Shandong Gold Mining Co., Ltd. - Proxy Solicitation & Information Statement 2019

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Shandong Gold Mining Co., Ltd. (山東黃金礦業股份有限公司) (the “ Company ”), you should at once hand this circular to the purchaser(s) or transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

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

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SHANDONG GOLD MINING CO., LTD. 山東黃金礦業股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1787)

(1) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 100% EQUITY INTEREST IN THE TARGET COMPANY (2) RESOLUTION ON THE ESTIMATED NEW DAILY CONNECTED TRANSACTIONS OF THE COMPANY AFTER THE ACQUISITION OF THE EQUITY INTEREST OF THE TARGET COMPANY

(3) PROPOSED AMENDMENT TO ARTICLES OF ASSOCIATION (4) GENERAL MANDATE TO ISSUE H SHARES AND

(5) REVISED NOTICE OF 2019 THIRD EXTRAORDINARY GENERAL MEETING

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

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A revised notice convening the 2019 third extraordinary general meeting (the “ EGM ”) of Shandong Gold Mining Co., Ltd. (the “ Company ”) to be held at the conference room of the Company, Building No. 3, Shuntai Plaza, Shunhua Road No. 2000, Jinan, Shandong Province, the PRC at 9:00 a.m. on Friday, 23 August 2019 is set out on pages 91 to 94 of this circular.

A revised proxy form for use in connection with the EGM is enclosed with this circular. The revised proxy form is also published on the website of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk) and the Company’s website (http://www.sdhjgf.com.cn).

Any shareholder(s) of the Company (the “ Shareholders ”) entitled to attend and vote at the EGM are entitled to appoint one or more proxies to attend and vote on his behalf. A proxy need not be a shareholder of the Company. If you intend to appoint a proxy to attend the EGM and vote on your behalf, you are requested to complete the accompanying revised proxy form in accordance with the instructions printed thereon and return it by hand, by post or by facsimile to the Company’s H share registrar, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for H Shareholders only) as soon as possible and in any event not later than 24 hours before the time appointed for the holding of the EGM or any adjournment thereof (as the case may be) (i.e. before 9:00 a.m. on Thursday, 22 August 2019). Completion and return of the revised proxy form will not preclude you from attending and voting at the EGM or any adjournment hereof should you so wish.

7 August 2019

CONTENTS

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . .	32
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . . .	33
APPENDIX I — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46
APPENDIX II — SUMMARY OF VALUATION REPORT . . . . . . . . . . . . . . . . . . . . .	51
APPENDIX III — PROPOSED AMENDMENT TO THE ARTICLES OF
ASSOCIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
APPENDIX IV — REVISED NOTICE OF 2019 THIRD EXTRAORDINARY
GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	91

— i —

DEFINITIONS

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

“Acquisition”
the acquisition of the entire equity interest in the Target Company by the Company from SDG Group Co. under the Sale and Purchase Agreement;
“Announcements” the announcements of the Company both dated 21 June 2019 in relation to, among other things, the Sale and Purchase Agreement and the transactions contemplated thereunder the estimated new daily transaction of the Company after the acquisition of the equity interest of the Target Company and the proposed amendment to the Articles of Association;
“A Share(s)” the domestic share(s) issued by the Company to domestic investors with a nominal value of RMB1.00 each, which are listed on the Shanghai Stock Exchange;
“Articles of Association” the articles of association of the Company;
“Board” or “Board of Directors” the board of Directors;
“Company” Shandong Gold Mining Co., Ltd. (山東黃金礦業股份有限公司), a joint stock company incorporated in the PRC under the laws of the People’s Republic of China with limited liability on 31 January 2000;
“Completion” completion of the Acquisition in accordance with the terms and conditions of the Sale and Purchase Agreement;
“Conditions” conditions precedent to the Acquisition as set out in the paragraph headed “Conditions precedent” in this circular;
“connected person(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules;
“connected transaction” has the meaning ascribed thereto under the Hong Kong Listing Rules;
“Director(s)” the director(s) of our Company;
“EGM” the 2019 third extraordinary general meeting of the Company to be held at 9:00 a.m. on Friday, 23 August 2019 at the conference room of the Company, Building No. 3, Shuntai Plaza, Shunhua Road No. 2000, Jinan, Shandong Province, the PRC;

— 1 —

DEFINITIONS

“Equity Entrustment Framework Agreement”
“General Mandate”
“Group”
“HK$”
“H Shares”
“Hong Kong”
“Hong Kong Listing Rules”
“Hong Kong Stock Exchange”
“Independent Board Committee”
“Independent Financial Adviser”

the framework agreement entered between the Company and SDG Group Co. pursuant to which, SDG Group Co. will entrust us with the management and operation of certain of its PRC subsidiaries, which are, or through their subsidiaries principally engaged in gold mining, non-ferrous mining, other mining related operations by way of equity entrustment;

a general mandate to be granted to the Board for issuing H Shares representing up to the limit of 20% of the aggregate number of H Shares in issue on the date of passing the relevant resolution by the Shareholders;

the Company and its subsidiaries;

Hong Kong dollars, the lawful currency of Hong Kong;

the overseas-listed foreign invested share(s) in the Company’s share capital, with a nominal value of RMB1.00 each, which are listed on the Hong Kong Stock Exchange;

the Hong Kong Special Administrative Region of the PRC;

the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended, supplemented or otherwise modified from time to time;

The Stock Exchange of Hong Kong Limited;

an independent committee of the Board comprising all its independent non-executive Directors, established for the purpose of advising the Independent Shareholders, on the terms of the Sale and Purchase Agreement and the transaction contemplated thereunder;

China Tonghai Capital Limited, a licensed corporation under the SFO licensed to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser appointed for the purposes of advising the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the transactions contemplated thereunder;

— 2 —

DEFINITIONS

“Independent Shareholders”
Shareholders who are independent of and have no interest in the transaction contemplated under the Sale and Purchase Agreement;
“Latest Practicable Date” 2 August 2019, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein;
“Model Code” the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 of the Hong Kong Listing Rules;
“PRC” or “China”
the People’s Republic of China, for the purpose of this Circular, excluding Hong Kong, Macau and Taiwan;
“RMB”
Renminbi, the lawful currency of the PRC;
“Sale and Purchase Agreement”
the sale and purchase agreement dated 21 June 2019 entered into between SDG Group Co. and the Company in relation to the Acquisition;
“SDG Group” SDG Group Co. and all of its subsidiaries;
“SDG Group Co.”
Shandong Gold Group Co., Ltd. (山東黃金集團有限公司), a limited liability company incorporated in the PRC on 16 July 1996, the controlling Shareholder of our Company, and was held as to approximately 70% by Shandong SASAC, as to approximately 20% by Shandong Guohui Investment Co., Ltd. (山東國惠投資有限公司) and as to approximately 10% by Shandong Social Security Fund Committee (山東省社會保障基金理事會);
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, modified and supplemented from time to time;
“Shanghai Stock Exchange” or “SSE” Shanghai Stock Exchange (上海證券交易所);
“Share(s)”
shares in the share capital of our Company, with a nominal value of RMB1.00 each, comprising our A Shares and our H Shares;
“Shareholders” holder(s) of our Share(s);

— 3 —

DEFINITIONS

“SSE Listing Rules”	the Rules Governing the Listing of Stocks on the Shanghai
	Stock Exchange (上海證券交易所股票上市規則) as
	amended supplemented or otherwise modified from time to
	time;
“Supervisor(s)”	the supervisor(s) of our Company;
“Target Company”	SD Gold Capital Management Co., Ltd. (山金金控資本管
	理有限公司), a limited liability company incorporated in
	the PRC on 14 November 2012 and a wholly-owned
	subsidiary of SDG Group Co.;
“Target Group”	the Target Company and its subsidiaries;
“%”	per cent.

For the purpose of this circular, the exchange rate of HK$1.00 = RMB0.88066 have been used for currency translation, where applicable. Such exchange rate is for illustrative purposes only and does not constitute representations that any amount in HK$ or RMB has been, could have been or may be converted at such a rate or any other rate or at all.

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LETTER FROM THE BOARD

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SHANDONG GOLD MINING CO., LTD. 山東黃金礦業股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1787)

Executive Directors:

Mr. Wang Peiyue Mr. Li Tao (Vice-Chairman) Mr. Tang Qi

Non-executive Directors:

Mr. Li Guohong (Chairman) Mr. Wang Lijun Ms. Wang Xiaoling

Independent non-executive Directors:

Mr. Gao Yongtao Mr. Lu Bin Ms. Hui Wing

Registered office and headquarters in the PRC: Building No. 3, Shuntai Plaza Shunhua Road No. 2000 Jinan, Shandong Province PRC

Principal place of business in Hong Kong:

Rooms 4009-4010 40th Floor China Resources Building No. 26 Harbour Road Hong Kong

7 August 2019

To the Shareholders

Dear Sir or Madam,

(1) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 100% EQUITY INTEREST IN THE TARGET COMPANY (2) RESOLUTION ON THE ESTIMATED NEW DAILY CONNECTED TRANSACTIONS OF THE COMPANY AFTER THE ACQUISITION OF THE EQUITY INTEREST OF THE TARGET COMPANY (3) PROPOSED AMENDMENT TO ARTICLES OF ASSOCIATION (4) GENERAL MANDATE TO ISSUE H SHARES AND

(5) REVISED NOTICE OF 2019 THIRD EXTRAORDINARY GENERAL MEETING

— 5 —

LETTER FROM THE BOARD

INTRODUCTION

Reference is made to the Announcements. The purpose of this circular is to provide you with, among others, (i) details of the Sale and Purchase Agreement; (ii) estimated new daily connected transactions of the Company after the acquisition of the entire equity interest of the Target Company ; (iii) proposed amendment to Articles of Association; (iv) general mandate to issue H shares; (v) the recommendation of the Independent Board Committee regarding the terms of the Sale and Purchase Agreement; (vi) the advice of the Independent Financial Adviser regarding the terms of the Sale and Purchase Agreement; (vii) the summary of a valuation report regarding the entire equity interest in the Target Company; (viii) the revised notice of EGM; and (ix) other information as required under the Hong Kong Listing Rules.

(1) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 100% EQUITY INTEREST IN THE TARGET COMPANY

THE SALE AND PURCHASE AGREEMENT

On 21 June 2019 (after trading hours), the Company and SDG Group Co. entered into the Sale and Purchase Agreement.

Date

21 June 2019 (after trading hours)

Parties

(1) the Company, as the purchaser
(2) SDG Group Co., as the seller

Acquisition of the entire equity interest in the Target Company

Pursuant to the Sale and Purchase Agreement, SDG Group Co. has conditionally agreed to sell, and the Company has conditionally agreed to purchase the 100% equity interest in the Target Company at a consideration of RMB2,272.3191 million.

Consideration

The consideration for the Acquisition payable by the Company under the Sale and Purchase Agreement is RMB2,272.3191 million. The Company shall pay the consideration to SDG Group Co. within ten days from the completion date by cash in a lump sum.

The consideration payable under the Sale and Purchase Agreement was determined between the parties by reference to the market value of the entire equity interest attributable to the shareholders of the Target Company of RMB2,272.3191 million as at the valuation reference date of 31 March 2019, based on the valuation report issued by Beijing Pan-China Assets Appraisal Co., Ltd., an independent valuer with assets appraisal qualifications for the securities business.

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LETTER FROM THE BOARD

Conditions precedent

Completion is subject to, inter alia, the following conditions precedent being satisfied or waived (if applicable):

the obtaining of the approval in relation to the Sale and Purchase Agreement by the Board and the EGM pursuant to the Shanghai Listing Rules and Hong Kong Listing Rules, and
the performing of all required procedures by SDG Group Co. in respect of the Sale and Purchase Agreement and relevant matters pursuant to laws, regulations, the articles of association of SDG Group Co. and the articles of association of the Target Company and the obtaining of the all the necessary resolutions and authorisation.

Completion

SDG Group Co. irrevocably agrees to proceed with completion of the transfer of the equity interest of the Target Company within ten working days after the conditions precedents are fulfilled. Completion will take place upon the completion of the business registration procedures of the change of the entire equity interest in the Target Company under the name of the Company.

Upon Completion, the Target Company will become a subsidiary of the Company and the financial results of the Target Group will be consolidated into the Group’s financial statements.

Profit or Loss for the Transition Period

In the period from the valuation benchmark date (i.e. 31 March 2019) to the date of Completion (the “ Transition Period ”), SDG Group Co. shall be entitled to any increase in the net assets due to the realisation of profits, or liable for reduction of the net assets due to operating losses. The parties agreed to conduct a supplementary audit by an independent auditor on the Target Company’s equity interests for the Transition Period as at the date of Completion as the audit benchmark date, to determine the specific amount of profit or loss for the Transition Period that SDG Group Co. shall be entitled to or liable for. In order to determine which party shall make payment to the other party, it is agreed that the calculation will be based on the difference between (1) the audited book value of net assets as at the date of Completion and (2) the audited book value of net assets as at the valuation benchmark date (ie. 31 March 2019). If there is a positive balance, the Company shall pay SDG Group Co. the balance; if there is a negative balance, SDG Group Co. shall pay the Company for the balance. Such payment shall be settled within ten working days after the completion of the supplementary audit.

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LETTER FROM THE BOARD

Financial Position of the Target Company

According to the “Tian Yuan Quan Shen Zi No. [2019]001010” standard unqualified audit report prepared in accordance with China Accounting Standard for Business Enterprises issued by Beijing Tianyuanquan Certified Public Accountants (Special General Partnership) (“ Beijing Tianyuanquan ”), a company qualified to engage business relating to securities and futures, the main financial indicators for the latest year/period of the Target Company are consolidated as follows:

Unit: RMB’0000

	31 March 2019/
	the first quarter of	31 December 2018/
Items	2019	the year of 2018
Total assets	944,778.10	899,410.80
Total liabilities	742,040.54	695,634.95
Ownership interests	202,737.56	203,775.85
Ownership interests attributable to
shareholders of parent company	200,862.55	201,770.64
Revenue	358,411.10	1,198,610.53
Total profit (1)	178.80	21,983.88
Net profit (1)	–1,038.29	14,855.42
Net profit attributable to shareholders
of parent company	–908.09	14,836.27

Breakdown of the total revenue of the Target Company by business segment for the year ended 31 December 2018 and the first quarter of 2019 are as follows:

Unit: RMB’0000

Item Main Business Of which: Sale of gold Gold bars and gold jewelries Income from gold brokerage fees Income from futures brokerage fees Others Other business Total	First quarter of 2019 Revenue 357,334.64 346,749.10 4,965.13 551.48 5,033.97 34.95 1,076.46 358,411.10	For the year 2018 Revenue 1,195,897.69 1,167,802.53 16,062.86 3,566.98 8,409.78 55.54 2,712.83
		1,198,610.53

(1) Total profit here refers to net profit before taxation while the net profit refers to net profit after taxation. The net profit is calculated by deducting the income tax expenses from the total profit. The income tax expenses is mainly attributed to deferred income tax expenses of RMB11,979,335.95, caused by the temporary difference in taxable income arising from the increase in the fair value of financial instruments held by the Target Company.

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LETTER FROM THE BOARD

Unit: RMB’0000

			For the year ended 31 December	For the year ended 31 December
			2018	2017
			audited	audited
Net	profit	before taxation	21,983.88	10,586.19
Net	profit	after taxation	14,855.42	6,092.65

The original acquisition cost of the Target Group was approximately RMB2,631.5 million (representing the paid-in registered capital of the Target Group by SDG Group Co.).

Explanation for the operating performance of the Target Company in the first quarter of 2019

The Target Company has a drop in operating performance in the first quarter of 2019, which is mainly attributed to the following reasons:

Drop in profit for the investment business

As affected by the macroeconomic situations in PRC and overseas as well as the fluctuation of market condition, the profit of the Target Company’s financial investment business has retracted, as shown by the income from the change in fair value of RMB49,995,828.18 in the first quarter of 2019 which shows the retraction when compared to that of 2018.

Drop in profit for futures agency business

In the first quarter of 2019, the futures agency business was mainly for a small number of larged sized customers, and the futures intermediaries charged a higher proportion of rebates, thus resulting in a lower profit contributed by the futures business.

