard, interpretation or amendment that has been issued but is not yet effective.

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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” segment.

Iron Concentrates – mining, processing and sale of iron concentrates

Gabbro-Diabase – mining, processing and sale of gabbro-diabase and stones 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.

The following tables present revenue and results information for the Group’s operating segments for the sixmonth periods ended 30 June 2015 and 2014, respectively:

Six-month period ended 30 June 2015 (Unaudited) Segment Revenue: Sales to external customers Segment Results Reconciliation: Interest income Corporate and other unallocated expenses Interest expenses Loss before tax 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 – (4,208) – 4,208 –	Gabbro- Diabase RMB’000 – (1,655) 108 758 2,364	Total RMB’000 – (5,863) 11,737 (11,534) (4,478) (10,138) 108 4,966 269 5,235 2,364 128 2,492

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Iron	Gabbro-
Concentrates	Diabase	Total
RMB’000	RMB’000	RMB’000

Six-month period ended 30 June 2014 (Unaudited)
Segment Revenue:
Sales to external customers	–	–	–
Segment Results	(5,863)	(499)	(6,362)
Reconciliation:
Interest income			8,885
Corporate and other unallocated expenses			(25,525)
Interest expenses			(4,796)
Loss before tax			(27,798)
Other segment information:
Depreciation and amortisation	4,136	391	4,527
Corporate and other unallocated depreciation			415
			4,942
Capital expenditure	2,153	6,984	9,137
The following table presents assets and liabilities information for the Group’s		operating segments as at 30 June
2015 and 31 December 2014, respectively:
	Iron	Gabbro-
	Concentrates	Diabase	Total
	RMB’000	RMB’000	RMB’000
30 June 2015 (Unaudited)
Segment assets	681,143	114,317	795,460
Corporate and other unallocated assets			594,270
Total assets			1,389,730
Segment liabilities	39,413	30,069	69,482
Corporate and other unallocated liabilities			307,737
Total liabilities			377,219
31 December 2014 (Audited)
Segment assets	684,587	107,742	792,329
Corporate and other unallocated assets			629,975
Total assets			1,422,304
Segment liabilities	41,943	26,807	68,750
Corporate and other unallocated liabilities			330,905
Total liabilities			399,655

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Geographical segment

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

4. LOSS BEFORE TAX

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

	Six-month period	Six-month period
	ended 30 June
	2015	2014
	RMB’000	RMB’000
	(Unaudited)	(Unaudited)
Depreciation of items of property, plant and equipment	5,150	4,891
Amortisation of prepaid land lease payments	51	51
Amortisation of intangible assets	34	–
Write-down of inventories to net realisable value	108	–

5. FINANCE INCOME/(EXPENSE)

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

Interest income Interest on bank borrowings Other borrowing costs Net foreign exchange losses Bank charges Finance income/(expense), net	Six-month period ended 30 June 2015 2014 RMB’000 RMB’000 (Unaudited) (Unaudited) 11,737 8,885 (3,823) (3,923) (655) (873) (402) (4,993) (171) (164) 6,686 (1,068)	Six-month period ended 30 June 2015 2014 RMB’000 RMB’000 (Unaudited) (Unaudited) 11,737 8,885 (3,823) (3,923) (655) (873) (402) (4,993) (171) (164) 6,686 (1,068)
		(1,068)

6. INCOME TAX

The provision for the 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 six-month periods ended 30 June 2015 and 2014.

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No provision for Hong Kong profits tax had been made as the Group had no estimated assessable profits arising in Hong Kong during the six-month periods ended 30 June 2015 and 2014.

Current tax – Mainland China Charge for the period	Six-month period ended 30 June 2015 2014 RMB’000 RMB’000 (Unaudited) (Unaudited) – 422

The Group has unrecognised tax losses arising from entity operating in Mainland China of RMB90,616,000 (sixmonth period ended 30 June 2014: RMB62,324,000) that will expire in five years for offsetting against future taxable profits. Deferred tax assets have not been recognised in respect of these losses as it is considered not probable that sufficient taxable profits will be available against which the unused tax losses can be utilised by the Group.

