Persistence Gold Group Ltd — Annual Report 2006

Apr 13, 2007

APAC RESOURCES LIMITED

(Incorporated in Bermuda with limited liability)

(Stock code: 1104)

ANNOUNCEMENT OF THE ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006

AUDITED RESULTS OF THE GROUP

The Board of Directors (the “Directors”) of APAC Resources Limited (the “Company”) (formerly known as Shanghai Merchants Holdings Limited) are pleased to announce the audited consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31 December 2006 together with last year’s comparative figures are as follows:

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AUDITED CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2006

Notes Turnover 2 Cost of sales Gross profit Other income 2 Credit arising from a scheme of arrangement with creditors Distribution costs Administrative expenses 4 Impairment of goodwill 11 Finance costs 5 Profit before taxation Income tax expense 6 Profit for the year Attributable to: Equity holders of the company Minority interests Profit for the year Dividends 7 Earnings per share - basic 8	2006 HK$’000 22,773 (21,604)	2005 HK$’000 68,393 (66,113) 2,280 474 15,421 (1,353) (8,539) — (1,744) 6,539 (38) 6,501 6,501 — 6,501 — 1.57 cents
	1,169 40,343 — (499) (10,524) (3,116) (2,153) 25,220 (238)	2,280 474 15,421 (1,353 (8,539 — (1,744
		6,539 (38
	24,982
	24,982 —	6,501 —
	24,982 — 3.10 cents

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CONSOLIDATED BALANCE SHEET

As at 31 December 2006

Notes Non-current assets Deposit for acquisition of available-for-sale investment Current assets Inventories Trade and other receivables 9 Trading securities Pledged bank deposits Cash and cash equivalents Current liabilities Trade and other payables 10 Secured other loans Margin financing Tax payable Net current assets Total assets less current liabilities Capital and reserves Share capital Reserves Total equity attributable to equity shareholders of the Company Minority interests Total equity	2006 HK$’000 20,000	2005 HK$’000 — — 37,526 — 4,012 1,465 43,003 6,053 15,000 — 69 21,122 21,881 21,881 41,300 (19,419) 21,881 — 21,881
	1,494 8,460 227,039 10,098 12,282 259,373 7,585 — 141,612 200 149,397 109,976	— 37,526 — 4,012 1,465
		43,003
		6,053 15,000 — 69
		21,122
		21,881
	129,976
	125,900 4,076 129,976 —	41,300 (19,419
		21,881 —
	129,976

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Notes:

(1) Basis of preparation

The measurement basis used in the preparation of the financial statements is the historical cost basis except that financial instruments classified as trading securities and available-for-sale investments are stated at their fair value.

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by Hong Kong Institute of Certified Public Accountants (the “HKICPA”) that are relevant to its operations and effective for annual reporting periods beginning on 1 January 2006. The adoption of these new and revised Standards and Interpretations has no material effect on how the results of operation and financial position of the Group are prepared and presented.

At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:

HKAS 1 (Amendment)	Capital Disclosures1
HKFRS 7	Financial Instruments: Disclosures1
HKFRS 8	Operating Segments7
HK(IFRIC) — INT 7	Applying the Restatement Approach under HKAS 29
	Financial Reporting in Hyperinflationary Economies2
HK(IFRIC) — INT 8	Scope of HKFRS 23
HK(IFRIC) — INT 9	Reassessment of Embedded Derivatives4
HK(IFRIC) — INT 10	Interim Financial Reporting and Impairment5
HK(IFRIC) — INT 11	HKFRS 2 — Group and Treasure Share Transactions6
HK(IFRIC) — INT 12	Service Concession Arrangements8

• 1 Effective for annual periods beginning on or after 1 January 2007

• 2 Effective for annual periods beginning on or after 1 March 2006

• 3 Effective for annual periods beginning on or after 1 May 2006

• 4 Effective for annual periods beginning on or after 1 June 2006

• 5 Effective for annual periods beginning on or after 1 November 2006

• 6 Effective for annual periods beginning on or after 1 March 2007

• 7 Effective for annual periods beginning on or after 1 March 2009

• 8 Effective for annual periods beginning on or after 1 March 2008

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material financial impact on the financial statements of the Group.