Increase in financing costs

As a subsidiary of the Target Company, SDG (Shanghai) Precious Metals Investment Co., Ltd. has made a borrowing of RMB1,220 million to finance the Target Company in its investment activities at the end of 2018, the lending rate of which was 4.35%, resulting in an increase in financial expenses.

Measures implemented

In response to the decline in profits as aforesaid, the Target Company has implemented the following measures and plans:

Expand the development of the purchased gold business market

The Target Company is actively engaged with new suppliers conducting mining business to expand the scale of cooperation with them. In March 2019, the Target Company has conducted preliminary communication with Songxian Shanjin Mining Co., Ltd. (嵩縣山金礦業有限公司) and Shandong Gold Mining (Laixi) Co., Ltd., (山東黃金礦業（萊西）有限公司) on conducting purchased gold business from them. The Target Company anticipates that they will conduct business with the aforesaid companies on or about the fourth quarter of 2019. Further, the Target Company has increased its efforts in its investment and research, as well as market analysis and decision making capability to continuously increase trading standards and comprehensively increase the profit in the purchased gold business.

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LETTER FROM THE BOARD

2. Strengthen the management in the investment business

The Target Company will further strengthen its follow-up management on the investment business, keeping track on the investment projects in a timely manner and conduct detailed project risk assessment. In particular, the Target Company has begun to collect market information and assess industry risks on a regular basis. In the event that the Target Company has discovered any potential risks, the Target Company will promptly prepare a project risk response plan to handle the situation. Further, the Target Company has on July 2019 employed a senior management, who has more than 10 years of extensive working experience in the capital investment sector, to lead the asset management team. The Target Company will enhance its market analysis and decision making capability to continuously increase profit in the investment business.

3. Strengthening the management of futures business

The Target Company will continue to improve its business development mechanism by continuous reform and attracting talents through recommendation, team building and enhancing its incentive mechanism. In particular, the Target Company has established a brokerage department for its futures business in 2019 to establish client relations and encourage the diversification of its business to institutional customers, industrial customers, small and medium-sized customers. The Target Company has now expanded its sales teams and branches to various locations to promote the said business. Through the aforesaid steps, the Target Company aims to strengthen the capacity building of its marketing teams, promote the layout of business network, expand the scale of brokerage business, further optimise its business indicator and motivate business personnel to improve the profitability of futures brokerage business.

Analysis by the Directors on the operating performance of the Target Company in the first quarter of 2019

The financial performance of the Target Group in the last few years has been stable, which demonstrates the potential and revenue generating capability of the Target Group. The Directors are of the view that the decline in the Target Company’s financial performance in the first quarter of 2019 is due to the reasons aforementioned, and in particular, having regard to the factors set out below, the Directors believe that the financial performance of the Target Group will improve in the future:

(1) the drop in the income from the change in fair value was attributed to the adverse macroeconomic fluctuation in the PRC affected by PRC’s economic downturn, economic deleveraging and trade war between the United States and PRC, which affected the profitability of the Target Company’s investment portfolio (including stocks, equity funds and trust plans).

The shares of a company listed on the National Equities Exchange and Quotation Co., Ltd. held by the Target Group is subject to a 36-month lock-up period under the agreement, and the lock-up period will expire after November 2019. The lock-up period affects the liquidity of equity investment. In the valuation, the discount rate of restricted shares is considered. The sales restriction period will be shortened with time, and the impact of liquidity discount will be lesser and lesser. At the end of the lock-up period, the valuation of the above investment project will return to normal levels.

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LETTER FROM THE BOARD

(2) The drop in the profit in futures agency business is mainly caused by the change in strategy of focusing on larged sized customers which charges a higher proportion of rebates. The Target Company would aim to, on the one hand improve its services and negotiate for a lower rate of rebates with the large sized customers and on the other hand diversify its business portfolio to small and medium sized customers so as to improve the profitability of futures agency business.
(3) The increase in financing costs, which was attributed by the loan made at the end of 2018 of RMB1,220 million, is a short term borrowing with an annual interest rate of 4.35%. The principal of which is due and payable by the Target Company on or before the end of November 2019 in accordance with the terms of the loan agreement. Given that the Target Company or its subsidiaries have no plans to make further borrowing after the loan is fully repaid, the increase in the financial costs would therefore be eliminated.

The Target Company has proactively implemented appropriate measures to improve its financial performance for the year 2019. Further, as explained under the “Reasons for and Benefits of the Acquisition” section below, the Directors take the view that such Acquisition will achieve the extension of the gold industry chain and reduce horizontal competition. In the premises, the Directors are of the view that the Acquisition is in the interests of the Company and its Shareholders.

Valuation

Beijing Pan-China Assets Appraisal Co., Ltd., (the “ Valuer ”) an independent valuer with assets appraisal qualifications for the securities business, carried out valuation on the market value of the entire equity interest attributable to the shareholders of the Target Company as at 31 March 2019, and issued a valuation report. According to the valuation report, the valuer adopted asset-based approach and income-based approach for the valuation, and concluded that the adoption of the asset-based approach is more appropriate.

The adoption of the two approaches by the Valuer is made pursuant to Article 26 of the Asset Appraisal Law of the PRC (中華人民共和國資產評估法), of which the Valuer is obliged to select two or more appraisal methods unless where one appraisal method is the only applicable appraisal practice. They shall form appraisal conclusions and produce appraisal reports on the basis of comprehensive analysis. Pursuant to Article 32 of Measures for the Supervision and Administration of the Transactions of State-Owned Assets of Enterprises (企業國有資產交易監督管理辦法), it is stated, among other things, that the transfer price may be determined on the basis of the net asset confirmed in the valuation report and shall not be lower than the assessed or audited net asset value. Under such law, the Company is only obliged to consider the valuation conclusion in the valuation report.

The asset-based approach is a valuation methodology with assessment based on the target’s value of asset and liability, both inside and outside of the balance sheet. The income-based approach is a valuation methodology with assessment based on the discounted value of the target’s estimated future income/profitability.

Financial assets held for trading and long-term equity investments are the Target Company’s principal assets. Utilising the asset-based approach to evaluate these assets would provide a reasonable results for consolidation purpose. At the same time, the Valuer is of the view that the asset-based approach can reflect the fair market value of assets from an asset replacement perspective. The Target Company has provided detailed information on its assets and liabilities together with external information available to the Valuer, the Valuer was able to meet with the PRC legal requirements in using the asset-based approach. The Valuer was therefore able to make a comprehensive analysis and valuation based on the asset and liabilities of the Company.

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LETTER FROM THE BOARD

As for the assessment of the income-based approach, the Valuer only predicted the cash flow generated by the gold sales business operated by the Target Company. The Target Company is a platform to perform management functions. Its core purpose is to conduct asset management and exercise control on its subsidiaries. Accordingly, the Target Company’s income from its business operation is lower than the Target Company’s total assets. In the premises, the Valuer is of the view that the results of the asset-based approach are more reflective of the Target Company’s existing business model than the results based on the income-based approach. Accordingly, the results based on the asset-based approach was adopted for the valuation of the Target Company.

As at 31 March 2019, the book value of total assets attributable to parent company of the Target Company amounted to RMB6,853.818 million, and the book value of liabilities amounted to RMB5,065.0617 million. The book value of net assets amounted to RMB1,788.7563 million; the total assets after valuation amounted to RMB7,337.3808 million and the liabilities amounted to RMB5,065.0617 million. The net assets amounted to RMB2,272.3191 million. The appreciation in the valuation of net assets amounted to RMB483.5628 million, and the appreciation rate was 27.03%.

The specific valuation results are summarized in the following table:

Unit: RMB’0000

		Carrying	Appraised	Increase/Decrease	Appreciation
No.	Items	amount	value	in value	rate
		A	B	C=B-A	D=C/Ax100%
1	Current assets	491,300.55	491,373.13	72.58	0.01%
2	Non-current assets	194,081.25	242,364.95	48,283.70	24.88%
3	Of which: Long-term equity	149,394.76	196,754.59	47,359.83	31.70%
	investment
4	Other non-current	36,890.20	36,890.20	–	–
	financial assets
5	Investment properties	3,559.97	4,338.86	778.89	21.88%
6	Fixed assets	65.59	164.54	98.95	150.86%
7	Intangible assets	–	–	–	–
8	Long-term deferred	352.29	398.32	46.03	13.07%
	expenses
9	Deferred income tax	3,818.44	3,818.44	–	–
	assets
10	Other non-current	–	–	–	–
	assets

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LETTER FROM THE BOARD

		Carrying	Appraised	Increase/Decrease	Appreciation
No.	Items	amount	value	in value	rate
		A	B	C=B-A	D=C/Ax100%
11	Total assets	685,381.80	733,738.08	48,356.28	7.06%
12	Current liabilities	494,948.17	494,948.17	–	–
13	Non-current liabilities	11,558.00	11,558.00	–	–
14	Total liabilities	506,506.17	506,506.17	–	–
15	Net assets (owner’s equity)	178,875.63	227,231.91	48,356.28	27.03%

Analysis on the valuation results table

Long term equity investment

The long-term equity investment concerns the investment of 7 wholly-owned subsidiaries, 1 controlling subsidiary and 1 associated subsidiary. The book value of the long-term equity investment of RMB1,493.9476 million is based on the original costs for capital contribution. The valuation is carried out by comprehensively assessing the invested enterprises to ensure their value. The appraisal value for the long-term investment evaluation value is RMB1,967.5459 million which is calculated by multiplying the total assessed value of shareholder’s total equity value with its corresponding shareholding ratio. The appraised value is RMB473.5983 million, which is higher than the book value with an appreciation rate of 31.70%, particulars of such increase are stated below:

(a) Jinchuang Gold: The Target Company acquired 100% equity interest of Jinchuang Gold in 2016. The book value of the long-term equity investment by the Target Company to Jinchuang Gold as at the valuation benchmark date was RMB46.5464 million. The appraised long-term investment evaluation value is RMB72.7373 million showing a rise in the appraisal value of RMB26.1909 million. The rise was mainly due to (1) the increase in operating profit since its acquisition leading to an increase in equity and (2) an appreciation of the value of the main asset-other equity instruments (i.e. the comprehensive membership of the Shanghai Gold Exchange). The book value of the said membership was the qualification fee paid by the company when obtaining the said membership. Due to an increasing demand for the said membership, the consideration that the assignee was willing to pay for purchasing such membership has significantly increased. The latest listing price for the comprehensive membership of the Shanghai Gold Exchange is used as the appraisal value, and therefore resulting in a significant increase in the appraisal value.
(b) Shanghai Shengju: The Target Company acquired 100% equity interest of Shanghai Shengju in 2012. The book value of the long-term equity investment by the Target Company to Shanghai Shengju as at the valuation benchmark date was RMB432.70 million. The appraised value of the long-term equity investment of the company at the valuation benchmark date is RMB613.9456 million, representing a rise in the appraised value of RMB181.2456 million. The reason for the rise in the appraised value is that the trading price in the Shanghai real estate market has risen sharply since the acquisition.

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LETTER FROM THE BOARD

(c) SDG Precious Metals: the Target Company established SDG Precious Metals in January 2013. The book value of the long-term equity investment by the Target Company to SDG Precious Metals as at the valuation benchmark date is RMB300 million. The appraised value of the long-term equity investment of the company at the valuation benchmark date is RMB438.7557 million, representing a rise in RMB138.7557 million. The reason for the rise in the appraised value is due to the increase in operating profit during the operation period.
(d) SDG Futures: The Target Company acquired 100% equity of SDG Futures in August 2014. The book value of the total shareholders’ equity interests as at the date of acquisition was RMB100.5469 million. In May 2015, the Target Company increased the capital of SDG Futures by RMB500 million. The book value of the long-term equity investment is RMB651.3749 million and the total appraised value of the long-term equity investment of the company is RMB777.1109 million as at the valuation benchmark date, representing a rise in RMB125.736 million. The reason for the rise in the appraised value is mainly attributable to the increase in operating profit since the acquisition, as well as the increase in operating capacity, qualifications and brand.

Fixed assets

The fixed assets of the Target Company consist of vehicles and electronics equipment, of which:

(1) vehicles have a book value of RMB87,500 and an appraised value of RMB555,000, with a value-added rate of 534.22%. The main reasons are as follows: there are a total of 2 vehicles being evaluated, one of which was purchased in December 2013, and the other one was purchased in January 2017. The book value of the vehicles was calculated based on the net value after provision for depreciation by the company. According to the accounting policy of the company, the depreciation period of the vehicle is 6 years, but its economic durability is 10-15 years. The second-hand price was used as the basis for valuation and the market approach was adopted in this assessment. The appraised value reflects the market price on the valuation benchmark date. The main reason for the appreciation of this assessment is that the depreciation period is much lower than the economic durability period.
(2) electronic equipment has a book value of RMB568,400 and an appraised value of RMB1,090,400, with a value-added rate of 91.82%. The main reasons are as follows: most of the electronic equipment was purchased in 2013 and 2014, and the book value was calculated based on the net value after provision for depreciation by the company. According to the accounting policy of the company, the depreciation period of the equipment is 4 years. As most of the equipment has been fully depreciated, its book value is the net residual value. The economic durability of electronic equipment is generally 5-8 years. This valuation used the market approach to evaluate the electronic equipment with earlier acquisition time, while other electronic equipment was assessed by the replacement cost method. The appraised value reflects the market price on the valuation benchmark date. The main reason for the appreciation of this assessment is that the depreciation period is much lower than the economic durability.

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LETTER FROM THE BOARD

The procedures for appointing a Valuer by the companies involved in this connected transaction is in compliance with relevant requirements of laws and regulations. The appointed Valuer has assets appraisal qualifications for the securities business, is competent in providing valuation services and satisfies the independence requirements. The valuation assumptions and valuation conclusion set forth in the valuation report are reasonable. According to the relevant provisions of state-owned assets supervision, the above asset valuation report has legally fulfilled the filing procedures in respect of state-owned assets in accordance with the relevant laws and regulations. The summary of valuation report is set out in Appendix II to this circular.

The Board has adopted the asset-based approach conclusion in the valuation report prepared by the Valuer, which is an independent company with relevant expertise in this field. Based on the conclusion of the Valuer, the Directors at the board meetings have not considered the income based approach when deciding on the valuation of the Target Company. As the Valuer is an independent professional entity that has prepared its valuation report based on industry standards and their professional judgment, the Directors were not involved or participated in any relevant discussions with the Valuer on the valuation or in particular, suitability of the income-based approach (including any cash flow forecast). Further, the Company or the Board was not involved in the preparation of the discounted cash flow forecast and/or the valuation.

INFORMATION ON THE PARTIES

The Company

The Company is an integrated gold company listed on the SSE and the Hong Kong Stock Exchange since 2003 and 2018, respectively and engaged in gold exploration, mining, processing, smelting and sales. It is one of the largest gold producers listed in the PRC and/or Hong Kong that operates in the PRC, controlling and operating more than 10 gold mines with operation primarily located in Shandong province. The Company has gradually expanded its business into the Inner Mongolia autonomous region, Gansu province and Fujian province and abroad, acquired a 50% interest in the Veladero Mine in San Juan province of Argentina in June 2017.

The Company first considered the Acquisition in late December 2018 when the department in charge of capital market operations of the Company raised the possibility of the Acquisition. The Company have gained experience from sale of gold business through its subsidiary (namely SDG Smelting) and the management and operation of two of the Target Company’s subsidiaries, namely Shanghai Precious Metals and Jinchuang Gold under the Equity Entrustment Framework Agreement since early 2018. After discussions with the management of the Company and SDG Group Co., it was then decided appropriate for the Company at this stage to make this Acquisition.

SDG Group Co.

SDG Group Co. was established by its promoters with approval from the Shandong Economic System Reform Committee (山東省經濟體制改革委員會) and the People’s Government of Shandong Province (山東省人民政府) in January 2000. As the Latest Practicable Date, SDG Group Co. directly and indirectly holds approximately 47.06% of the Company’s total issued share capital. As the Company’s controlling Shareholder, SDG Group Co. was established in July 1996. SDG Group engages in gold mining related operations, including geological exploration and mining of gold, gold processing, gold smelting and technical services, and production and sales of specialized equipment and supplies and construction materials for gold mines. The gold resources of SDG Group are mainly located in the PRC.