7. DIVIDEND

The directors do not recommend the payment of an interim dividend to Shareholders for the six-month period ended 30 June 2015 (six-month period ended 30 June 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 period attributable to owners of the Company, and the weighted average number of ordinary shares of 4,000,000,000 in issue during the periods ended 30 June 2015 and 2014.

The calculation of basic and diluted loss per share is 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 period used in the basic and diluted loss per share calculation	Six-month period ended 30 June 2015 2014 RMB’000 RMB’000 (Unaudited) (Unaudited) (10,013) (28,073) ’000 ’000 4,000,000 4,000,000	Six-month period ended 30 June 2015 2014 RMB’000 RMB’000 (Unaudited) (Unaudited) (10,013) (28,073) ’000 ’000 4,000,000 4,000,000
		’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 six-month periods ended 30 June 2015 and 2014 and were ignored in the calculation of diluted loss per share.

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9. CREDIT POLICY

The Group trades only with recognised and creditworthy third parties, and generally requires deposits received in advance.

10. INVENTORIES

Raw materials and spare parts Semi-finished products Finished products Inventory provision	30 June 2015 RMB’000 (Unaudited) 3,805 3,172 6,777 13,754 (915) 12,839	31 December 2014 RMB’000 (Audited) 3,979 – 4,797 8,776 (807) 7,969

11. TRADE PAYABLES

An aged analysis of the Group’s trade payables as at the end of the reporting period, based on the invoice date, is as follows:

Within 6 months 6 months to 1 year Over 1 year	30 June 2015 RMB’000 (Unaudited) 476 – 217 693	31 December 2014 RMB’000 (Audited) 144 45 172 361

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12. CONTINGENT LIABILITIES

• (a) 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 Group’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 30 June 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 a court hearing was held in this respect in April 2015. Both parties have different perspective on the appraised results, and the court is 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.

• (b) In 2014, a subsidiary of the Group was involved in litigation as a defendant in respect of the costs and damages arising out of the ordinary course of business of the Group. The Group has successfully defended the case in the first hearing. The plaintiff has filed an appeal to the court in November 2014. During the Reporting Period, the Group and the plaintiff reached a settlement agreement and the plaintiff applied to the court to withdraw the prosecution, which has been agreed by the court.

13. EVENT AFTER THE REPORTING PERIOD

Subsequent to 30 June 2015, there has been increase in volatility of the exchange rate of RMB, which resulted in an adverse movement in the exchange rate of HKD against RMB. Based on the information available, the Group would recognise further exchange loss from the HKD denominated bank borrowings, which approximate to RMB15.0 million, with a corresponding increase in the Group’s interest-bearing bank borrowings.

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CHAIRMAN’S STATEMENT

In the first half of 2015, the Group kept exploring different possibilities, including the gabbro-diabase and crushed stone processing operation, which gave fresh impetus to the Group and targets to create favourable conditions at the Yanjiazhuang Mine for its future growth. However, the trial production of iron concentrates at the Yanjiazhuang Mine has not yet resumed.

The management is making every possible effort to resolve the issues with the villages and local government as soon as practicable with the aim of resuming the iron concentrate production in a timely and smooth manner and under an economically viable scale after resolving the local issues and obtaining the necessary consents.

In the first half of 2015, the economic growth in the PRC has been slowing down. Further, with the ongoing environmental and pollution concerns expressed by the PRC government, the persisting oversupply of iron ores and the weak iron concentrate prices, the market environment has posed uncertainties over the development of the Group’s iron concentrate business.

The growing concern of the PRC government about, and the importance attached by the PRC government to, environmental protection in Mainland China, especially in Beijing and Hebei Province, could prompt it to further tighten environmental protection policies towards heavily polluting industries. To cope with the potential impacts of such policies on our businesses, I have instructed our management to keep abreast of the latest regulatory requirements and changes and adopt appropriate environmental and other measures from time to time.

Going forward, I believe that the business development of the Yanjiazhuang Mine will continue to be full of challenges under the current operating environment. The Group targets to further expand the infrastructure investment to bring the new gabbro-diabase business to a commercial scale after the pilot products have tested the market. Apart from the above businesses, the Group will cautiously explore mergers and acquisitions opportunities to achieve sustainable development.

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 the first half of 2015, the growth rate of the PRC’s gross domestic product was 7%, which was slightly lower than that for last year, signaling a slip in domestic economic growth. International iron ore prices have continued to slide in tandem with a drop in market demand for iron ores due to the persisting oversupply in the international iron ore market and the impact of a slowdown in steel production in Mainland China.