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(2) Turnover and other income

An analysis of the Group’s turnover and other income is as follows:

Turnover Sales of base metals Sales of fabric products and other merchandises Proceeds from sale of trading securities Other income Interest income Unrealised gain on trading securities Others Total income	2006 HK$’000 5,788 14,132 2,853 22,773 1,181 38,743 419 40,343 63,116	2005 HK$’000 44,937 23,456 —
		68,393
		160 — 314
		474
		68,867

(3) Segmental information

Primary reporting format - business segments

As at 31 December 2006, the Group comprises the following main business segments:

(i) trading in base metals;

(ii) trading in fabric products and other merchandises; and

(iii) trading and investment of listed securities

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The following tables represent revenue and profit/(loss) information on each of the above business segments for the years ended 31 December 2005 and 2006, and certain assets and liabilities information regarding business segments at 31 December 2005 and 2006.

			Trading in fabric	Trading in fabric	**Trading **	and
	**Trading in **	base	products and other		investment of
	metals		merchandises		listed securities		Consolidated
	2006	2005	2006	2005	2006	2005	2006	2005
	_HK$’000 HK$’000 _		_HK$’000 _	_HK$’000 _	_HK$’000 HK$’000 _		_HK$’000 _	HK$’000
								(restated)
Revenue from external
customers	5,788	44,937	14,132	23,456	2,853	—	22,773	68,393
Segment result	21	110	577	966	39,152	—	39,750	1,076
Unallocated corporate
expenses							(12,377)	(8,214)
Credit arising from a
scheme of
arrangement with
creditors							—	15,421
Finance costs							(2,153)	(1,744)
Profit before taxation							25,220	6,539
Income tax expense							(238)	(38)
Profit for the year							24,982	6,501
Segment assets	551	432	7,281	1,719	247,039	—	254,871	2,151
Unallocated corporate
assets							24,502	40,852
Consolidated total
assets							279,373	43,003
Segment liabilities	—	—	—	1,570	570	—	570	1,570
Unallocated corporate
liabilities							148,827	19,552
Consolidated total
liabilities							149,397	21,122

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- Secondary reporting format geographical segments

The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods

Hong Kong Africa	2006 HK$’000 10,255 12,518 22,773	2005 HK$’000 49,635 18,758
		68,393

The following table provides an analysis of the Group’s assets by geographical location of assets:

Hong Kong Australia Africa	2006 HK$’000 27,783 245,229 6,361 279,373	2005 HK$’000 43,003 — —
		43,003

There was no addition of property, plant and equipment for each of the year ended 31 December 2005 and 2006.

(4) Administrative expenses

Administrative expenses include the following: Auditors’ remuneration Depreciation Legal and professional fees Loss on disposal of property, plant and equipment Retirement benefits scheme contributions Staff costs, including directors’ emoluments (Note)	2006 HK$’000 250 — 2,290 — 70 3,354	2005 HK$’000 250 7 4,760 16 55 1,513

Note: For the year ended 31 December 2005, the staff costs disclosed above included an amount of HK$213,000 which was included in distribution costs in the consolidated income statement. For the year ended 31 December 2006, no staff costs were included in distribution costs in the consolidated income statement.

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(5) Finance costs

Interest on other loans Interest on margin financing account	2006 HK$’000 958 1,195 2,153	2005 HK$’000 1,744 —
		1,744

(6) Income tax expense

Hong Kong profits tax is calculated at 17.5% (2005: 17.5%) of the assessable profit for the year.

The charge for the year can be reconciled to the profit before taxation per the consolidated income statement as follow:

Profit before taxation Tax at Hong Kong Profits Tax rate of 17.5% Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of tax loss not recognised Utilisation of tax loss previously not recognised	2006 HK$’000 25,220	2005 HK$’000 6,539
	4,413 2,069 (6,943) 699 —	1,144 1,454 (2,755) 193 2
	238	38

At 31 December 2006, the Group had unused tax losses of approximately HK$8,161,000 (2005: HK$4,164,000) available for offset against future profits. No deferred tax asset has been recognised in respect of such losses due to the unpredictability of future profit streams. The tax losses may be carried forward indefinitely.

The Company had no significant unprovided deferred taxation at the balance sheet date.

(7) Dividends

No dividends had been paid or declared by the Company during the year (2005: nil).

(8) Earnings per share

The calculation of the basic earnings per share is based on the profit for the year of HK$24,982,000 (2005: HK$6,501,000) and the weighted average number of 807,098,630 (2005: 413,000,000) ordinary shares in issue during the year.

Diluted earnings per share has not been presented for the years ended 31 December 2006 and 2005, as there were no potential dilutive shares outstanding during both years.

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(9) Trade and other receivables

The Group allows an average credit period of 60 days to its trade customers.