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LETTER FROM THE BOARD

Target Group

Target Company

The Target Company was established in the PRC in 14 November 2012 with a registered capital of RMB1.5 billion and is a wholly-owned subsidiary of SDG Group Co. It is principally engaged in gold leasing, asset management, sales and repurchase of precious metals (including gold, gold bars and gold ornaments). Since its establishment, the Target Company has been extensively exploring the features of the gold and the characteristics of the industry, proactively expanding channels for capital formation, enriching the financial sector, innovating business models, continuously promoting transformation and upgrade of the gold industry, extending the industry chain and improving capital operation, thereby garnering industry recognition and asserting regional influence.

The Target Company holds 20,979,020 Shares (representing approximately 0.95% of the total issued Shares) (which are still in lock-up period up to and including 20 October 2019). To prevent cross-shareholding loop caused by the Acquisition, the Target Company has entered into an agreement with SDG Group Co. to transfer all the said Shares held by it to SDG Group Co. gratis. The conditions in the agreement have been complied with and all approvals have been obtained. Accordingly, SDG Group Co. is the current owner of the said Shares. As at the Latest Practicable Date, the Shanghai Stock Exchange has granted a compliance confirmation opinion (合規確認意見) on the gratis transfer and the transfer registration has been completed on 24 July 2019. The Acquisition does not include the said Shares.

The particulars of the management team of the Target Company are as follows:

Table on the Target Company's board of directors, supervisory board and Senior Management

			Date of		Education and Professional	Contract
Name	Position	Age	Appointment	Working Experience	Qualifications	Status
Zhang Feng	Chairman,	45	October 2012,	Zhang Feng has over 22 years working	Obtained a bachelor’s degree in	Permanent
	Director		August 2018	experience in the finance department and the	accountancy from Open
				capital operation department of SDG Group.	University of China (中央廣
				Zhang Feng has served as the director of the	播電視大學) and an
				Target Company since October 2012 and the	intermediate level accountant
				Chairman of the Target Company since	qualification in 2001
				August 2018.
Liu Hongjun	Director,	50	October 2012,	Liu Hongjun has over 33 years working	Obtained a EMBA degree from	Permanent
	General		August 2018	experience in the finance department of the	Northeastern University and,
	Manager			subsidiary of SDG Group. Liu Hongjun has	and was recognized as a
				served as the director and the chief financial	senior accountant in 2009
				officer of the Target Company since October
				2012, and the general manager of the Target
				Company since August 2018.

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LETTER FROM THE BOARD

			Date of		Education and Professional	Contract
Name	Position	Age	Appointment	Working Experience	Qualifications	Status
Li Xin	Director,	49	August 2018	Li Xin has over 33 years working experience in	Obtained a master’ s degree in	Permanent
	Vice-			the finance department of various companies.	project management from
	General			Li Xin has worked at the management level in	Tianjin University, and was
	Manager			difference finance departments of SDG Group	recognized as a senior
				and its subsidiaries since 1997. Li Xin has	economist and a senior
				served as the director and the general	accountant
				manager of the Target Company since August
				2018.
Wu Chen	Director	44	October 2012	Wu Chen served as the deputy chief of offsite	Obtained a master’ s degree in	Permanent
				supervision department I of Shandong Office	Politics and Economics from
				of CBRC from July 2009 to November 2012,	Shandong University, and was
				the deputy chief of the large/state-owned bank	recognized as a senior
				regulatory department I and the regulatory	economist in 2014
				researcher (at director level) of the non-bank
				financial institutions regulatory division of
				Shandong Office of CBRC. Wu Chen has been
				the director of the Target Company and the
				general manager of SDG Group since October
				2012.
Li Xindan	Director	53	March 2014	Li Xindan has served as the director of the	Obtained a doctor’s degree in	30 June 2020
				Financial Engineering Research Centre in	finance from Fudan
				Nanjing University, a member of the Steering	University
				Committee for Professional Teaching of
				Finance under the Ministry of Education of
				the PRC, a member of the Listing Committee
				of Shanghai Stock Exchange, a member of the
				Corporate Governance Index Committee,
				postdoctoral lecturer of the SSE, Shenzhen
				Stock Exchange and the Head Office of Bank
				of Communication (交總行), a senior
				financial expert of the Shanghai Stock
				Exchange, a part-time researcher of the
				financial innovation lab. Li Xindan has also
				been an executive member of Chinese Finance
				Annual Meeting, chief of Capital Market
				Research Institute of Jiangsu Province, vice
				chairman of Jiangsu Finance Association and
				the vice chairman of Jiangsu Association of
				Science and Technology Innovation.

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LETTER FROM THE BOARD

			Date of		Education and Professional	Contract
Name	Position	Age	Appointment	Working Experience	Qualifications	Status
Li Junfeng	Chief	41	November 2018,	Li Junfeng has over 20 years working	Obtained a Bachelor’s Degree	Permanent
	Financial		December	experience in the finance department, audit	of Accountancy from
	Officer,		2014	and risk management department in various	Shandong Economics
	Supervisor			companies. Li Junfeng has worked at the	College, and qualified as an
				management level in the audit and risk	intermediate level accountant
				management department of SDG Group and	in 2003, a certified tax
				its subsidiaries since September 2009. Li	adviser in 2003 as well as a
				Junfeng has served as the chief financial	registered land appraiser in
				officer in the Target Company since	2008
				November 2018.
Lu Yin	Chief	46	July 2015	Lu Yin has over 24 years working experience in	Obtained a master’s degree in	31 December
	Human			the human resource department, and has been	labour economics from	2019
	Resources			the director of the human resource department	Renmin University of China,
	Officer			of the Target Company since July 2015.	the first-class certificate of
					senior level of human
					resources management in
					2010 and the second-class
					certificate of consultant
					psychologist in 2014
Han Wentao	Chief Risk	43	August 2015	Han Wentao has over 18 years working	Obtained a master’s degree in	31 December
	Officer			experience in the trading and capital	finance from University of	2019
				operation department, and has been the chief	International Business and
				risk officer of SD Gold Capital Management	Economics
				Co., Ltd. since August 2015.
Duan Huijie	Chairman	49	March 2014	Duan Huijie has over 25 years working	Obtained a bachelor of laws	Permanent
	of			experience in the legal department, and has	degree from the University of
	Supervisor			worked at the management level in the audit	Inner Mongolia in the PRC,
				and risk department, legal center and strategic	and qualified as a lawyer in
				planning department of SDG Group and its	the People’s Republic of
				subsidiaries since March 2010.	China in September 1995
Gao Bin	Supervisor	46	December 2014	Gao Bin has worked at the management level in	Obtained a master’s degree and	Permanent
				the business administration department, the	qualified as a senior political
				disciplinary supervision office, the group	engineer
				audit and supervision department and the
				group inspection office of SDG Group and its
				subsidiaries since September 2002.

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LETTER FROM THE BOARD

The Target Company has the following subsidiaries:

1. SDG Futures Co., Ltd. (“ SDG Futures ”)

SDG Futures was incorporated in the PRC in 24 November 1992 with a registered capital of RMB600 million. SDG Futures is a wholly-owned subsidiary of the Target Company, principally engaged in trading of domestic financial futures and commodity futures for customers, financial futures and commodity futures brokerage business, asset management and investment consultancy. At the Latest Practicable Date, SDG Futures has established one branch, six business departments and several business teams which are engaged in brokerage business development with daily average margin of approximately RMB900 million. Its main business model is to accept customer's entrustment to conduct futures trading for customers according to customer's instructions and charging transactions fee thereof. Based on the audit by Beijing Tianyuanquan pursuant to the China Accounting Standard for Business Enterprises, SDG Futures had total assets of RMB1,785,007,900 and net assets of RMB689,219,800 as at 31 March 2019.

2. SDG (Shanghai) Precious Metals Investment Co., Ltd. (“ SDG Precious Metals ”)

SDG Precious Metals was incorporated in the PRC in 21 February 2013 with a registered capital of RMB300 million. SDG Precious Metals is a wholly-owned subsidiary of the Target Company, principally engaged in sales of brand gold and purchased gold business.The sales of brand gold business are carried out by SDG Precious Metals through execution of agency sale contracts with banks to promote the “Shandong Gold” brand and other related gold products. The company has currently expanded its business to customized processing of precious metal products, repurchase of investment gold bars and storage of gold product business. The sales of purchased gold business are carried out by way of execution of gold purchase contracts with SDG Group and its related subsidiaries engaged in mining and thereafter signing contracts with subsidiaries of SDG Group to carry out gold processing. Based on the audit by Beijing Tianyuanquan pursuant to the China Accounting Standard for Business Enterprises, SDG Precious Metals had total assets of RMB2,081,519,500 and net assets of RMB438,236,100 as at 31 March 2019.

3. Jinchuang Gold (Shanghai) Co., Ltd. (“ Jinchuang Gold ”)

Jinchuang Gold was incorporated in the PRC in 13 September 2010 with a registered capital of RMB30 million. Jinchuang Gold is a wholly-owned subsidiary of the Target Company, principally engaged in gold brokerage and information consultancy at Shanghai Gold Exchange. As a comprehensive member of Shanghai Gold Exchange, Jinchuang Gold mainly engages in the precious metal deferred agency business at Shanghai Gold Exchange, which involves helping customers to handle trading, cash withdrawal and settlement of precious metal deferred agent service and providing consultancy services on the aforesaid matters. It also relies on the exchange platform to carry out leasing business of physical gold, silver, and platinum between banks and enterprises. Corporate client may realize over-the-counter (OTC) transactions including current, forward, and swap transactions through the OTC platforms designated by the exchange, providing customers with comprehensive precious metal financial services. Based on the audit by Beijing Tianyuanquan pursuant to the China Accounting Standard for Business Enterprises, Jinchuang Gold had total assets of RMB58,462,700 and net assets of RMB49,331,300 as at 31 March 2019.

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LETTER FROM THE BOARD

4. SDG International Capital Management Co., Ltd. (“ SDG International ”)

SDG International was incorporated in the PRC in 17 July 2014 with a registered capital of RMB1,000 million. SDG International is a wholly-owned subsidiary of the Target Company, principally engaged in gold trading and information consultancy on the international board at Shanghai Gold Exchange, and it is a member of the international board for Shanghai Gold Exchange. Its business model is mainly to carry out its precious metal proprietary trading and precious metal bullion business to obtain income. Further, SDG International conducts precious metal transactions for clients and charging fees for each transaction. Based on the audit by Beijing Tianyuanquan pursuant to the China Accounting Standard for Business Enterprises, SDG International had total assets of RMB10,786,800 and net assets of RMB10,782,400 as at 31 March 2019.

5. SDG Jinkong (Shenzhen) Gold Investment Co., Ltd. (“ Jinkong Shenzhen ”)

Jinkong Shenzhen was incorporated in the PRC in 13 May 2014 with a registered capital of RMB70 million. Jinkong Shenzhen is owned as to 70% by the Target Company and as to 30% by Shenzhen Junpeng Jewelry Co., Ltd.* (深圳市俊鵬珠寶首飾有限公司), and is principally engaged in the development of “Shandong Gold” brand franchise, conducting precious metal supply chain finance services including research and development and sales of precious metal products. Jinkong Shenzhen entrusts third parties to sell gold products to banks which will in turn resell the gold to their customers. Jinkong Shenzhen procure gold from Shanghai Gold Exchange or from gold smelteries at market prices and resell the same to banks through third parties. Jinkong Shenzhen also authorize franchisees to use the Shandong Gold brand in consideration for fixed franchise fees in return. As for gold supply chain finance business, Jinkong Shenzhen leases gold from banks through the Target Company at market prices and sublease the same to other companies at market prices, thus receiving the difference in interests accrued and service fees for subleasing of gold. Based on the audit by Beijing Tianyuanquan pursuant to the China Accounting Standard for Business Enterprises, Jinkong Shenzhen had total assets of RMB162,097,900 and net assets of RMB62,500,400 as at 31 March 2019.

6. Shanghai Shengju Asset Operation and Management Co., Ltd. (“ Shanghai Shengju ”)

Shanghai Shengju was incorporated in the PRC in 14 July 2009 with a registered capital of RMB121 million. Shanghai Shengju is a wholly-owned subsidiary of the Target Company, principally engaged in providing property leasing and property management service for the Target Company and its subsidiaries. The Block C office building of Shanghai Poly Plaza, being where Shanghai Shengju is based, are leased to the Target Company and its subsidiaries for rental income. Based on the audit by Beijing Tianyuanquan pursuant to the China Accounting Standard for Business Enterprises, Shanghai Shengju had total assets of RMB147,428,400 and net assets of RMB139,828,300 as at 31 March 2019.

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LETTER FROM THE BOARD

7. SDG (Shanghai) Capital Management Co., Ltd. (“ SDG (Shanghai) Capital ”)

SDG (Shanghai) Capital was incorporated in the PRC in 13 July 2018 with a registered capital of RMB100 million. SDG (Shanghai) Capital is a wholly-owned subsidiary of the Target Company. It is a new company set up by the Target Company for its business development needs and has not yet carried out actual business.

8. SDG (Shanghai) Investment and Management Ltd. (“ SDG (Shanghai) Investment ”)

SDG (Shanghai) Investment was incorporated in the PRC in 23 July 2018 with a registered capital of RMB100 million. SDG (Shanghai) Capital is a wholly-owned subsidiary of the Target Company. It is a new company set up by the Target Company for its business development needs and has not yet carried out actual business.

REASONS FOR AND BENEFITS OF THE ACQUISITION

1. Achieving the extension of the gold industry chain, promoting the integration of industry and finance, and accelerating the realization of the Company’s strategic development goals

The acquisition of the financial assets and gold products sales platform under SDG Group Co. that are closely related to the gold industry by the Company, is beneficial to the Company in completing the business extension of the gold industry chain, promoting the integration of industry and finance, playing a coordinating effect, enhancing the influence of the Company’s market brand, and will accelerate the realisation of the Company’s strategic development goals. Indeed, the Company has, apart from its principally engaged gold mining business, conduct sales of gold business from SDG Smelting Co. and gained valuable experience through the management of two subsidiaries of the Target Company, namely Shanghai Precious Metals and Jinchuang Gold under the Equity Entrustment Framework Agreement since early 2018. The combination of the aforesaid shows that the Acquisition is closely related to the Company’s business. Further, to the best knowledge of the Company, there will be no material changes to the management team of the Target Group as a result of the Acquisition. Given the Group’s management experience and that there are no material changes to the management team of the Target Group, the Company believes that it has the skills and experience in managing the business of the Target Group.

For the reasons explained below, the Acquisition is beneficial to the Company in extending its business in the gold industry chain.

(1) The Target Company, SDG Futures, Jinchuang Gold and SDG International are engaged in gold derivatives, gold brokerage, gold leasing and other related financial businesses. Upon the completion of the Acquisition, the Company will be able to realise business expansion from the gold industry chain to the financial industry, which is beneficial to the Company and the Target Company in completing the promotion of the integration of industry and finance, and playing a synergy effect.

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LETTER FROM THE BOARD

(2) SDG Precious Metals and Jinkong Shenzhen are engaged in branded gold sales business, customised processing business of precious metals and accessories. Upon the completion of the Acquisition, the Company will be able to realise business extension in relation to the sales of gold in the downstream industry, to promote “Shandong Gold” brand and related products, so as to enhance the influence of brand.

As stated above, the acquisition of the Target Company and its subsidiaries is beneficial to the promotion of the integration of industry and finance, playing a synergy effect, enhancing the influence of market brand, and will accelerate the realisation of the Company’s strategic development goals.

2. Reducing horizontal competition

The Target Company and the Company operate a convergence business of gold sales. In particular, the Target Company, SDG Precious Metals and Jinkong Shenzhen are in horizontal competition with SDG Smelting, a wholly owned subsidiary of the Company on gold sale business. By acquiring the Target Group, the Company can create cost saving and revenue synergies in terms of sale of gold business. The acquisition of 100% equity interest in the Target Company from the SDG Group Co. is beneficial to the Company to further reduce the horizontal competition with the SDG Group Co., regulate corporate governance, and is in line with the regulatory requirements.