Apart from that, the oversupply of iron ores in the domestic market in 2014 continued through the first half of 2015. Iron ore prices continued to sink and remained fluctuate. 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. Furthermore, steel production output in Mainland China is expected to slow down further and the adjustments brought by the oversupply of iron ores will continue for an extended period, given that the PRC government will further implement measures to optimise the economic structure and restrict or even shut down heavily polluting steel mills with low technology level.

Moreover, in view of the heavy pollution problem in Beijing and its neighbouring areas and the implementation of the new Environmental Protection Law in 2015 by the PRC government, it could be anticipated that environmental policies towards heavily polluting industries, such as mining in Hebei Province, will be further tightened, which might adversely affect our iron concentrate business at the Yanjiazhuang Mine.

Gabbro-diabase is a kind of high-end granite stone building materials used by the construction industry and has quality advantages over other stone materials. However, the property market, particularly the domestic market, takes a conservative approach since the economic growth in China declined further during the first half of 2015. As a result, demand for building materials such as gabbro-diabase and crushed stones saw a decreasing trend. Nonetheless, there are still favourable market factors amid the weakening sentiment. In view of the active implementation of the “One Belt, One Road” initiative and other economic stimuli by the central government, future demand for iron ores and construction-related materials is expected to recover.

BUSINESS REVIEW

During the Reporting Period, the Group kept exploring different possibilities, including the gabbro-diabase and crushed stone business. Through the management’s extensive efforts, such as investing in the gabbrodiabase and crushed stone business at the Yanjiazhuang Mine, exploring employment arrangement with local villagers and carrying out studies on possible ways to recruit more villagers, the Group is expecting to build a closer relationship with the local community so as to expedite the land expropriation process. Looking ahead, the management will focus on pushing forward the sale of gabbro-diabase and crushed stones in order to create new cash flow for the Group. Despite the modest progress of investment in the gabbro-diabase and crushed stone business, disputes over land expropriation and local problems have not been fully resolved, thereby preventing the Group from resuming the trial production of iron concentrates at the Yanjiazhuang Mine.

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Iron Concentrate Business

During the first half of 2015, disturbances caused by neighbouring villages and their inhabitants to our mine site have been mitigated to a certain extent through the mediation by local government authorities and village representatives. However, disputes over land expropriation and external problems have not been fully resolved, and the trial production of iron concentrates at the Yanjiazhuang Mine has yet to be resumed.

Following the recruitment of talents who are experienced in local affairs to join the management team in 2014, the Yanjiazhuang Mine has gradually established mutual trust and understanding with the neighbouring villages. In addition, the Yanjiazhuang Mine has recruited local villagers to produce crushed stones and gabbro-diabase products in order to create job opportunities for, as well as foster a closer relationship with, the neighbouring areas. This creates the necessary conditions for our next move to resolve the land expropriation issues that have long plagued the Yanjiazhuang Mine.

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 confirmed the Group’s production safety qualification after conducting on-site inspection and assessment. The Group is actively following up on the progress of the permit application and issuance. However, given the deep national concern over pollution, the government authorities would require time to coordinate and arrange the issuance of the permit, and the timing for the Group to obtain the permit could not be reliably anticipated. Furthermore, under the current international and domestic economic conditions, iron concentrate prices remained weak during the Reporting Period which have presented uncertainties over the future development of the Group’s iron concentrate business.

The Group aims to resume the operation in a timely and smooth manner and under an economically viable scale after resolving the local issues and obtaining the necessary consents from the Safety Authority and other production related consents. 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 expansion plans of the Yanjiazhuang Mine were 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”.

Gabbro-Diabase Business

During the Reporting Period, the Group has been proactively developing the gabbro-diabase business with a view to creating new cash flow from this new business segment. The Yanjiazhuang Mine has gradually commenced the production of crushed stones and decorative slabs in 2014. During the Reporting Period, approximately 30,000 tonnes of crushed stone products were processed for sale to toll road operators after the pilot products have tested the market. Meanwhile, the Yanjiazhuang Mine was also evaluating the feasibility of selling, and has made preparation for the production of, ballast as high-speed railway paving. During the Reporting Period, the Group did not sell any crushed stones or gabbro-diabase products.