The following is an aged analysis of trade receivables at the balance sheet date:

Trade receivables 0 to 30 days 31 to 60 days 61 to 90 days 91 to 365 days Over 365 days Other receivables	The Group 2006 2005 HK$’000 HK$’000 3,076 2,151 2,048 — 2,124 — 418 — 130 —	The Group 2006 2005 HK$’000 HK$’000 3,076 2,151 2,048 — 2,124 — 418 — 130 —
	7,796 664	2,151 35,375
	8,460	37,526

All trade and other receivables are expected to be settled within one year.

Included in trade and other receivables are the following amounts denominated in a currency other than the functional currency of the Group’s entities to which they relate:

United States Dollars	The Group 2006 2005 US$951,898 US$275,718

(10) Trade and other payables

The following is an aged analysis of trade payables at the balance sheet date:

Trade payables 0 to 30 days 90 days to 365 days over 365 days Other payables	The Group 2006 2005 HK$’000 HK$’000 — 1,554 192 — 1,754 — 1,946 1,554 5,639 4,499 7,585 6,053	The Group 2006 2005 HK$’000 HK$’000 — 1,554 192 — 1,754 — 1,946 1,554 5,639 4,499 7,585 6,053
		1,554 4,499
		6,053

All trade and other payables are expected to be settled within one year.

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Included in trade and other payables are the following amounts denominated in a currency other than the functional currency of the Group’s entities to which they relate:

		**The **	Group
		2006		2005
Australian	Dollars	A$92,000		—

(11) Acquisition of a subsidiary

On 19 July 2006, Rise Cheer Limited (the “Purchaser”), a wholly owned subsidiary of the Company, acquired 60% issued equity interest of Chinaright Electronics Limited (“Chinaright”).

Details of the net assets of Chinaright acquired by the Group were as follows:

	Chinaright’s
	carrying
	amount before	Fair value
	acquisition	adjustment	Fair value
	HK$’000	HK$’000	HK$’000
Inventories	1,910	—	1,910
Account and other receivable	8	—	8
Bank balance and cash	54	—	54
Account and other payable	(2,158)	—	(2,158)
Net liabilities	(186)	—	(186)
Goodwill on acquisition			3,116
Total cost of acquisition			2,930

The cost of acquisition included consideration of HK$2,000,000 payable to the Vendor which was satisfied by issue of convertible bonds and legal and professional costs directly related to the acquisition of HK$930,000 which were paid in cash.

The Directors had carried out a test for impairment on the goodwill and considered the value of the goodwill were fully impaired.

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FINANCIAL RESULTS

For the year ended 31 December 2006, the Group’s turnover decreased by 66.7% to HK$22,773,000 (2005: HK$68,393,000) while the net profit attributable to shareholders increased by 284.3% to HK$24,982,000 (2005: HK$6,501,000).

Earnings per share of the Company increased by a lesser amount of 97.5% to 3.1 HK Cents (2005: 1.57 HK Cents) as a result of the issue of shares following the Group’s rights issue carried out during the year.

As at 31 December 2006, the Group’s net asset value per share increased to HK$0.10 (2005: HK$0.05).

DIVIDEND

The Board does not recommend the payment of a dividend for the year ended 31 December 2006 (2005: Nil).

REVIEW OF OPERATIONS

With the effort and commitment from the management and the staff and, together with the continued support from the shareholders, resumption of trading of the shares of the Company took effect on 14 July 2006.

During the year under review, the Group’s trading in base metals recorded a turnover of HK$5,788,000 (2005: HK$44,937,000) and a profit HK$21,000 (2005: HK$110,000). Further, the Group’s turnover and profit for fabric products and other merchandises trading business segment for year 2006 was HK$14,132,000 (2005: HK$23,456,000) and HK$577,000 (2005: HK$966,000). Decreases in turnover and profit in these business activities were mainly due to intense competition within this market sectors which further drove the profitability downward.

For the securities trading and investment, the Group recorded a turnover of HK$2,853,000 (2005: Nil) and a profit of HK$39,152,000 (2005: Nil) for the year ended 31 December 2006, attributed mainly to the unrealised gain from its trading portfolio. The Group commenced its securities trading and investment activities during this year in order to diversify its sources of income and enhance return on its capital.