3. Enhancing the asset scale and financial performance of the Company

Upon Completion, the Company will hold 100% of the equity interest in the Target Company and the Target Company will be included in the consolidated financial statements of the Company. This transaction will expand the operation scale of the Company, and also enhance the asset scale and financial performance of the Company.

Save and except this Acquisition, there are no plans to introduce new business segments in the Group.

OPINION FROM THE BOARD

The Directors (including the independent non-executive Directors, being members of the Independent Board Committee) are of the view that the terms of the Sale and Purchase Agreement are fair and reasonable, the transactions contemplated under the Sale and Purchase Agreement are on normal commercial terms and are in the interests of the Company and the Shareholders as a whole.

HONG KONG LISTING RULES IMPLICATION

As the highest applicable percentage ratios in respect of the Acquisition exceeds 5% but less than 25%, as calculated under Rule 14.07 of the Hong Kong Listing Rules, the Acquisition constitutes a discloseable transaction for the Company under Chapter 14 of the Hong Kong Listing Rules.

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LETTER FROM THE BOARD

The Target Company is a connected person of the Company by virtue of the fact that (i) SDG Group Co. is the controlling Shareholder of the Company, directly and indirectly holding approximately 47.06% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) the Target Company is a wholly-owned subsidiary of SDG Group Co., and hence an associate of the Company. Accordingly, the Acquisition also constitutes a connected transaction for the Company under Chapter 14A of the Hong Kong Listing Rules and is subject to reporting, announcement and Independent Shareholders’ approval requirements.

The Directors, Mr. Li Guohong, Mr. Wang Lijun and Ms. Wang Xiaoling, also hold senior management positions in SDG Group Co., are deemed to have material interests in the Acquisition and have abstained from voting on the resolutions in relation to the Sale and Purchase Agreement proposed to the Board. Save as disclosed above, none of the Directors attended the Board meeting has a material interest in the Acquisition.

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Gao Yongtao, Mr. Lu Bin and Ms. Hui Wing, has been established to consider the terms of the Sale and Purchase Agreement and the transactions contemplated thereunder. The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

None of the members of the Independent Board Committee has any interest or involvement in the transactions contemplated under the Sale and Purchase Agreement. The Independent Board Committee will form its view in respect of the terms of the Acquisition after obtaining and considering the advice from the Independent Financial Adviser.

Independent Board Committee

In compliance with the Hong Kong Listing Rules, the Independent Board Committee has been established to consider the terms of the Sale and Purchase Agreement and to advise the Independent Shareholders as to whether they are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole and to give its recommendation as to the voting in respect of the resolution to be proposed at the EGM for approving the Acquisition, after taking into account the recommendation of the Independent Financial Adviser. In this connection, the Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders regarding the terms of the Acquisition. The text of the letter from the Independent Board Committee is set out on page 32 of this circular and the text of the letter from the Independent Financial Adviser containing its advice is out on pages 33 to 45 of this circular.

Pursuant to 14A.36 of the Hong Kong Listing Rules, any Shareholder who has a material interest in the Sale and Purchase Agreement shall abstain from voting to approve the Sale and Purchase Agreement and the Acquisition at the EGM. As at the Latest Practicable Date, SDG Group Co., being the controlling Shareholder, directly or indirectly holds approximately 47.06% of the issued share capital of the Company and is also the sole shareholder of the Target Company, will be required to abstain from voting on the relevant resolutions at the EGM accordingly. Save for SDG Group Co. and its subsidiaries, including Shandong Gold Non-ferrous Metal Mine Group Co., Ltd., Shandong Gold Geological Mine Exploration Co., Ltd., Shandong Gold Group Qingdao Gold Co., Ltd., and SDG (Beijing) Industry Investment Co., Ltd., as at the Latest Practicable Date, to the best knowledge of the Directors, no other Shareholder would be required to abstain from voting thereat as no other Shareholder has any interest in the Sale and Purchase Agreement.

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LETTER FROM THE BOARD

The proposals have been considered and approved at the 21st meeting of the fifth session of the Board and are hereby submitted to the EGM for consideration and approval.

(2) ESTIMATED NEW DAILY CONNECTED TRANSACTIONS OF THE COMPANY AFTER THE ACQUISITION OF THE EQUITY INTEREST OF THE TARGET COMPANY

Reference is made to the Company’s annual report dated 25 April 2019 in relation to the Procurement and Sale Framework Agreement under the Connected Transactions section. The Company has entered into a framework agreement for procurement and sale of supplies, products and services with SDG Group Co. (the “ Procurement and Sale Framework Agreement ”), pursuant to which, our Group may from time to time purchase from and sell to SDG Group Co. and/or its associates various types of supplies, products and services.

Upon Completion, the Target Group will become a member of the Group. As such, the Target Group’s transaction with SDG Group Co. and/or its associates will become connected transactions of the Group.

In contemplation for Completion and the transactions contemplated thereunder, the Company proposed the amendments of the existing annual caps (the “ Original Annual Caps ”) for the year ending 31 December 2019 (the “ Revised Annual Caps ”):

Original Annual Caps

Procurement of electricity from SDG Electricity Company Procurement of construction services for our PRC gold mines Procurement of processing services from smelteries of SDG Group Procurement of gold (mainly including gold concentrate and doré) Others (including training fees, property management fees, etc.) Total Procurement of Supplies, Products and Services	Annual Caps (RMB million) For the year ending 31 December 2019 2020 450.0 500.0 140.0 140.0 10.0 10.0 650.0 650.0 50.0 50.0 1,300.0 1,350.0	Annual Caps (RMB million) For the year ending 31 December 2019 2020 450.0 500.0 140.0 140.0 10.0 10.0 650.0 650.0 50.0 50.0 1,300.0 1,350.0
		1,350.0

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LETTER FROM THE BOARD

Annual Caps (RMB million) For the year ending 31 December 2019 2020 Provision of Processing Services by SDG Smelting Co. 5.0 5.0 Sale of gold (mainly including standard gold bullion) 725.0 775.0 Sale of other metals (including silver, lead and zinc) 60.0 60.0 Others (including utilities charge, outsourcing fees and disposal charge, etc.) 10.0 10.0 Total Sale of Supplies, Products and Services 800.0 850.0 Revised Annual Caps Annual Caps (RMB million) For the year ending 31 December 2019 Procurement of electricity from SDG Electricity Company 450.0 Procurement of construction services for our PRC gold mines 140.0 Procurement of processing services from smelteries of SDG Group 10.0 Procurement of gold (mainly including gold concentrate and doré) 1,630.0 Others (including training fees, property management fees, etc.) 70.0 Total Procurement of Supplies, Products and Services 2,300.0 Annual Caps (RMB million) For the year ending 31 December 2019 Provision of Processing Services by SDG Smelting Co. 5.0 Sale of gold (mainly including standard gold bullion) 725.0 Sale of other metals (including silver, lead and zinc) 60.0 Others (including utilities charge, outsourcing fees and disposal charge, etc.) 10.0 Total Sale of Supplies, Products and Services 800.0	Annual Caps (RMB million) For the year ending 31 December 2019 2020 Provision of Processing Services by SDG Smelting Co. 5.0 5.0 Sale of gold (mainly including standard gold bullion) 725.0 775.0 Sale of other metals (including silver, lead and zinc) 60.0 60.0 Others (including utilities charge, outsourcing fees and disposal charge, etc.) 10.0 10.0 Total Sale of Supplies, Products and Services 800.0 850.0 Revised Annual Caps Annual Caps (RMB million) For the year ending 31 December 2019 Procurement of electricity from SDG Electricity Company 450.0 Procurement of construction services for our PRC gold mines 140.0 Procurement of processing services from smelteries of SDG Group 10.0 Procurement of gold (mainly including gold concentrate and doré) 1,630.0 Others (including training fees, property management fees, etc.) 70.0 Total Procurement of Supplies, Products and Services 2,300.0 Annual Caps (RMB million) For the year ending 31 December 2019 Provision of Processing Services by SDG Smelting Co. 5.0 Sale of gold (mainly including standard gold bullion) 725.0 Sale of other metals (including silver, lead and zinc) 60.0 Others (including utilities charge, outsourcing fees and disposal charge, etc.) 10.0 Total Sale of Supplies, Products and Services 800.0	Annual Caps (RMB million) For the year ending 31 December 2019 2020 Provision of Processing Services by SDG Smelting Co. 5.0 5.0 Sale of gold (mainly including standard gold bullion) 725.0 775.0 Sale of other metals (including silver, lead and zinc) 60.0 60.0 Others (including utilities charge, outsourcing fees and disposal charge, etc.) 10.0 10.0 Total Sale of Supplies, Products and Services 800.0 850.0 Revised Annual Caps Annual Caps (RMB million) For the year ending 31 December 2019 Procurement of electricity from SDG Electricity Company 450.0 Procurement of construction services for our PRC gold mines 140.0 Procurement of processing services from smelteries of SDG Group 10.0 Procurement of gold (mainly including gold concentrate and doré) 1,630.0 Others (including training fees, property management fees, etc.) 70.0 Total Procurement of Supplies, Products and Services 2,300.0 Annual Caps (RMB million) For the year ending 31 December 2019 Provision of Processing Services by SDG Smelting Co. 5.0 Sale of gold (mainly including standard gold bullion) 725.0 Sale of other metals (including silver, lead and zinc) 60.0 Others (including utilities charge, outsourcing fees and disposal charge, etc.) 10.0 Total Sale of Supplies, Products and Services 800.0
		850.0

		Annual Caps (RMB million) the year ending December 2019 450.0 140.0 10.0 1,630.0 70.0
		2,300.0

	For 31	Annual Caps (RMB million) the year ending December 2019 5.0 725.0 60.0 10.0
		800.0

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LETTER FROM THE BOARD

Historical Figures

The historical amounts of (i) relevant procurements by the Group from SDG Group Co. and/or its associates for the supplies, products and services and (ii) the relevant sales from the Group to SDG Group Co. and/or its associates for the supplies, products and services are as follows:

Procurement of electricity from SDG Electricity Company Procurement of construction services for our PRC gold mines Procurement of processing services from smelteries of SDG Group Procurement of gold (mainly including gold concentrate and doré) Others (including training fees, property management fees, etc.) Total Procurement of Supplies, Products and Services Provision of Processing Services by SDG Smelting Co. Sale of gold (mainly including standard gold bullion) Sale of other metals (including silver, lead and zinc) Others (including utilities charge, outsourcing fees and disposal charge, etc.) Total Sale of Supplies, Products and Services	Historical figures (RMB million) For the year ended 31 December 2016 2017 2018 368.86 367.94 386.78 125.87 103.94 114.46 6.90 3.16 4.77 283.25 48.6 220.62 11.62 29.57 38.46 796.5 553.21 765.10 Historical figures (RMB million) For the year ended 31 December 2016 2017 2018 0.01 0.74 0.76 692.91 136.19 114.60 59.38 23.01 0.39 1.65 4.43 6.10 753.95 164.37 121.85	Historical figures (RMB million) For the year ended 31 December 2016 2017 2018 368.86 367.94 386.78 125.87 103.94 114.46 6.90 3.16 4.77 283.25 48.6 220.62 11.62 29.57 38.46 796.5 553.21 765.10 Historical figures (RMB million) For the year ended 31 December 2016 2017 2018 0.01 0.74 0.76 692.91 136.19 114.60 59.38 23.01 0.39 1.65 4.43 6.10 753.95 164.37 121.85
		121.85

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LETTER FROM THE BOARD

Basis for increase of the Revised Annual Caps

Procurement of gold (mainly including gold concentrate and doré)

The Revised Annual Caps have taken into account the historical transaction amounts between the Target Group and SDG Group Co. and/or its associates which are RMB619.83 million, RMB1,463.41 million and RMB1,250.61 million respectively for the three years ended 31 December 2016, 2017 and 2018 and the historical transaction amounts between the Target Group and the Group which are RMB280.51 million, RMB115.39 million and RMB114.60 million respectively for the three years ended 31 December 2016, 2017 and 2018; (2) the projected procurement of gold by the Target Group from SDG Group Co. and/or its associates upon Completion is RMB916.78 million for the seven months from June to December 2019 which is projected based on the historical transactions between the Target Group with SDG Group Co. and/or its associates of RMB468.35 million for the five months from January to May 2019 and on the historical transaction figures for the past three years; (3) market conditions and gold prices based on gold exchange market price which have steadily increased for the past years.

Others (including training fees, property management fees, etc.)

The Revised Annual Caps under this category has increased from RMB50 million to RMB70 million as the Company mainly took into account in particular of a service fee for conducting screening and inspection on international gold resources projects for the Company and conducting pre-merger work for the said projects. payable to SDG (Beijing) Industry Investment Co., Ltd. (山東黃金（北京）產業投資有限公司).

Internal Control & Pricing Policies

In order to ensure that the terms under the Procurement and Sale Framework Agreement are not less favourable than those available from independent third parties, the Company has adopted the following measures:

If government-prescribed/government guided price is applicable to any particular suppliers, products or services, such as electricity, gold and certain metals, such supplies, products or services shall be supplied at the applicable government-prescribed/government guided price. Where such price standard is not available, the price shall be determined based on public bidding price. If there is no government-prescribed/government guided price or public bidding price, the price shall be determined taking into account then prevailing market prices of the same or similar products or services. If there is no above-mentioned references available, the price shall be negotiated through arm’s length negotiations by the parties on normal commercial terms;
the Company will supervise the continuing connected transactions in accordance with the procedures set forth in the Company’s internal control mechanism on continuing connected transactions. The Company will require the relevant personnel of the business department of the Company’s subsidiaries that are conducting transactions with SDG Group Co. and/or its associates to conduct regular checks to review and assess whether the transactions contemplated under the relevant continuing connected transactions are conducted in accordance with the terms of their respective agreements and will also regularly update the aforesaid pricing policy for the purpose of considering if the prices charged for specific transactions are fair and reasonable and in accordance with the aforesaid pricing policy; and

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LETTER FROM THE BOARD

the Company’s external auditors will conduct an annual review on the annual caps of the continuing connected transactions.

Reasons for the amendment to the Revised Annual Caps

The estimated new daily connected transactions of the Company after the Acquisition of the equity interest of the Target Company are all necessary for the Company’s day-to-day production operation, and for the purpose to ensure the continuous and effective production operation of the Company. The Company has selected the related parties based on our knowledge on their operation management, creditability and performance ability and the geographical convenience, which would reduce the procurement and sales cost and broaden the financing channels. The connected transactions will not have any adverse impact on the ability of the Company in operating as a going concern, its profitability or independence, nor will they result in any reliance of the Company on its related parties.

OPINION FROM THE BOARD

The Directors (including the independent non-executive Directors) are of the view that the Revised Annual Caps were determined after arm’s length negotiation, and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and in the interests of the Company and its Shareholders as a whole. The Procurement and Sale Framework Agreement are and will be conducted in the ordinary and usual course of business of the Company. The Procurement and Sale Framework Agreement will continue to be agreed on an arm’s length basis with terms that are fair and reasonable to the Company. The Directors confirm that the transaction amounts under the Procurement and Sales Framework Agreement for the period from 1 January 2019 to the Latest Practicable Date comply with the relevant Original Annual Caps.

The Directors, Mr. Li Guohong, Mr. Wang Lijun and Ms. Wang Xiaoling, also hold senior management positions in SDG Group Co., they have therefore abstained from voting on the relevant Board resolutions approving each of the Revised Annual Caps under the Procurement and Sale Framework Agreement of and the transactions contemplated thereunder. Save as disclosed above, none of the other Directors has material interests in the transactions contemplated under the Revised Annual Caps.

HONG KONG LISTING RULES IMPLICATION

The Target Company is a connected person of the Company by virtue of the fact that (i) SDG Group Co. is the controlling Shareholder of the Company, directly and indirectly holding approximately 47.06% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) the Target Company is a wholly-owned subsidiary of SDG Group Co., and hence an associate of the Company. Accordingly, the Revised Annual Caps constitutes a continuing connected transaction for the Company under Chapter 14A of the Hong Kong Listing Rules.