– 12 –

Due to the development of nearby highway infrastructure, demand for crushed stones for highway paving has increased drastically. In order to seize this market opportunity and lay a groundwork for its gabbro-diabase business, the Yanjiazhuang Mine has completed the construction of the new production facility and installed certain mining and processing equipment last year for the production of crushed stones and decorative slabs. During the Reporting Period, to diversify the Group’s crushed stone offerings, satisfy the needs of the market and the customers, and expand its crushed stone production capacity, the Group commenced the construction of the second crushed stone production facility at the Yanjiazhuang Mine, which is expected to commence testing in the second half of 2015. Apart from crushed stone processing, the management continued to study the possibility of developing other gabbro-diabase products expanding into other markets. The Group expects to move on to commercial production as soon as its technique and products are accepted by the customers.

Through the scheme to award employees based on their production outputs, the Yanjiazhuang Mine has recruited more local labour force in its processing operation. It offers income source to, and an opportunity for the Yanjiazhuang Mine to further improve its relationship with, local villagers. To explore the gabbro-diabase and crushed stone business, the Yanjiazhuang Mine has also recruited talented sales professionals to expand its local sales team in order to accelerate the establishment of its sales network and customer base. In addition, it conducted exchanges in various aspects with its industry peers with the aim of boosting the productivity and profitability of the gabbro-diabase and crushed stone business.

Following the environmental protection and emission-reducing trends and aiming to build an environmental friendly mine, the Yanjiazhuang Mine has installed environmental protection equipment at the crushed stone production lines and other gabbro-diabase production sites with a view to mitigating the impact of the production process on the neighbouring areas. The Group places a high priority on production safety in respect of its new gabbro-diabase business and makes every effort to provide its staff with a safe working environment.

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. The representatives from the Safety Authority have confirmed the Group’s production safety qualification for gabbro-diabase products after conducting on-site inspection and assessment. However, given the growing national concern over pollution, the government authorities would require time to coordinate and arrange the issuance of the permit. The Group is actively following up on the progress of the permit application and issuance, which however are not within its control.

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

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CAPITAL EXPENDITURE AND INFRASTRUCTURE DEVELOPMENT

During the Reporting Period, the Group incurred capital expenditure amounting to approximately RMB2.5 million, mainly on the construction of the second crushed stone production facility, acquisition of certain mining and processing equipment for gabbro-diabase production and the payments on additions to other facilities at corporate office.

Iron Concentrate Business

Due to the land expropriation disputes and the disturbances around, the relevant 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 note (a) of 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 six-month periods ended 30 June 2015 and 2014 are indicated below:

Construction costs Equipment and others Total	Six-month period ended 30 June 2015 2014 RMB’million RMB’million (Unaudited) (Unaudited) – 2.0 – 0.2 – 2.2	Six-month period ended 30 June 2015 2014 RMB’million RMB’million (Unaudited) (Unaudited) – 2.0 – 0.2 – 2.2
		2.2

During the Reporting Period, there is 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 (Nil for Corresponding Prior Period).

It is expected that when the iron concentrate production at the Yanjiazhuang Mine is 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.

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Gabbro-Diabase Business

During the Reporting Period, the Group is constructing the second crushed stone production facility and acquisition of certain mining and processing equipment for the production of decorative slabs.

Capital expenditure of the gabbro-diabase business during the six-month periods ended 30 June 2015 and 2014 are indicated below:

Construction costs Equipment and others Total	Six-month period ended 30 June 2015 2014 RMB’million RMB’million (Unaudited) (Unaudited) 1.3 4.9 1.1 2.0 2.4 6.9	Six-month period ended 30 June 2015 2014 RMB’million RMB’million (Unaudited) (Unaudited) 1.3 4.9 1.1 2.0 2.4 6.9
		6.9

During the Reporting Period, the new contracts and commitments entered into by the Group for gabbrodiabase business including those related to infrastructure projects (road and railway), subcontracting agreements and purchases of equipment amounted to approximately RMB3.0 million (approximately RMB4.2 million for the Corresponding Prior Period).

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 Reporting Period, the Group’s iron concentrate production has yet to resume and therefore no production cost of iron concentrates was recorded (Nil for the Corresponding Prior Period).