On 9 November 2006, the Group announced (i) a very substantial acquisition of 48,373,197 ordinary shares in the issued share capital of Mount Gibson Iron Limited (“MG”) for a consideration of HK$244,474,752, (ii) a rights issue at a price of HK$0.3 each, on the basis of one rights share for every existing share then held, raising gross proceeds of HK$377,700,000 (iii) issue of bonus warrant with exercise price of HK$0.3 each exercisable for a period of three years commencing on 5 February 2007 to 4 February 2010, on the basis of one bonus warrant for every five rights shares subscribed, totaling 251,800,000 bonus warrants which were all completed on 1 February 2007. MG is a company incorporated in Australia with its share listed on the Australian Stock Exchange (“MG Shares”). Its principal business is mining of hematite iron ore at Tallering Peak and Koolan Island and exploration

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and development of hematite iron ore deposits in midwest region of Western Australia. On 9 November 2006, the Group also announced the placing of 800,000,000 new shares at placing price of HK$0.3 each, raising gross proceeds of HK$240,000,000 which was completed on 28 February 2007.

FINANCIAL RESOURCES, BORROWINGS, CAPITAL STRUCTURE AND FOREGIN EXCHANGE EXPOSURES

As at 31 December 2006, the Group’s non-current assets consisted of deposit for acquisition of available-for-sale investment of HK$20,000,000 (2005: Nil) which was principally financed by shareholders’ funds. As at 31 December 2006, the Group had net current assets of HK$109,976,000 (2005: HK$21,881,000) and current ratio of 1.7 times (2005: 2.0 times) calculated on the basis of the Group’s current assets over current liabilities.

All the Group’s borrowings are arranged on a short term basis in Hong Kong Dollars, repayable within one year and secured by trading securities. As at 31 December 2006, the Group had borrowings of HK$141,612,000 (2005: Nil) and a gearing ratio of 99.5% (2005: Nil), calculated on the basis of the Group’s net borrowings (after cash and cash equivalents) over shareholders’ fund.

The issued share capital of the Company was increased in 2006 from HK$41,300,000 to HK$125,900,000 following the issuances of rights shares and conversion of convertible bond. Subsequent to 31 December 2006, the authorised share capital of the Company increased from HK$200,000,000 divided into 2,000,000,000 shares of HK$0.1 each to HK$800,000,000 divided into 8,000,000,000 shares of HK$0.1 each.

During the year under review, the Group’s assets, liabilities and transactions were mainly denominated in Hong Kong Dollar, Australian Dollar, and US Dollar. Because of its short term nature, the Group had not actively hedged risks arising from the Australian Dollar and US Dollar.

PLEDGE OF ASSETS

As at 31 December 2006, the Group’s trading securities of HK$225,229,000 (2005: Nil) were pledged to a stock-broking firm to secure short term credit facility granted to the Group and the Group’s bank deposits of HK$10,098,000 (2005: HK$4,012,000) were pledged to a bank to secure banking facilities granted to the Group.

EMPLOYEES AND REMUNERATION POLICY

The Group ensured that its employees are remunerated according to the prevailing manpower market conditions and individual performance and the remuneration policies are reviewed on a regular basis.

PROSPECT

On 6 February 2007, the Group further acquired 40,125,967 MG Shares, a major transaction, through a number of on-market transactions on the Australian Stock Exchange at an aggregate consideration of A$33,501,170 (equivalent to approximately HK$202,722,279).

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On 9 February 2007, the Group entered into a conditional acquisition agreement with a direct wholly-owned subsidiary of Shougang Holding (Hong Kong) Limited, one of its substantial shareholders, to acquire 19,754,646 MG Shares, at a consideration of HK$102,427,840, constituting a very substantial acquisition and a connected transaction for the Company which was completed on 11 April 2007. As at the date of this announcement, the Group holds an aggregate of 19.05% in the issued share capital of MG.

Further, on 16 February 2007, the Group entered into a conditional acquisition agreement, subjected to satisfaction of certain conditions precedent including financial, legal and technical due diligences, to acquire the entire issued share capital of China Mineral Resource Limited (“CMR”), a limited liability company incorporated in Hong Kong, for an aggregate consideration of HK$450,000,000, constituting a very substantial acquisition of the Company. The Group understands from the vendor that CMR owns the rights of exploration and exploitation of an iron ore mine, located in north of Mongolia. The Group is now preparing for the circular for this conditional acquisition which, in turn, is subjected to shareholders’ approval in the forthcoming special general meeting of the Company.