As all the relevant percentage ratios (as defined under Rule 14.07 of the Hong Kong Listing Rules) for the Revised Annual Caps for the Procurement and Sale Framework Agreement are more than 0.1% but all the percentage ratios are less than 5%, the Revised Annual Caps for Procurement and Sale Framework Agreement is subject to the reporting and announcement requirements but is exempt from the independent shareholders’ approval requirement under the Hong Kong Listing Rules. However,

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LETTER FROM THE BOARD

according to the Shanghai Listing Rules and the Articles of Association, the Revised Annual Caps for Procurement and Sale Framework Agreement has to be submitted to the EGM for consideration and approval.

Save for SDG Group Co. and its subsidiaries, including Shandong Gold Non-ferrous Metal Mine Group Co., Ltd., Shandong Gold Geological Mine Exploration Co., Ltd., Shandong Gold Group Qingdao Gold Co., Ltd., and SDG (Beijing) Industry Investment Co., Ltd., as at the Latest Practicable Date, to the best knowledge of the Directors, no other Shareholder would be required to abstain from voting thereat as no other Shareholder has any interest in the estimated new daily connected transactions of the Company after the Acquisition.

The proposals have been considered and approved at the 21st meeting of the fifth session of the Board and are hereby submitted to the EGM for consideration and approval.

(3) PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

Pursuant to the Code of Corporate Governance of Listed Companies (2018 Revision), the Guidance for the Articles of Association of Listed Companies (2019 Revision) and relevant laws and regulations promulgated by the CSRC and taking into account the actual situation, the Company proposes to make amendments to Articles of Association, details of which can be referred to Appendix III of this Circular.

The Board considered that the proposed amendments to the Articles of Association are in the interests of the Company and its shareholders.

(4) GENERAL MANDATE TO ISSUE H SHARES

To ensure flexibility and discretion to the Board to issue new Shares when it becomes desirable, the Company proposes to grant the General Mandate to the Board to allot, issue and otherwise deal with additional H Shares of the Company up to the limit of 20% of the aggregate nominal values of the H Shares of the Company in issue on the date of passing such resolution.

As at the Latest Practicable Date, the issued share capital of the Company comprised of 1,857,118,809 A Shares and 356,889,500 H Shares. Subject to the approval of the grant of the General Mandate and on the basis that no further Shares are issued before the EGM, the Board will have the power to issue up to 71,377,900 H Shares.

The General Mandate shall be effective until the earliest of: (i) the conclusion of the next annual general meeting of the Company; (ii) the expiration of the period within which the next annual general meeting of the Company is required by the Articles of Association or other applicable laws and regulations to be held; or (iii) the revocation or variation of the authority given under this resolution by passing of a special resolution of the Company in a general meeting.

Any exercise of the power by the Board under the General Mandate shall comply with the relevant requirements of the Listing Rules, the Articles of Association and the applicable laws and regulations of the PRC. The Board has no concrete plans to issue new Shares pursuant to the General Mandate at present.

The proposal has been considered and approved at the 21st meeting of the fifth session of the Board and is hereby submitted to the EGM for consideration and approval.

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LETTER FROM THE BOARD

EGM

The EGM is originally proposed to be held at the conference room of the Company, Building No. 3, Shuntai Plaza, Shunhua Road No. 2000, Jinan, Shandong Province, the PRC at 9:00 a.m. on Monday, 12 August 2019. The said EGM is now postponed to be held at the same place at 9:00 a.m. on Friday, 23 August 2019. Please refer to the Company’s announcement dated 5 August 2019 for details. The revised notice of the EGM is set out in Appendix IV to this circular.

Any Shareholder entitled to attend and vote at the EGM is entitled to appoint one or more proxies to attend and vote on his behalf. A proxy need not be a Shareholder. If you intend to appoint a proxy to attend the EGM and vote on your behalf, you are requested to complete the accompanying revised proxy form in accordance with the instructions printed thereon and return it, by hand, by post or by facsimile, to the Company’s H share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for H Shareholders only) as soon as possible and in any event not later than 24 hours before the time appointed for the holding of the EGM or any adjournment thereof (as the case may be) (i.e. before 9:00 a.m on Thursday, 22 August 2019). Completion and return of the revised proxy form will not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

For the avoidance of doubt, any proxy form or reply slip duly completed and returned in accordance with the instructions printed thereon by the shareholders remains valid for the EGM postponed to Friday, 23 August 2019, and the relevant shareholders are not required to submit the proxy forms or reply slips again.

CLOSURE OF REGISTER OF MEMBERS

For the purpose of ascertaining the Shareholders who are entitled to attend and vote at the EGM, the register of members of the Company will be closed from Saturday, 13 July 2019 to Friday, 23 August 2019, both dates inclusive, during which period no transfers of Shares will be effected.

In order to qualify to attend and vote at the EGM, all transfer instruments accompanied by the relevant share certificates must be lodged by holders of H Shares with the Company’s H Share Registrar, namely, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong no later than 4:30 p.m. on Friday, 12 July 2019.

VOTING

Pursuant to Rule 13.39(4) of the Hong Kong Listing Rules and Article 119 of the Articles of Association, unless the chairman makes a decision in the spirit of honesty and credibility and agrees that the resolutions on relevant procedures or administrative matters shall be voted on by show of hands, voting for a general meeting shall be held by ballot.

Pursuant to Article 111 of the Articles of Association, Shareholders (including proxies) shall exercise their voting rights according to the number of voting shares they represent, with one vote for each share. Pursuant to Article 120 of the Articles of Association, on a poll taken at a meeting, a Shareholder (including proxy) entitled to two or more votes need not cast all his votes in the same way.

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LETTER FROM THE BOARD

RECOMMENDATION

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the terms of the Sale and Purchase Agreement are on normal commercial terms and is fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution approving the Acquisition at the EGM.

In light of the above, the Directors believe that all the proposed resolutions at the EGM are in the best interests of the Company and its Shareholders. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board Shandong Gold Mining Co., Ltd. Li Guohong

Chairman

— 31 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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SHANDONG GOLD MINING CO., LTD. 山東黃金礦業股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1787)

7 August 2019

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 100% EQUITY INTEREST IN THE TARGET COMPANY

We refer to the circular of the Company dated 7 August 2019 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings herein unless the context otherwise requires.

We have been appointed to form the Independent Board Committee to consider and advise the Independent Shareholders as to whether, in our opinion, the terms of the Sale and Purchase Agreement, details of which are set out in the letter from the Board contained in the Circular, are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

The Independent Board Committee considers that (i) the terms of the Sale and Purchase Agreement are on normal commercial terms and is fair and reasonable, and (ii) entering into the Sale and Purchase Agreement, while not in the ordinary and usual course of business of the Group, is nevertheless in the interests of the Company and the Shareholders as a whole.

Having considered the terms of the Sale and Purchase Agreement and the advice of the Independent Financial Adviser in relation thereto as set out on pages 33 to 45 of this Circular, we are of the opinion that the terms of the Sale and Purchase Agreement are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Independent Shareholders and the Company as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Acquisition.

Yours faithfully,

For and on behalf of the Independent Board Committee

Mr. Gao Yongtao, Mr. Lu Bin and Ms. Hui Wing

Independent non-executive Directors

— 32 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from China Tonghai Capital Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, which has been prepared for the purpose of incorporation in this circular.

7 August 2019

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 100% EQUITY INTEREST IN THE TARGET COMPANY

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in connection with the Company’s proposed acquisition of the entire equity interest in SD Gold Capital Management Co., Ltd. (the “ Target Company ”) from the SDG Group Co. pursuant to the Sale and Purchase Agreement. Details of the Acquisition are contained in the circular issued by the Company to the Shareholders dated 7 August 2019 (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

On 21 June 2019 (after trading hours), the Company (as the purchaser) and SDG Group Co. (as the seller), entered into the Sale and Purchase Agreement, pursuant to which, the Company conditionally agreed to purchase, and SDG Group Co. conditionally agreed to sell, the 100% equity interest in the Target Company at a consideration of RMB2,272.3191 million.

The Target Company is a connected person of the Company by virtue of the fact that (i) SDG Group Co. is the controlling Shareholder, directly and indirectly holding approximately 47.06% of the issued share capital of the Company; and (ii) the Target Company is a wholly-owned subsidiary of SDG Group Co., and hence an associate of SDG Group Co.. As such, the Acquisition constitutes a connected transaction of the Company under Chapter 14A of the Hong Kong Listing Rules. As the highest applicable percentage ratios as set out in Rule 14.07 of the Hong Kong Listing Rules in respect of the Acquisition exceed 5% but are less than 25%, the Acquisition also constitutes a discloseable transaction for the Company under Chapter 14 of the Hong Kong Listing Rules. Accordingly, the Acquisition is subject to reporting, announcement and Independent Shareholders’ approval requirements under the Hong Kong Listing Rules.

Since SDG Group Co. has an interest in the Sale and Purchase Agreement, it will be required to abstain from voting on the relevant resolution at the EGM. Save for SDG Group Co. and its subsidiaries, as at the Latest Practicable Date, to the best knowledge of the Directors, no other Shareholder has any interest in the Sale and Purchase Agreement which is different from the other Shareholders.

— 33 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Gao Yongtao, Mr. Lu Bin and Ms. Hui Wing, has been established to advise the Independent Shareholders in respect of the terms of the Sale and Purchase Agreement and the transactions contemplated thereunder. As the Independent Financial Adviser, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders in such regard.

During the past two years, there was no engagement between the Group and us other than the current appointment in relation to the Acquisition. As at the Latest Practicable Date, we did not have any relationships or interests in the Company or SDG Group Co. that could reasonably be regarded as relevant to our independence. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist whereby we had received any fees or benefits from the Company or any other parties. Accordingly, we are qualified to give independent advice in respect of the Acquisition.

BASIS OF OUR OPINION

In formulating our opinion and advice, we have relied on (i) the information and facts contained or referred to in the Circular; (ii) the information provided by the Group including the Sale and Purchase Agreement; (iii) the opinions expressed by and the representations of the Directors and the management of the Group and (iv) our review of the relevant public information. We have assumed that all the information provided and representations and opinions expressed to us or contained or referred to in the Circular were true, accurate and complete in all respects as at the date thereof and may be relied upon. We have also assumed that all statements contained and representations made or referred to in the Circular are true at the time they were made and continue to be true as at the Latest Practicable Date and all such statements of belief, opinions and intentions of the Directors and the management of the Company and those as set out or referred to in the Circular were reasonably made after due and careful enquiry. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and the management of the Company. We have also sought and received confirmation from the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular and that all information or representations provided to us by the Directors and the management of the Company are true, accurate, complete and not misleading in all respects at the time they were made and continued to be so until the date of the EGM.

We consider that we have reviewed the sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided, representations made or opinion expressed by the Directors and the management of the Company, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or future prospects of the Company or SDG Group Co..

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation, we have taken into account the principal factors and reasons set out below:

1. Background of the Group

(i) Principal activities

The Company is an integrated gold company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange since 2003 and 2018, respectively. The Company is principally engaged in exploration, mining, processing, smelting and sales of gold in the PRC. It mainly produces standard gold bullions and investment gold bars and silver ingots and other products of various specifications, and is one of the largest gold producers listed in the PRC and Hong Kong that controls and operates more than 10 gold mines with operation primarily located in Shandong province, where is the largest gold producing province in China in terms of 2017 gold mine production volume.

Throughout the years, the Company has also gradually expanded its business into the Inner Mongolia autonomous region, Gansu province and Fujian province and abroad. As disclosed in the Company’s prospectus dated 14 September 2018 (the “ Prospectus ”), as the first step in the Company’s overseas expansion, on 30 June 2017, the Company acquired a 50% interest in the Veladero Mine, the largest gold mine in Argentina and in South America (the “ Veladero Acquisition ”) in terms of 2017 gold mine production volume. Through the Veladero Acquisition, the Company operates the largest overseas gold mine amongst PRC gold companies.

(ii) Financial performance

Set out below is a summary of the audited consolidated financial results of the Company for the three years ended 31 December 2018 prepared in accordance with International Financial Reporting Standards (“ IFRSs ”), as extracted from the Prospectus and the Company’s annual report for the year ended 31 December 2018 (the “ 2018 Annual Report ”).

	For the	For the	For the
	year ended	year ended	year ended
	31 December	31 December	31 December
	2018	2017	2016
	RMB’000	RMB’000	RMB’000
Revenue	54,787,877	51,041,303	49,072,691
Gross profit	3,931,216	3,642,643	3,505,562
Operating profit	1,983,263	2,108,942	2,034,924
Profit for the year	872,243	1,172,993	1,312,782
Profit attributable to
the Shareholders	816,048	1,118,920	1,286,642

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Year ended 31 December 2018 vs year ended 31 December 2017

The revenue increased by approximately 7.3% from approximately RMB51,041.3 million in 2017 to approximately RMB54,787.9 million in 2018, which was mainly attributable to the increase in sales of the Group’s self-produced gold and small gold bars, as well as the inclusion of full-year revenue from gold bullions produced by gold mined in the Veladero Mine resulting from the Veladero Acquisition. The gross profit margin of the Group remained relatively stable in 2018 as compared with 2017.

The operating profit margin of the Group amounted to approximately 3.6% in 2018, when compared to approximately 4.1% in 2017. Such decrease was mainly attributable to the increase in administrative expenses from approximately RMB1,214.3 million in 2017 to approximately RMB1,383.7 million in 2018, which mainly due to the general increase in staff costs and the inclusion of full-year expenses resulting from the Veladero Acquisition. The decrease in profit attributable to the Shareholders in 2018 was generally in line with the aforesaid decrease in operating profit.

Year ended 31 December 2017 vs year ended 31 December 2016

The revenue increased by approximately 4.0% from approximately RMB49,072.7 million in 2016 to approximately RMB51,041.3 million in 2017, which was mainly due to the increase in sales of customised gold products and a general increase in average selling prices of the Group’s products primarily driven by the average increase in gold prices during the year. Both of the gross profit margin and the operating profit margin of the Group remained relatively stable in 2017 as compared with those of 2016.

The decrease in profit attributable to the Shareholders in 2017 as compared to 2016 was mainly attributable to the increase in finance costs by approximately 58.0% from approximately RMB375.6 million in 2016 to approximately RMB593.5 million in 2017, primarily resulting from an increase in interest expenses from bank borrowings and a one-off guarantee and arrangement fee incurred for bank borrowings in relation to the Veladero Acquisition.

2. Reasons for and benefits of the Acquisition

As disclosed in the Prospectus, the Company intends to continue to assess potential high quality resources from its controlling Shareholder and evaluate opportunities to acquire such resources.

The acquisition of the financial assets and gold products sales platform under SDG Group Co. not only serve to extend the gold industry chain of the Company beyond its principal activities in gold exploration, mining, processing and smelting on one hand, but also realise strategic business expansion from the gold industry chain to financial industry, which is beneficial to the Company and the Target Company in completing the promotion of the integration of industry and finance, enhance the influence of the Company’s market brand and will accelerate the realisation of the Company’s strategic development goals.

As disclosed in the “Letter from the Board”, the Target Company and the Company operate a convergence business of gold sales. The Company conducts sale and procurement of gold through its wholly-owned subsidiary, which are in competition with the Target Group. Following the Completion, the Acquisition is expected to further reduce the horizontal competition between the Group and the SDG Group Co. which is expected to be beneficial to the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Following the completion of the Acquisition, the Target Company and its subsidiaries (the “ Target Group ”) will be consolidated into the Company’s financial statements. As stated in the “Letter from the Board”, the Acquisition will expand the operation scale of the Company, and also enhance the asset scale and financial performance of the Company.

Based on the aforesaid, we concur with the Directors’ view that the Acquisition is in the interests of the Company and the Independent Shareholders as a whole.

3. Principal terms of the Sale and Purchase Agreement

(i) Subject matter

On 21 June 2019 (after trading hours), the Company entered into the Sale and Purchase Agreement with SDG Group Co., pursuant to which SDG Group Co. conditionally agreed to sell, and the Company conditionally agreed to purchase the 100% equity interest in the Target Company at a consideration of RMB2,272.3191 million.