Gabbro-Diabase Business

During the Reporting Period, the Group did not generate any revenue from gabbro-diabase business and therefore no production cost has been recognised as the cost of sales (Nil for the Corresponding Prior Period).

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Iron Ore Resource and Reserve Estimates

During the Reporting Period, the Group has yet to resume its production of iron concentrates at the Yanjiazhuang Mine and there were no significant changes in the Group’s mineral resources and ore reserves prepared under the JORC Code as at 30 June 2015 as compared to those disclosed in the annual report 2014 of the Company.

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 the tendency of these government policies, and timely start the renewal application process for the mining permit of the Group’s Yanjiazhuang Mine.

Gabbro-Diabase Resource Estimates

During the Reporting Period, the Group conducted very limited scale of mining activities at the Yanjiazhuang Mine, and the gabbro-diabase ore resources was largely the same as those disclosed in the annual report 2014 of the Company.

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 the tendency of these government policies, and timely start the renewal application process for the mining permit of the Group’s Yanjiazhuang Mine.

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 had 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 the Reporting Period, 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 government will tighten the relevant environmental policies over resources mining, steelmaking, cement production and other high-pollution industries. To cope with the potential policy impact on its business, the Group will keep abreast of the latest regulatory requirements and adopt appropriate environmental measures from time to time to facilitate its operation and production at the Yanjiazhuang Mine.

INTERIM DIVIDEND

The Board does not recommend the payment of an interim dividend for the Reporting Period (Nil for the Corresponding Prior Period).

– 16 –

FINANCIAL REVIEW

During the Reporting Period, approximately 30,000 tonnes of crushed stone products were processed and preparations for the production of ballast have also been made at the Yanjiazhuang Mine. During the Reporting Period, the Group did not sell any crushed stones or gabbro-diabase products (Nil for the Corresponding Prior Period).

The Group had not resumed the trial production and sale of iron concentrates during the Reporting Period (Nil for the Corresponding Prior Period).

The net loss for the Reporting Period was approximately RMB10.1 million (approximately RMB28.2 million for the Corresponding Prior Period). The loss attributable to owners of the Company amounted to approximately RMB10.0 million (approximately RMB28.1 million for the Corresponding Prior Period). The basic and diluted loss per share for the Reporting Period was approximately RMB0.25 cent (approximately RMB0.70 cent for the Corresponding Prior Period).

The decrease in net loss was mainly attributed to 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, and the stabilised foreign exchange movements resulting in a reduced exchange loss for the Reporting Period as compared to the Corresponding Prior Period.

Revenue and Gross Profit

During the Reporting Period, the Group did not sell any crushed stones or gabbro-diabase products (Nil for the Corresponding Prior Period).

The Group had not resumed the trial production and sale of iron concentrates during the Reporting Period (Nil for the Corresponding Prior Period).

Administrative Expenses

Administrative expenses decreased by 36.6% to approximately RMB16.8 million during the Reporting Period, as compared to approximately RMB26.5 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 administrative expenses.

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Finance Income/(Expense)

The Group recorded finance income of approximately RMB6.7 million during the Reporting Period, as compared to finance expenses of approximately RMB1.1 million for the Corresponding Prior Period. The main reasons for such change were the reduction in exchange loss derived mainly from the HKD denominated bank borrowings as a result of the stabilised foreign exchange movements and the increase in interest income from time deposits.

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 the both periods.

No income tax was recognised during the Reporting Period. During the Corresponding Prior Period, the effective tax rate was -1.5%, 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 30 June 2015.

Property, Plant and Equipment

As at 30 June 2015, the Group’s property, plant and equipment had a net book value of approximately RMB711.2 million (approximately RMB713.8 million as at 31 December 2014), representing 51.2% (50.2% as at 31 December 2014) of total assets of the Group. The increase was mainly attributable to the construction of the second crushed stone production facility, acquisition of certain mining and processing equipment for gabbro-diabase production and the payments on additions to other facilities at corporate office during the Reporting Period.

Inventories

As at 30 June 2015, the Group’s inventories amounted to approximately RMB12.8 million (approximately RMB8.0 million as at 31 December 2014). The 60% increase was a result of the production of crushed stones and the preparation for the production of ballast at the Yanjiazhuang Mine during the Reporting Period.