The Group entered into a conditional subscription agreement with Australasian Resources Limited (“ARH”) on 20 March 2007 in relation to the subscription of 28,000,000 ordinary shares in the issued share capital of ARH (“ARH Shares”) at an aggregate consideration of A$28,000,000 (equivalent to approximately HK$174,846,000) and the grant by ARH to the Company of 14,000,000 options (“ARH Options”) exercisable over the same number of 14,000,000 ARH Shares at nil consideration with an exercise price of A$1.50 each, constituting a disclosable transaction of the Company. The completion of the conditional subscription agreement is still subject to the satisfaction of the Austrialian Stock Exchange notifying ARH in writing that the ARH Shares will be re-instated to official quotation on the Australian Stock Exchange. Upon the completion of the conditional subscription agreement, the Company has the right to nominate and appoint a director of ARH. ARH is a company incorporated in Australia with its shares listed on the Australian Stock Exchange. Its principal activity is mineral exploration. Recent development of ARH includes the Balmoral South Iron Ore Project with respect to acquiring the right to mine 1 billion tonnes of magnetite ore from part of the Balmoral South Project situated in the Pilbara region of Western Australia and the Sherlock Bay Nickel Project situated in the West Pilbara region of Western Australia with respect to exploiting the nickel sulphide deposit contained in that project area. ARH has advised the Company of its right to mine 1 billion tonnes of magnetite iron ore from Susan Palmer deposit within the larger Balmoral deposits in Pilbara region of Western Australia, announced a 346 million tonnes ore reserve estimate in accordance with JORC guidelines, and currently proposed a development plan involving the production and export as final products of 5 million tonnes of iron ore concentrate (“IOC”), 5 million tonnes of iron ore pellets (“IOP”) and approximately 1.5 million tonnes of hot briquetted iron (“HBI”, together with IOC and IOP, the “Products”). On 20 March 2007, the Company also entered into a commission agreement with ARH and International Minerals Pty Limited, a wholly owned subsidiary of ARH, which set out the intention of the parties thereto for the Group to procure the execution of offtake agreement(s) by relevant buyer(s) for the purchase of the Products in return for a commission of US$1.00 per dry tonne of IOC or IOP or HBI.

The Group seeks to become a significant natural resources investment and trading group through the identification, evaluation and acquisition of strategic interests in quality natural

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resource assets by means of indirect investment in and support of resource corporations or by direct investment in mineral projects. The Group expects that favourable climate for global commodity prices, outlook and equity prices for global resource companies, in general, will continue for the foreseeable future with the sustained demand for commodities globally with a particular emphasis on the demand stemming from China and, more recently, India, though the Group is also conscious of the possible adverse impact from the austerity measures taken by the China’s government to curb the heated China property market.

The fiscal year 2007 will be an important year for the Group since the management had substantially restructured the capital base and commenced building up the asset base of the Group. The Group will constantly search for investment opportunity in the Asia Pacific region so as to attain the Group’s objective of pursuing natural resource sector related investment opportunities that will provide the Group with future growth and development prospect.

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

During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

CORPORATE GOVERNANCE

The Company has complied with the applicable code provisions of the Code on Corporate Governance Practices as set out in Appendix 14 of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) throughout the year ended 31 December 2006.

The Company has also adopted the Model Code for Securities Transactions by Directors (the “Model Code”) as set out in Appendix 10 of the Listing Rules as the Company’s code of conduct regarding Directors’ securities transactions. Having made specific enquiries of all Directors, they have confirmed their compliance with the required standard as set out in the Model Code throughout the year ended 31 December 2006.

REVIEW OF RESULTS BY AUDIT COMMITTEE AND EXTERNAL AUDITORS

The Group’s final results for the year ended 31 December 2006 have been reviewed by the Audit Committee of the Company. The figures in respect of this announcement of the Group’s results for the year 31 December 2006 have been agreed by the Group’s external auditors, Messrs. Graham H.Y. Chan & Co., to the amounts set out in the Group’s auditd consolidated financial statements for the years. The work performed by Messrs. Graham H.Y. Chan & Co. in this respect did not constitute an assurance engagement in accordance with Hong Kong Standards on Auditng, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the HKICPA and consequently no assurance has been expressed by Messrs. Graham H.Y. Chan & Co. on this announcement.

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PUBLICATION OF INFORMATION ON THE WEBSITE OF THE STOCK EXCHANGE

The annual report of the Group for the year ended 31 December 2006 containing all the information required by paragraphs 45(1) to 45(8) of Appendix 16 of the Listing Rules will be published on the Stock Exchange’s website in due course.

By Order of the Board Yue Jialin Chairman

Hong Kong, 13 April 2007

As at the date of this announcement, the board of Directors comprises Mr. Yue Jialin (Chairman), Mr. Lau Yau Cheung (Chief Executive Officer), Mr. Michael Joseph Bogue, being the executive Directors, and Mr. Wong Wing Kuen, Albert, Mr. Tsui Robert Che Kwong and Mr. Yang Weiming, being the independent non-executives Directors.

• For identification only

Please also refer to the published version of this announcement in The Standard.

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