The consideration payable under the Sale and Purchase Agreement was determined between the Company and SDG Group Co. by reference to the market value of the entire equity interest attributable to the shareholders of the Target Company based on the valuation of the Target Group as at 31 March 2019 as independently assessed by an independent valuer. For details, please refer to the section headed “5. Evaluation of the consideration” in this letter.

Pursuant to the terms of the Sale and Purchase Agreement, the Company shall pay the consideration to SDG Group Co. within ten days from the date of Completion by cash in a lump sum.

(ii) Conditions precedent

Completion is conditional upon the following conditions precedent being satisfied or waived (if applicable):

1) the obtaining of the approval in relation to the Sale and Purchase Agreement by the Board and the EGM pursuant to the Shanghai Listing Rules and Hong Kong Listing Rules, and
2) the performing of all required procedures by the SDG Group Co. in respect of the Sale and Purchase Agreement and relevant matters pursuant to laws, regulations, the articles of association of SDG Group Co. and the articles of association of the Target Company and the obtaining of the all necessary resolutions and authorisation.

(iii) Completion

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Profit or loss for the Transition Period

In the period from the valuation benchmark date (i.e. 31 March 2019) to the date of Completion (the “ Transition Period ”), SDG Group Co. shall be entitled to any increase in the net assets due to the realisation of profits, or liable for reduction of the net assets due to operating losses. The parties agreed to conduct a supplementary audit by an independent auditor on the Target Company’s equity interests for the Transition Period as at the date of Completion as the audit benchmark date, to determine the specific amount of profit or loss for the Transition Period that SDG Group Co. shall be entitled to or liable for. In order to determine which party shall make payment to the other party, it is agreed that the calculation will be based on the difference between (i) the audited book value of net assets as at the date of Completion and (ii) the audited book value of net assets as at the valuation benchmark date (i.e. 31 March 2019). If there is a positive balance, the Company shall pay SDG Group Co. the balance; if there is a negative balance, SDG Group Co. shall pay the Company for the balance. Such payment shall be settled within ten working days after the completion of the supplementary audit.

4. Information on the Target Group

(i) Background and business

The Target Company was established in the PRC in 14 November 2012 with a registered capital of RMB1.5 billion and is a wholly-owned subsidiary of SDG Group Co.. It is principally engaged in gold leasing, asset management (primarily comprise of investment in stocks, equity funds and trust plans), sales and repurchase of precious metals (including gold, gold bars and gold ornaments). Since its establishment, the Target Company has been extensively exploring the features of the gold and the characteristics of the industry, proactively expanding channels for capital formation, enriching the financial sector, innovating business models, continuously promoting transformation and upgrade of the gold industry, extending the industry chain and improving capital operation, thereby garnering industry recognition and asserting regional influence.

The Target Company holds 20,979,020 Shares (representing approximately 0.95% of the total issued Shares) (which are still in lock-up period up to and including 20 October 2019). To prevent cross-shareholding loop caused by the Acquisition, the Target Company has entered into an agreement with SDG Group Co. to transfer all the said Shares held by it to SDG Group Co. gratis. As disclosed in the “Letter from the Board”, the conditions in the agreement have been compiled with and all approvals has been obtained. Accordingly, SDG Group Co. is the current owner of the said Shares. As disclosed in the “Letter from the Board”, as at the Latest Practicable Date, the Shanghai Stock Exchange has granted a compliance confirmation opinion on the gratis transfer and the transfer registration has been completed on 24 July 2019. The Acquisition does not include the said Shares.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Financial performance and financial position

Set out below is a summary of the consolidated financial information of the Target Group for the three months ended 31 March 2018 and 2019 and for the two years ended 31 December 2018 prepared in accordance with the PRC accounting standards:

	For	For
	the three	the three	For	For
	months	months	the year	the year
	ended	ended	ended	ended
	31 March	31 March	31 December	31 December
	2019	2018	2018	2017
	RMB’000	RMB’000	RMB’000	RMB’000
Revenue	3,584,111	3,389,742	11,986,105	10,865,680
Profit/(loss) for the year	(10,382)	48,931	148,554	60,927
Profit/(loss) attributable
to shareholders of the
Target Company	(9,080)	48,926	148,363	60,899

Three months ended 31 March 2019 vs three months ended 31 March 2018

For the three months ended 31 March 2019 and 2018, revenue primarily comprised of (i) sales of gold, which includes gold, gold bars and gold ornaments; and (ii) handling and commission fees charged from gold brokerage and futures brokerage. For the three months ended 31 March 2019, sales of gold related products constituted the largest business segment of the Target Group, representing approximately 98.1% of the total revenue of the Target Group.

The revenue increased by approximately 5.7% from approximately RMB3,389.7 million for the three months ended 31 March 2018 to approximately RMB3,584.1 million for the three months ended 31 March 2019 was mainly due to the increase in the handling charges as a result from the increase in gold brokerage transactions. The net loss incurred for the three months ended 31 March 2019 was mainly attributable to the decrease in change in fair value of its equity investments (including stocks, equity funds and trust plans) affected by the macroeconomic situations in the PRC. Based on our understanding, the decrease in change in fair value of its equity investments is principally due to the independent valuation of the Target Group as at 31 March 2019 as a result of the Acquisition. According to the Shanghai Stock Exchange and Shenzhen Stock Exchange, we noted that the Shanghai Shenzhen CSI 300 Index has increased approximately 10.7% from an average of 3,274.95 points in the second half of 2018 to an average of 3,626.39 points in the first half of 2019, indicating that the PRC stock market showed a sign of recovery since 2019. Based on the aforesaid, we consider the net loss incurred for the three months ended 31 March 2019 was temporary in nature. As advised by the management of the Company, the Target Group has been profitable for the past five financial years ended.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Year ended 31 December 2018 vs year ended 31 December 2017

For the two years ended 31 December 2018, revenue primarily comprised of (i) sales of gold, which includes gold, gold bars and gold ornaments; and (ii) handling and commission fees charged from gold brokerage and futures brokerage. For the year ended 31 December 2018, sales of gold related products constituted the largest business segment of the Target Group, representing approximately 99.1% of the total revenue of the Target Group.

The revenue increased by approximately 10.3% from approximately RMB10,865.7 million in 2017 to approximately RMB11,986.1 million in 2018 was mainly due to the increase in (i) the sales of gold related products primarily driven by the increase in the number of items sold and (ii) the handling charges as a result from the increase in gold brokerage transactions and futures brokerage transactions. The profit margin of the Target Group increases from 2017 to 2018 was mainly attributable to (i) the decrease in the costs of gold borrowings from banks and the handling fees paid to banks and exchanges, (ii) the increase in the fair value of its equity investments and (iii) the decrease in credit impairment loss as a result of adjustments in bad debt provisions. For the two years ended 31 December 2018, the net profit of the Target Group mainly comprised of revenue generated from sales of gold, investment returns from its investment portfolio (including stocks, equity funds and trust plans) and net gain in changes in fair value of its investment of financial assets (which are subject to fair value measurement as at each financial year/period end date).

	For the
	three months	For the	For the
	ended	year ended	year ended
	31 March	31 December	31 December
	2019	2018	2017
	RMB’000	RMB’000	RMB’000
Total assets	9,447,781	8,994,108	8,320,579
Total liabilities	7,420,405	6,956,349	6,347,131
Net assets attributable to
shareholders of the Target
Company	2,008,626	2,017,706	1,953,587

As at 31 March 2019, the total assets of the Target Group of approximately RMB9,447.8 million mainly comprised of financial assets held for trading of approximately RMB6,369.9 million which principally represented equity investments (primarily comprise of investment in stock, equity funds and trust plans) held at fair value as at year end, other receivables of approximately RMB1,204.6 million which principally represented deposits placed on various commodity and futures exchanges in the PRC and property, plant and equipment of approximately RMB403.5 million which principally represented land and building of the Target Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 31 March 2019, the total liabilities of the Target Group of approximately RMB7,420.4 million mainly comprised of other payables of approximately RMB2,381.5 million which principally represented deposits received from clients and payments owed to group companies including SDG Group Co. and its subsidiaries and financial liabilities held for trading of approximately RMB4,735.0 million which principally represented the fair value of liabilities relating to borrowing gold from banks as at year end.

As at 31 March 2019, net assets attributable to equity shareholders of the Target Company amounted to approximately RMB2,008.6 million.

5. Evaluation of the consideration

(i) Basis of the consideration

As stated in the “Letter from the Board”, the consideration of RMB2,272.3191 million was determined by reference to the valuation of the entire equity interest of the Target Company as at 31 March 2019 prepared by an independent valuer, Beijing Pan-China Assets Appraisal Co., Ltd. (“ Pan-China ”). According to our independent research, Pan-China is a firm of qualified PRC valuer which is designated by the relevant governmental authorities to conduct asset valuation including state-owned assets. It is authorised by the Ministry of Finance of the PRC and China Securities Regulatory Commission to provide valuation services in the PRC.

We have reviewed and discussed with Pan-China the basis and assumptions adopted for the valuation of the Target Group. We consider that the basis and assumptions adopted by Pan-China are appropriate for valuing the Target Group. Based on our discussion with Pan-China, we understand that the valuation of the Target Group has been prepared in compliance with the relevant PRC regulatory requirements and professional standards. We have also interviewed Pan-Asia as to its independence and expertise, reviewed its terms of engagement, performed work as required under note (1)(d) to Rule 13.80 of the Hong Kong Listing Rules in relation to Pan-China and the valuation of the Target Group.

We understand from Pan-China that two approaches have been considered by Pan-China in determining the value of the Target Group.

As advised by Pan-China, income-based approach is not adopted because the gold sales business of the Target Group is greatly affected by macroeconomic conditions and there is a greater risk in determining the future income. We concur with Pan-China’s view that income-based approach is less reliable, since it requires numerous assumptions which are subjective in nature and thus it is difficult to predict future cash flow of the Target Group.

On the other hand, Pan-China considers that it is more appropriate to adopt asset-based approach to appraise the value of the Target Group as it can reflect the fair market value of assets from an asset replacement perspective. We consider that asset-based approach is an appropriate valuation methodology to value the Target Group, since the relevant PRC regulatory requirements and professional standards have been compiled with in using the asset-based approach.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Comparable companies analysis

For the purpose of an independent assessment of the fairness and reasonableness of the consideration, we have considered two most commonly used valuation methodologies, namely price-to-earnings (“ P/E Multiple ”) and price-to-book value multiples (“ P/B Multiple ”). We consider P/B Multiple to be our primary approach in assessing the consideration, given that the consideration was determined with reference to the independent valuation which asset-based approach was adopted by Pan-China.

As mentioned in the section headed “4. Information on the Target Group”, the Target Group is primarily engaged in gold leasing, asset management (primarily comprise of investment in stocks, equity funds and trust plans), sales and repurchase of precious metals (including gold, gold bars and gold ornaments). We have tried to identify companies having comparable scope of business of the Target Group but could not locate any. Based on the consolidated financial statement of the Target Group, the total assets of the Target Group primarily comprise of investment in financial assets. We have then analysed companies (the “ FH Companies ”) listed in the PRC and/or Hong Kong that we consider to have a size similar to the Target Group, based on (i) over 50% of total assets being comprise of investment in financial assets according to the latest published financial results, and having market capitalisation between HK$1 billion to HK$4 billion. The companies which we identified are Huarong International Financial Holdings Limited (993 HK Equity) which incurred net loss in its latest financial year and has a P/B Multiple of 0.9, and Planetree International Development Limited (613 HK Equity) which has a P/B Multiple 1.0 and P/E Multiple of 14.3 respectively.

Based on the consolidated financial statement of the Target Group, over 50% of the revenue of the Target Group was generated from sales of gold related products which are sourced from third parties for the year ended 31 December 2018. As advised by the management of the Company, revenue of the Target Group is primarily generated in China.

Alternatively, we have conducted a search on the comparable companies (the “ Comparable Companies ”) that are (i) principally engaged in sales of gold related products which are similar to those of the Target Group in the PRC and/or Hong Kong and (ii) listed in the PRC and/or Hong Kong. In other words, we have considered the companies engaged in the same sector which is the largest revenue contributor of the Target Group for the purpose of assessing the consideration. However, there was no comparable company found based on the preceding criteria. In this case, we have expanded the search on the comparable companies that are (i) principally engaged in sales of metal and ore related products in the PRC and/or Hong Kong and (ii) listed in the PRC and/or Hong Kong. Taking into account that (i) the operation of the Target Group is wholly based in the PRC, (ii) the companies engaged in the similar sector which is the largest revenue contributor of the Target Group have been considered, and (iii) the Company is dually listed in the PRC and Hong Kong, we are of the view that the Comparable Companies are exhaustive and represent a fair and representative sample and the valuations of the Comparable Companies provide a more relevant benchmark for the purpose of assessing the consideration.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the criteria, we have identified six Comparable Companies as follows:

		Market
		capitalisation
		on the date
		of the Sale
	Principal	and Purchase
Companies (stock code)	activities	Agreement	P/E Multiple	P/B Multiple
		(million)	(times)	(times)
		(Note 1)	(Note 2)	(Note 3)
Wuchan Zhongda Group Co., Ltd.	Purchases and	RMB23,428.4	10.9	1.2
(600704 CH Equity)	distributes
	metal
	materials
	and ores
Chengtun Mining Group Co., Ltd	Provision of	RMB11,990.4	22.9	1.4
(600711 CH Equity)	metal
	minerals
	trading
Shougang Concord International	Sale of iron	HK$7,543.0	15.7	0.7
Enterprises Company Limited	ore
(697 HK Equity)
Zheshang Development Group	Wholesale of	RMB4,465.3	17.0	2.0
Co., Ltd (000906 CH Equity)	metal
	products
CAA Resources Limited	Sale of iron	HK$2,220.0	113.9	1.9
(2112 HK Equity)	ore		(Note 4)
(“CAA Resources”)	products
Lee Kee Holdings Limited	Sources and	HK$335.6	N/A	0.3
(637 HK Equity)	distributes
	non-ferrous
	metals
The Comparable Companies		High	22.9	2.0
		Low	10.9	0.3
		Mean	16.6	1.3
		Median	16.3	1.3
The Target Group		2,272.3	15.3	1.0
		(Note 5)	(Note 6)	(Note 7)

Source: Bloomberg, website of the Stock Exchange and the respective latest annual reports or annual results announcements

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

Based on the closing share prices and the total issued shares of the respective companies on the date of the Sale and Purchase Agreement, being 21 June 2019, as extracted from Bloomberg.
Based on the closing share price on the date of the Sale and Purchase Agreement as extracted from Bloomberg and the audited net profit according to the respective latest published annual reports for the year ended 31 December 2018 or latest published annual results announcement for the year ended 31 March 2019.
Based on the closing share price on the date of the Sale and Purchase Agreement as extracted from Bloomberg and the latest published net asset according to the respective latest published reports for the year ended 31 December 2018 or for the year ended 31 March 2019, or latest published annual result announcement for the year ended 31 March 2019.
Due to the extremely large value of the P/E Multiple of CAA Resources, we regard this P/E Multiple as an outlier which should be excluded from the Comparable Companies analysis.
Based on the consideration of RMB2,272.3191 million for 100% equity interests of the Target Group.
Based on the consideration of RMB2,272.3191 million for 100% equity interests of the Target Group and the consolidated net profit of the Target Group of approximately RMB148.4 million for the year ended 31 December 2018.
Based on the consideration of RMB2,272.3191 million for 100% equity interests of the Target Group and the consolidated net assets attributable to shareholders of the Target Company of approximately RMB2,272.3 million as at 31 March 2019.

As shown above, the P/E Multiples of the FH Companies and the Comparable Companies ranged from approximately 10.9 times to approximately 22.9 times, whereas the P/B Multiples of the FH Companies and the Comparable Companies ranged from approximately 0.3 times to approximately 2.0 times. The P/E Multiple and P/B Multiple of the Target Group as implied by the consideration of approximately 15.3 times and 1.0 times lie within the range of the P/E Multiples and P/B Multiples of the FH Companies and the Comparable Companies. On this basis, we consider the consideration is fair and reasonable.

6. Financial effects of the Acquisition

Upon Completion, the Target Company will become a subsidiary of the Company and the financial results of the Target Group will be consolidated into the Company’s financial statements. It should be noted that the financial analyses below are for illustrative purposes only and do not represent how the financial position of the Company will be upon Completion.