LIQUIDITY AND FINANCIAL RESOURCES

As at 30 June 2015, the Group’s cash and cash equivalents amounted to approximately RMB564.8 million (approximately RMB600.7 million as at 31 December 2014), of which 99.2% denominated in RMB and 0.8% denominated in HKD (99.5% denominated in RMB and 0.5% denominated in HKD as at 31 December 2014), representing 40.6% (42.2% as at 31 December 2014) of total assets of the Group. In addition, the Group’s restricted bank balances were approximately RMB1.2 million as at 30 June 2015 and 31 December 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 RMB273.0 million (approximately RMB285.1 million as at 31 December 2014). The liquidity ratio (calculated as current assets divided by current liabilities) was approximately 1.7 as at 30 June 2015 and 31 December 2014.

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During the Reporting Period, the Group paid approximately RMB4.3 million (approximately RMB13.6 million for the Corresponding Prior Period) for the settlement of the Group’s addition of items of property, plant and equipment and intangible assets.

CAPITAL STRUCTURE AND GEARING RATIO

Gearing ratio of the Group is calculated by dividing its net debt (calculated as total borrowings less cash and cash equivalents) by its total equity.

As at 30 June 2015, the total equity of the Group amounted to approximately RMB1,012.5 million (approximately RMB1,022.6 million as at 31 December 2014).

As the Group had net cash position of approximately RMB273.0 million and RMB285.1 million as at 30 June 2015 and 31 December 2014, respectively, it is therefore not considered to have any gearing as at these dates.

LOANS, INDEBTEDNESS AND MATURITY DATE

As at 30 June 2015, the Group’s HKD denominated bank borrowings amounted to HK$370.0 million (equivalent to approximately RMB291.8 million) (As at 31 December 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 30 June 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 of 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

The Group’s businesses are located in the PRC and most of the transactions are conducted in RMB. Except for the Group’s HKD denominated bank borrowings and certain cash and bank balances, the majority of the Group’s assets and liabilities are denominated in RMB. Therefore, the Group currently does not have a foreign currency hedging policy.

As of 30 June 2015, certain cash and bank balances were denominated in HKD and USD and the bank borrowings were denominated in HKD. Attributed to the stabilised foreign currency movements of HKD against RMB during the Reporting Period, the Group recognised a reduced exchange loss of approximately RMB0.4 million from the HKD denominated bank borrowings (approximately RMB5.0 million for the Corresponding Prior Period). Subsequent to 30 June 2015, there has been increase in volatility of the exchange rate of RMB and thereby increasing the Group’s exposure to foreign currency fluctuation. The Group will continue to monitor its foreign currency risk by closely observing the movement in the foreign currency exchange rates, and the recent movement in the exchange rate of RMB is not expected to pose significant risk on the liquidity and financial position of the Group.

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CAPITAL COMMITMENTS

At the end of the Reporting Period, the capital commitments of the Group were detailed as below:

Contracted, but not provided for: – Property, plant and equipment Authorised, but not contracted for: – Property, plant and equipment – Resource fees Total	30 June 2015 RMB’000 (Unaudited) 61,725 381,416 500,000 881,416 943,141	31 December 2014 RMB’000 (Audited) 61,210
		384,423 500,000
		884,423
		945,633

CONTINGENT LIABILITIES

• (a) 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 Group’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 30 June 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 a court hearing was held in this respect in April 2015. Both parties have different perspective on the appraised results, and the court is 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.

• (b) In 2014, a subsidiary of the Group was involved in litigation as a defendant in respect of the costs and damages arising out of the ordinary course of business of the Group. The Group has successfully defended the case in the first hearing. The plaintiff has filed an appeal to the court in November 2014. During the Reporting Period, the Group and the plaintiff reached a settlement agreement and the plaintiff applied to the court to withdraw the prosecution, which has been agreed by the court.

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EVENT AFTER THE REPORTING PERIOD

Subsequent to 30 June 2015, there has been increase in volatility of the exchange rate of RMB, which resulted in an adverse movement in the exchange rate of HKD against RMB. Based on the information available, the Group would recognise further exchange loss from the HKD denominated bank borrowings, which approximate to RMB15.0 million, with a corresponding increase in the Group’s interest-bearing bank borrowings.