(i) Earnings and net assets attributable to the Shareholders

The Group recorded a profit attributable to the Shareholders of approximately RMB816.0 million for the year ended 31 December 2018. The Target Group also recorded profits attributable to the shareholders of approximately RMB148.4 million for the year ended 31 December 2018. The Acquisition is expected to contribute to the future earnings of the Group as the Company will be able to fully consolidate the financial results of the Target Group into its consolidated financial statements upon Completion.

The equity attributable to owners of the Group was approximately RMB21,712.9 million as at 31 December 2018. As the consideration of RMB2,272.3191 million is paid by cash, the Directors expect that the Acquisition would not have any material impact on the Group’s net asset value.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Gearing and working capital

As disclosed in the 2018 Annual Report, the gearing ratio (being consolidated total debts divided by consolidated total equity) of the Group was approximately 27.2%. The Group had cash and cash equivalents of approximately RMB1,937.7 million as at 31 December 2018. Upon Completion, the Group will incur a cash outflow of RMB2,272.3191 million, being the consideration. The Directors are of the view that the Acquisition will not have any significant adverse impact on the working capital position of the Group upon Completion.

Taking into account (a) the profitable track record for the five financial years ended 31 December 2018 of the Target Group; (b) the loss making results by the Target Group for the first quarter of 2019 is only temporary in nature as mentioned in the section headed “4. Information on the Target Group”; (c) the anticipated contribution of the Acquisition on the earnings of the Group upon Completion; and (d) the benefits brought by the Acquisition as detailed in section headed “2. Reasons for and benefits of the Acquisition”, in particular extending the sales of gold to the downstream industry, we consider that the Acquisition is in the interests of the Company and the Shareholders as a whole.

RECOMMENDATION

Based on the above, we consider that the terms of the Sale and Purchase Agreement are on normal commercial terms and fair and reasonable. We also consider that the entering into of the Sale and Purchase Agreement, while not in the ordinary and usual course of business of the Group, is nevertheless in the interests of the Company and the Shareholders as a whole. We therefore advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders, to vote in favour of the resolution to be proposed at the EGM to approve the Sale and Purchase Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of China Tonghai Capital Limited Danny Leung Director

Mr. Danny Leung is a licensed person and a responsible officer of China Tonghai Capital Limited registered with the Securities and Futures Commission to carry out type 6 (advising on corporate finance) regulated activity under the SFO. He has over eight years of experience in corporate finance.

— 45 —

GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(A) Directors’, Supervisors’ and Chief Executive’s Interests and Short Positions in the Shares, the Underlying Shares and Debentures

Save as disclosed below, as at the Latest Practicable Date, none of the Directors, Supervisors or chief executive of the Company has any interest or short position in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have taken under such provisions of the SFO); (b) to be recorded in the register required to be kept by the Company pursuant to section 352 of the SFO; or (c) to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code, in accordance with information received by the Company.

(i) Long Position in the Shares

						Approximate	Approximate
						percentage of	percentage of
						shareholding	shareholding
						in the	in the total
		Nature of		Number of	Long/Short	relevant class	issued share
Name of Director	Title	interest	Class of Shares	Shares	position	Shares	capital
Mr. Tang Qi	Executive	Beneficial	A Shares	152,098	Long	0.0082%	0.0069%
	Director	Interest
Mr. Li Tao	Executive	Beneficial	A Shares	131,818	Long	0.0071%	0.0060%
	Director	Interest

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GENERAL INFORMATION

APPENDIX I

(B) Substantial Shareholders’ and Other Persons’ Interests and Short Positions in the Shares, Underlying Shares and Debentures

So far as is known to the Directors and chief executive of the Company, as at the Latest Practicable Date, the following persons (other than the Directors, Supervisors and chief executive of the Company) had interests or short positions in the Shares and underlying Shares, which were required to be notified to the Company pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were required to be recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO:

					Approximate	Approximate
			Number of		percentage of	percentage of
			Shares or		shareholding	shareholding
			underlying		in the	in the total
Name of Substantial		Class of	Shares	Long/Short	relevant class	issued share
Shareholders	Nature of interest	Shares	interested	position	Shares	capital
SDG Group Co.	Beneficial owner	A Shares	852,912,856	Long	45.93%	38.52%
	Interest held by	A Shares	189,073,087	Long	10.18%	8.54%
	controlled corporation
Shandong Gold Geological	Beneficial owner	A Shares	99,424,515	Long	5.35%	4.49%
Mine Exploration Co., Ltd.
Shandong Gold Resources	Interest held by	A Shares	99,424,515	Long	5.35%	4.49%
Development Co., Ltd.	controlled corporation
China Structural Reform Fund	Beneficial owner	H Shares	59,645,250	Long	16.71%	2.69%
Corporation Limited
(中國國有企業結構調整基金
股份有限公司)
Jianxin (Beijing) Investment	Interest held by	H Shares	59,645,250	Long	16.71%	2.69%
Fund Management Co., Ltd.	controlled corporation
(建信（北京）投資基金管理有
限責任公司)
Jianxin Trust Co., Ltd.	Interest held by	H Shares	59,645,250	Long	16.71%	2.69%
(建信信託有限責任公司)	controlled corporation
Postal Savings Bank of China	Beneficiary of a trust	H Shares	59,645,250	Long	16.71%	2.69%
Co., Ltd.
CEB-GFAM-China Structural	Trustee	H Shares	59,645,250	Long	16.71%	2.69%
Reform Fund Asset
Management Account No. 1
Barrick Gold Corporation	Beneficial owner	H Shares	63,942,000	Long	17.92%	2.89%
Industrial and Commercial Bank	Beneficial owner	H Shares	49,066,750	Long	13.75%	2.22%
of China Limited

— 47 —

GENERAL INFORMATION

APPENDIX I

Save as disclosed above, as at the Latest Practicable Date, the Directors and the chief executive of the Company were not aware of any other persons (other than the Directors, Supervisors and the chief executive of the Company) who had any interest or short position in the Shares or underlying Shares that was required to be recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO, or which would fall to be disclosed to the Company and the Hong Kong Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

4. COMPETING INTERESTS

As at the Latest Practicable Date, the Directors are not aware of any business or interest of the Directors nor any of their respective associates (as defined in the Hong Kong Listing Rules) that competes or may compete with the business of the Group and any other conflicts of interest which any such person has or may have with the Group (as would be required to be disclosed under Rule 8.10 of the Hong Kong Listing Rules as if each of them was a controlling Shareholder).

5. INTERESTS IN CONTRACT OR ARRANGEMENTS

As at the Latest Practicable Date, none of the Directors was materially interested in contract or arrangement subsisting which is significant in relation to the business of the Group, nor has any Director had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2018, the date to which the latest published audited consolidated financial statements of the Group were made up.

6. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, no member of the Group was engaged in any litigation, arbitration or claim of material importance and there was no litigation, arbitration or claim of material importance known to the Directors to be pending or threatening against any member of the Group.

7. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2018, the date to which the latest published audited consolidated financial statements of the Group were made up.

— 48 —

GENERAL INFORMATION

APPENDIX I

8. EXPERT AND CONSENT

The following is the qualification of the experts who have given opinion or advice which is contained in this circular:

Name Qualification China Tonghai Capital Limited a corporation licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

Beijing Pan-China Assets Appraisal independent valuer Co., Ltd

Each of the above experts has given and confirmed that it has not withdrawn its written consent to the issue of this circular with the inclusion herein of its statements and/or references to its name in the form and context in which it appears. Each of the above experts has further confirmed that as at the Latest Practicable Date, it was not interested in the share capital of any member of the Group, nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group. It was not interested in any assets which have been, since 31 December 2018 (being the date to which the Company’s latest audited financial statements were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

9. CORPORATE INFORMATION OF THE COMPANY

Registered office and headquarters Building No.3, Shuntai Plaza, Shunhua Road No. 2000, in the PRC Jinan, Shandong Province, the PRC Principal place of business in Hong Rooms 4009-4010, 40th Floor, China Resources Building, Kong No. 26 Harbour Road, Hong Kong Hong Kong branch share registrar Computershare Hong Kong Investor Services Limited at and transfer office Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong Joint Company secretaries Mr. Tang Qi Ms. Ng Sau Mei (ACIS, ACS)

— 49 —

GENERAL INFORMATION

APPENDIX I

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any business day at the principal place of business of the Company in Hong Kong at Rooms 4009-4010, 40th Floor, China Resources Building, No. 26 Harbour Road, Hong Kong from the date of this circular up to and including 23 August 2019.

(a) the Sale and Purchase Agreement;
(b) the valuation report regarding the entire equity interest in the Target Company; and
(c) this circular.

— 50 —

SUMMARY OF VALUATION REPORT

APPENDIX II

SUMMARY ASSET VALUATION REPORT ON SHANDONG GOLD MINING CO., LTD.’S PROPOSED ACQUISITION BY CASH OF THE EQUITY INTEREST OF SD GOLD CAPITAL MANAGEMENT CO., LTD. HELD BY SHANDONG GOLD GROUP CO., LTD.

Tian Xing Ping Bao Zi (2019) No. 0611

Beijing Pan-China Assets Appraisal Co., Ltd. is engaged by Shandong Gold Group Co., Ltd. and Shandong Gold Mining Co., Ltd. to assess the market value of total equity interest of SD Gold Capital Management Co., Ltd. as at 31 March 2019 with regard to Shandong Gold Mining Co., Ltd.’s proposed acquisition by cash of the equity interest of SD Gold Capital Management Co., Ltd. held by Shandong Gold Group Co., Ltd. in cash in an independent, objective and impartial manner, by adopting the asset-based approach and income approach and following necessary valuation procedures, in accordance with relevant laws, administrative regulations and asset valuation standards. The asset valuation results are presented as follows:

I. Purpose of Valuation: according to minutes of the 16th (153rd in total) meeting of the party committee of Shandong Gold Group Co., Ltd. in 2019, Shandong Gold Mining Co., Ltd. is proposed to acquire by cash the equity interest of SD Gold Capital Management Co., Ltd. held by Shandong Gold Group Co., Ltd., which requires the assessment of the total equity value of SD Gold Capital Management Co., Ltd. to serve as the basis for reference for the acquisition.
II. Subject of Valuation: the value of the total equity interest of SD Gold Capital Management Co., Ltd. as at the Benchmark Date.
III. Scope of Valuation: the whole assets of SD Gold Capital Management Co., Ltd., including all assets and liabilities.
IV. Type of value: market value.
V. Benchmark Date: 31 March 2019.
VI. Valuation method: asset based approach and income approach. The asset based approach was finally adopted.
VII. Valuation Assumptions
(I) Transaction assumption: It is assumed that all assets to be valued are in the process of being transacted, and the valuer carries out the valuation with reference to a simulated market according to the conditions for transaction of the assets to be valued.
(II) Open market assumption: Open market assumption assumes that the assets to be valued are transacted in market conditions and to consider the impact on the assets under such market conditions. An open market refers to a competitive market with well-developed and complete market conditions and with voluntary transaction parties. In the market, the transaction parties are equal and have enough opportunity and time to acquire adequate market information. Transactions between parties are made under voluntary, rational, rather than conducted under mandatory and unrestricted conditions.

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(III) Continued use assumption: Continued use assumption refers to the conditions of the market where the asset is proposed to be traded and the status of the assets under such market conditions. First, the assets valuated are in use; second, the asset assumed in use will continue to be used. Under the continued use assumption, changes in the purposes and the best utilization conditions of the assets are not taken into consideration. The scope of usage based on the valuation results is subject to limitations.
(IV) Going-concern assumption: It is an assumption based on the valuation that takes the overall assets of the enterprise as the valuation target. The enterprise, as a business entity, will continue to be used and operated as its current purposes and operates in the established external environment for its business objectives. Business operators should and are able to continue to maintain its responsibilities; the enterprise operates legally and is able to obtain appropriate profits to maintain its going-concern capability.
VIII. Reason for adopting asset-based approach: Both asset-based approach and income approach were applied for the valuation but the asset-based approach was finally adopted as the valuation conclusion. The reasons are as follows: the asset-based approach is a valuation methodology with assessment based on the target’s value of asset and liability, both inside and outside of the balance sheet. The income-based approach is a valuation methodology with assessment based on the discounted value of the target’s estimated future income/profitability.

Financial assets held for trading and long-term equity investments are the Target Company’s principal assets. Utilizing the asset-based approach to evaluate these assets would provide a reasonable results for consolidation purpose. At the same time, the Valuer is of the view that the asset-based approach can reflect the fair market value of assets from an asset replacement perspective. The Target Company has provided detailed information on its assets and liabilities together with external information available to the Valuer, the Valuer was able to meet with the PRC legal requirements in using the asset-based approach. The Valuer was therefore able to make a comprehensive analysis and valuation based on the asset and liabilities of the Company.

As for the assessment of the income-based approach, the Valuer only predicted the cash flow generated by the gold sales business operated by the Target Company. The Target Company is a platform to perform management functions and the sale of gold business by the Target Company is not the main source of income for the Target Group. Its core purpose is to conduct asset management and exercise control on its subsidiaries. Accordingly, the Target Company’s income from its business operation is lower than the Target Company’s total assets. In the premises, the Valuer is of the view that the results of the asset-based approach are more reflective of the Target Company’s existing business model than the results based on the income-based approach. Accordingly, the results based on the asset-based approach was adopted for the valuation of the Target Company.

IX. Valuation conclusion:

On assumption of going concern as at the Benchmark Date, the book value of total assets of SD Gold Capital Management Co., Ltd. is RMB6,853.818 million, the book value of liabilities is RMB5,065.0617 million and the book value of net assets is RMB1,788.7563 million.

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APPENDIX II

After adopting the asset based approach, the total assets are RMB7,337.3808 million, total liabilities is RMB5,065.0617 million, the net assets are RMB2,272.3191 million, the valued increment is RMB483.5628 million and the appreciation rate is 27.03%.