The exchange loss may have a substantial negative impact to the results of the Group for the year ending 31 December 2015.

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 in order to achieve sustainable development in the long run.

EMPLOYEES AND REMUNERATION POLICIES

The Group Number of employees Type Production, sale and operation Management and administrative support Total	Number of employees 89 85 174	30 June 2015 174 Approximate percentage to the total number of employees 51 49 100

As at 30 June 2015, the Group had a total of 174 (as at 31 December 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. As a result, the Group managed to reallocate its human resources and the number of full-time employees decreased 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.

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USE OF NET PROCEEDS

The net proceeds raised from the Listing of the Company amounted to approximately RMB1,052 million. As at 30 June 2015, the application of the net proceeds raised from the Listing of the Company is set out as below.

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 87 86 105 105 – 32 32 – 279 127 152 1,052 505 547
		547

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

OUTLOOK AND FUTURE PLANS

Notwithstanding the local issues 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 business with a view to bringing this new business segment to a commercial scale. In respect of crushed stones and gabbro-diabase products, the management will actively develop new products and consider expanding into other markets in order to acquire more experience in production and sale and enlarge its customer base so as to expand the scale of the gabbrodiabase 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 to resume the production in a timely manner. However, the Group noticed that the weak iron concentrate prices and the impacts of various government policies have brought uncertainties to the iron concentrate business. The Group looks forward to resuming the operation in a timely and smooth manner and under an economically viable scale after resolving the local issues and obtaining the necessary consents from the Safety Authority and other production related consents.

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 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 opportunities in order to achieve sustainable development.

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CORPORATE GOVERNANCE PRACTICES

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 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 noted 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 ceased to be a member of 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 complied 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.

During the Reporting Period, the Company did not have a chief executive officer and the function is divided among the executive Directors.

Further information of the Company’s corporate governance practices can be found in the “Corporate Governance” section under “Investor Relations” on the Company’s website.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code as its own code of conduct regarding Directors’ securities transactions. Having made specific enquiry with all Directors, the Directors have confirmed their compliance with the required standard set out in the Model Code during the Reporting Period.

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AUDIT COMMITTEE

The Audit Committee was established in accordance with requirements of the Listing Rules for the purpose of reviewing and providing supervision over the Group’s financial reporting process and internal controls. All of the Audit Committee members are appointed from the three independent non-executive Directors, namely Mr. Tsui King Fai (chairman), Mr. Lee Kwan Hung and Mr. Shin Yick, Fabian, having appropriate professional qualifications, including membership of the Hong Kong Institute of Certified Public Accountants, and experience in legal, business, investment and financial matters. The Audit Committee has reviewed with the management of the Company the unaudited condensed consolidated interim financial information of the Group for the Reporting Period, the accounting principles and practices adopted by the Group, and discussed internal controls and financial reporting matters. In addition, the Company’s auditors, Messrs. Ernst & Young has reviewed the unaudited condensed consolidated interim financial information of the Group for the Reporting Period.

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

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

PUBLICATION OF INTERIM RESULTS AND INTERIM REPORT

This results announcement is published on the websites of Hong Kong Exchanges and Clearing Limited and the Company. The Interim 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” annual general meeting “Audit Committee” the audit committee 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 “Corresponding Prior Period” the six-month period ended 30 June 2014 “Director(s)” existing director(s) of the Company “Group” the Company and its subsidiaries

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“HK$” or “HKD”

Hong Kong dollar, the lawful currency of Hong Kong

“Hong Kong”	The Hong Kong Special Administrative Region of the PRC
“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
“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 for the purpose of this
	announcement, excluding Hong Kong, the Macau Special
	Administrative Region of the PRC and Taiwan
“Reporting Period”	the six-month period ended 30 June 2015
“RMB”	Renminbi, the lawful currency of the PRC
“Safety Authority”	the relevant government authority for the granting of production
	safety permit for the production of gabbro-diabase products
“Share(s)”	existing ordinary share(s) of HK$0.10 each in the share capital of the
	Company
“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

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“USD”

the United States dollar, the lawful currency of the United States of America

“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 gabbrodiabase 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, 26 August 2015

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. Lam Wai Hon, Patrick, 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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