Summary sheet of asset valuation under asset based approach

Unit: RMB0’000

			Appraised	Increase or	Appreciation
Item		Book value	value	decease	rate %
Current assets		491,300.55	491,373.13	72.58	0.01
Non-current assets		194,081.25	242,364.95	48,283.70	24.88
Of which:	Long-term equity
	investments	149,394.76	196,754.59	47,359.83	31.70
	Other non-current
	financial assets	36,890.20	36,890.20	–	–
	Investment properties	3,559.97	4,338.86	778.89	21.88
	Fixed assets	65.59	164.54	98.95	150.86
	Intangible assets	–	–	–	–
	Long-term deferred
	expenditures	352.29	398.32	46.03	13.07
	Deferred tax assets	3,818.44	3,818.44	–	–
	Other non-current assets	–	–	–	–
	Total assets	685,381.80	733,738.08	48,356.28	7.06
Current liabilities		494,948.17	494,948.17	–	–
Non-current liabilities		11,558.00	11,558.00	–	–
	Total liabilities	506,506.17	506,506.17	–	–
Net asset	(owner’s equity)	178,875.63	227,231.91	48,356.28	27.03

Analysis on the asset valuation table under asset based approach

(1) the appreciation of current assets was mainly caused by the appreciation of inventory and other current assets. In particular, the appreciation of inventory was mainly caused by the difference in the book values of stock goods; in this valuation we have appraised the book value of stock goods based on market approach instead of the actual cost approach, thus resulting in a higher appraised values than the book values. The appreciation of other current assets was mainly because the gold under self-owned gold lease in other current assets was valued based on the market approach, resulting in higher appraised values than book value. Accordingly, this, as a whole, led to the appreciation of current assets;
(2) the appreciation of the non-current assets was mainly caused by the appreciation of long-term equity investment, investment properties, fixed assets and long-term deferred expenditures. For details, please refer to the below paragraphs.
(3) The long-term equity investment concerns the investment of 7 wholly-owned subsidiaries, 1 controlling subsidiary and 1 associated subsidiary. The book value of the long-term equity investment of RMB1,493.9476 million is based on the original costs for capital

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APPENDIX II

contribution. The valuation is carried out by comprehensively assessing the invested enterprises to ensure their value. The appraisal value for the long-term investment evaluation value is RMB1,967.5459 million which is calculated by multiplying the total assessed value of shareholder’s total equity value with its corresponding shareholding ratio. The appraised value is RMB473.5983 million, which is higher than the book value with an appreciation rate of 31.70%, particulars of such increase are stated below:

(a) Jinchuang Gold: The Target Company acquired 100% equity interest of Jinchuang Gold in 2016. The book value of the long-term equity investment by the Target Company to Jinchuang Gold as at the valuation benchmark date was RMB46.5464 million. The appraised long-term investment evaluation value was RMB72.7373 million showing a rise in the appraisal value of RMB26.1909 million. The rise was mainly due to (1) the increase in operating profit since its acquisition leading to an increase in equity and (2) an appreciation of the value of the main asset-other equity instruments (i.e. the comprehensive membership of the Shanghai Gold Exchange). The book value of the said membership was the qualification fee paid by the company when obtaining the said membership. Due to an increasing demand for the said membership, the consideration that the assignee willing to pay for purchasing such membership has significantly increased. The latest listing price for the comprehensive membership of the Shanghai Gold Exchange is used as the appraisal value, and therefore resulting in a significant increase in the appraisal value.
(b) Shanghai Shengju: The Target Company acquired 100% equity interest of Shanghai Shengju in 2012. The book value of the long-term equity investment by the Target Company to Shanghai Shengju as at the valuation benchmark date was RMB432.70 million. The appraisal value of the long-term equity investment of the company at the valuation benchmark date is RMB613.9456 million, representing a rise in the appraised value of RMB181.2456 million. The reason for the rise in the appraised value is that the trading price in the Shanghai real estate market has risen sharply since the acquisition.
(c) SDG Precious Metals: the Target Company established SDG Precious Metals in January 2013. The book value of the long-term equity investment by the Target Company to SDG Precious Metals as at the valuation benchmark date is RMB300 million. The appraised value of the long-term equity investment of the company at the valuation benchmark date is RMB438.7557 million, representing a rise in RMB138.7557 million. The reason for the rise in the appraised value is due to the increase in operating profit during the operation period.
(d) SDG Futures: The Target Company acquired 100% equity of SDG Futures in August 2014. The book value of the total shareholders’ equity interests at the date of acquisition was RMB100.5469 million. In May 2015, the Target Company increased the capital of SDG Futures by RMB500 million. The book value of long-term equity investment is RMB651.3749 million and the total appraised value of the long-term equity investment of the company was RMB777.1109 million at the valuation benchmark date, representing a rise in RMB125.736 million. The reason for the rise in the appraised value is mainly attributable to the increase in operating profit since the acquisition, as well as the increase in operating capacity, qualifications and brand.

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(4) The fixed assets of the Target Company consist of vehicles and electronics equipment, of which:
(a) vehicles have a book value of RMB87,500 and an appraised value of RMB555,000, with a value-added rate of 534.22%. The main reasons are as follows: there are a total of 2 vehicles being evaluated, one of which was purchased in December 2013, and the other one was purchased in January 2017. The book value of the vehicles was calculated based on the net value after provision for depreciation by the company. According to the accounting policy of the company, the depreciation period of the vehicle is 6 years, but its economic durability is 10-15 years. The second-hand price was used as the basis for valuation and the market approach was adopted in this assessment. The appraised value reflects the market price on the valuation benchmark date. The main reason for the appreciation of this assessment is that the depreciation period is much lower than the economic durability period.
(b) electronic equipment has a book value of RMB568,400 and an appraised value of RMB1,090,400, with a value-added rate of 91.82%. The main reasons are as follows: most of the electronic equipment was purchased in 2013 and 2014, and the book value was calculated based on the net value after provision for depreciation by the company. According to the accounting policy of the company, the depreciation period of the equipment is 4 years. As most of the equipment has been fully depreciated, its book value is the net residual value. The economic durability of electronic equipment is generally 5-8 years. This valuation used the market approach to evaluate the electronic equipment with earlier acquisition time, while other electronic equipment was assessed by the replacement cost method. The appraised value reflects the market price on the valuation benchmark date. The main reason for the appreciation of this assessment is that the depreciation period is much lower than the economic durability.
(5) the appreciation of investment properties was mainly due to the higher prices in the property market of Tianjin City;
(6) the Long-term deferred expenditures refer to the decoration cost of leased properties and the purchase fees for car parking spaces in Tianjin. The appreciation of appraised values was caused by higher market prices of the car parking spaces in Tianjin.
X. Identity, Experience and Qualification of the Valuer

Beijing Pan-China Assets Appraisal Co., Ltd. was incorporated in July 2000, it holds the assets appraisal qualification certificate for the securities and future related business which is jointly issued by Ministry of Finance of the People’s Republic of China and the China Securities Regulatory Commission. The certificate is a qualification for conducting securities business, allowing the holder to carry out asset appraisal business in relation to the listed companies. Besides, Beijing Pan-China Assets Appraisal Co., Ltd. engages in business related to company listing, share issuance, the acquisition of listed companies, and transfer of equity interests and assets.

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APPENDIX II

In use of valuation conclusions in the report, the report users should pay attention to the influence of “XI. Explanations for Specific Matters” in the main body of the report on valuation conclusions, and to valuation assumptions and preconditions under which the valuation conclusions are tenable.

We particularly emphasize: the valuation opinions only serve as a value reference basis for equity transactions between transaction parties and should not replace any decision on the prices for transactions between transaction parties.

The report and conclusions therein can be used only for the valuation purpose specified in the report, and shall not be used for other purposes.

In accordance with relevant regulations of the PRC, the validity period for use of the valuation conclusions is 1 year commencing on the Benchmark Date, e.g. 31 March 2019, and ending on 30 March 2020.

The above is an extract from the full text of the valuation report. For details and to have a reasonable understanding of the valuation project, the report users should carefully read the full text of the valuation report, and pay attention to the Explanations for Specific Matters.

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PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

APPENDIX III

APPENDIX

Details of the proposed amendments to the Articles of Association* are set out as follows:

Original Articles Amended Articles of the Company is Article 6 Registered of the Company is Increase or decrease of the RMB2,214,008,309. Increase or decrease of the capital resulting in a Company’s registered capital resulting in a registered capital has to be change in total registered capital has to be way of resolution of the approved by way of resolution of the shareholders’ meeting of the Company in relation decrease of registered capital, as to increase or decrease of registered capital, ~~as~~ of the resolution on amendment ~~well as~~ passing of the resolution on amendment Articles of Association, of the Company’s Articles of Association, board of directors of the authorizing the board of directors of the Company to complete the registration procedures registered capital. for the change in registered capital. shares issued by the Company Article 17 All shares issued by the Company values, with each share having a shall be denominated in RMB ~~have par values~~ , and denominated in RMB. with each share having a par value of RMB1 ~~and denominated in RMB~~ . that the Company issues to Article 19 Shares that the Company issues to for subscription in RMB shall domestic investors for subscription in RMB shall domestic shares. Shares that the be known as domestic shares. Shares that the to foreign investors for Company issues to foreign investors for subscription in foreign currencies shall be known Foreign shares offered and as foreign shares. Foreign shares offered and shall be known as overseas listed listed overseas shall be known as overseas listed foreign shares.

Article 6 Registered of the Company is RMB2,214,008,309. Increase or decrease of the Company’s registered capital resulting in a change in total registered capital has to be approved by way of resolution of the shareholders’ meeting of the Company in relation to increase or decrease of registered capital, as well as passing of the resolution on amendment of the Company’s Articles of Association, authorizing the board of directors of the Company to complete the registration procedures for the change in registered capital.

Article 17 All shares issued by the Company shall have par values, with each share having a par value of RMB1 and denominated in RMB.

Article 17 All shares issued by the Company shall be denominated in RMB ~~have par values~~ , with each share having a par value of RMB1 ~~and denominated in RMB~~ .

Article 19 Shares that the Company issues to domestic investors for subscription in RMB shall be known as domestic shares. Shares that the Company issues to foreign investors for subscription in foreign currencies shall be known as foreign shares. Foreign shares offered and listed overseas shall be known as overseas listed foreign shares.

Shares listed on oversea stock exchange with the approval of the relevant securities regulatory authority under the State Council and overseas securities regulatory authorities are collectively referred to as overseas listed shares. Holders of domestic shares and holders of overseas listed shares are both holders of ordinary shares.

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Original Articles

The overseas listed foreign shares issued by the Company listed on the Hong Kong Stock Exchange shall be known as H shares. H shares are shares which have been admitted for listing on the Hong Kong Stock Exchange, the par value of which is denominated in RMB and which are subscribed for and traded in Hong Kong dollars.

Foreign currency referred to in the preceding paragraph refers to the statutory currency, other than RMB, of another country or region, which is recognized by the foreign exchange authority of the state and can be used to pay the Company for the shares.

To the extent as permitted by relevant law, administrative regulations and department rules, shareholders of the Company may list the unlisted shares they hold on an overseas stock exchange upon approval by the regulatory authorities such as securities regulatory authority under the State Council. Listing of the aforesaid shares on an overseas stock exchange shall also comply with the regulatory procedure, regulations and requirements of the overseas securities market. Listing of the aforesaid shares on an overseas stock exchange does not require resolution through voting at a class general meeting.

Article 25 The Company may increase capital based on the needs of operation and development and in accordance with the requirements of laws and regulations and resolution on Shareholders’ meeting, by way of the following:

Amended Articles The domestic shares issued by the Company listed on the Shanghai Stock Exchange shall be known as A shares. The overseas listed foreign shares issued by the Company listed on the Hong Kong Stock Exchange shall be known as H shares. ~~H shares are shares which have been admitted for listing on the Hong Kong Stock Exchange, the par value of which is denominated in RMB and which are subscribed for and traded in Hong Kong dollars.~~

(1) Public offering of shares; (1) Public offering of shares; (2) Non-public offering of shares; (2) Non-public offering of shares;

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Original Articles Amended Articles
(3) Placement of new shares to existing (3) Placement of new shares to existing shareholders; shareholders;
(4) Offer of new shares to existing (4) Offer of new shares to existing shareholders; shareholders;
(5) Conversion of reserve into share capital;
(5) Conversion of reserve into share capital;
(6) Other means stipulated by laws and administrative regulations and approved by the CSRC.
(6) Other means stipulated by laws and administrative regulations and approved by the CSRC.

Issuance of new shares by the Company shall be subject to approval as specified in the Articles of Association and follow the procedure specified in the relevant laws and administrative regulations of the state and the respective listing rules of the places where the shares of the Company are listed .

Article 26 The Company may decrease its registered capital. The Company shall decrease its registered capital pursuant to the Company Law, other relevant regulations and the Articles of Association.

Article 26 The Company may decrease its registered capital. The Company shall decrease its registered capital pursuant to the Company Law, the respective listing rules of the places where the shares of the Company are listed, other relevant regulations and the Articles of Association.

Article 29 The Company may, in the following Article 29 The Company may, in the following circumstances, buy back its outstanding shares in circumstances, buy back its outstanding shares in accordance with the law, administrative accordance with the law, administrative regulations, department rules and requirement of regulations, department rules and requirement of this Articles of Associations: this Articles of Associations: (1) When decreasing registered capital of the (1) When decreasing registered capital of the Company; Company;

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Original Articles Amended Articles
(2) When merging with other companies (2) When merging with other companies holding shares of the Company; holding shares of the Company;
(3) When awarding shares to employees of the (3) When ~~awarding shares to employees of the~~ Company; ~~Company~~ shares are being used in the employee stock ownership plan or as
(4) When shareholders objecting to equity incentive; resolutions of the shareholders’ meeting concerning merger or division of the (4) When shareholders objecting to Company require the Company to buy their resolutions of the shareholders’ meeting shares. concerning merger or division of the Company require the Company to buy their
Except for the abovementioned circumstances, shares;

Except for the abovementioned circumstances, the Company will not conduct any activities buying or selling its shares.

(5) When shares are being used to satisfy the conversion of corporate bonds issued by the listed company that can be converted to shares;
(6) When safeguarding corporate value and shareholders’ equity as the Company deems necessary;
(7) Other situations permitted by laws and regulations.

Article 30 The Company may buy back its shares in any of the following ways:

(1) Issuing a buyback offer to all shareholders according to an equal percentage;

Except for the abovementioned circumstances, the Company will not conduct any activities buying or selling its shares. Article 30 The Company may repurchase its shares through public and centralised trading or other methods as permitted by laws and regulations and the CSRC. ~~The Company may buy back its shares in any of the following ways:~~

(2) Buying back through open transaction in the stock exchange;
~~(1) Issuing a buyback offer to all shareholders according to an equal percentage;~~
(3) Buying back through agreement outside the stock exchange.

~~(2)~~ ~~(3)~~	~~Buyingbackthroughopentransactionin~~	~~Buyingbackthroughopentransactionin~~
	~~the stock exchange;~~ ~~Buyingbackthroughagreementoutside~~
	~~the stock exchange.~~ Where the Company repurchases its own shares in the
	~~.~~ repurchases its
		own shares in the
	circumstances set	out in items (3), (5)
	and (6) of the Paragraph 1 of Article 29
	of the Articles of Association, such
	repurchase shall be conducted through
	public and centralised trading.

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Original Articles

Article 32 Buyback of the Company’s shares for reasons set out in (1) to (3) of Article 29 of the Articles of Association shall be subject to resolution at a general meeting. After the Company has bought back its shares in accordance with Article 29 of the Articles of Association, such shares shall be cancelled within 10 days after buyback in the circumstance set out in (1), or shall be transferred or cancelled within 6 months in the circumstances set out in (2) and (4).

Shares bought back by the Company as per (3) of Article 29 of the Articles of Association shall not exceed 5% of the total outstanding shares of the Company; the buyback cost shall be covered by the after-tax profit of the Company; and the shares bought back shall be transferred to employees within one year.

Shares being cancelled shall be applied to the original company registration authority for registration of the change in its registered capital. The aggregate par value of the cancelled shares shall be deducted from the Company’s registered capital.

Amended Articles Article 32 ~~Buyback of~~ Where the Company’ ~~s shares for reason~~ repurchases its shares in the circumstances set out in clauses (1) ~~to~~ and ( ~~3~~ 2 ) of the Paragraph 1 of Article 29 of the Articles of Association , it shall be subject to ~~resolution at a general meeting. After the Company has bought back~~ approval at the General Meeting; where the Company repurchases its shares in the circumstances set out in clauses (3), (5) and (6) of the Paragraph 1 of Article 29 of the Articles of Association, it may be resolved by more than two-thirds of directors present at a meeting of the Board of Directors in accordance with the provisions of the Articles of Association or the authorization of the general meeting. In the event that the Company repurchases its shares in accordance with the Paragraph 1 of Article 29 of the Articles of Association, such ~~s~~ Shares shall be cancelled within 10 days ~~after buyback~~ in the circumstance set out in clause (1), or shall be transferred or cancelled within 6 months in the circumstances set out in clauses (2) and (4). ~~Shares bought back by the Company as per (3) of Article 29 of the Articles of Association~~ ; the aggregate number of shares held by the Company shall not exceed ~~5~~ 10 % of the total ~~outstanding~~ issued shares of the Company ~~; the buyback cost shall be covered by the after-tax profit of the Company; and the shares bought back shall be transferred to employees within one year~~ ~~,~~ and shall be transferred or cancelled within 3 years in the circumstances set out in clauses (3), (5) and (6).

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Original Articles Amended Articles overseas-listed foreign invested Article 36 All overseas-listed foreign invested transferred by a transfer form in shares shall be transferred by a transfer form in or common form accepted by writing in the usual or common form accepted by the Hong Kong Stock Exchange or any other form of directors may accept. The which the board of directors may accept transfer of any share may be (including standard transfer format or without seal. If the assignor or ownership transfer form specified by the Hong a recognized clearing house as Kong Stock Exchange from time to time) . The Securities and Futures Ordinance instrument of transfer of any share may be of the Laws of Hong Kong) executed by hand without seal. If the assignor or Clearing House”) or its agent, the the assignee is a recognized clearing house as defined in the Securities and Futures Ordinance form. (Chapter 571 of the Laws of Hong Kong) (as amended from time to time) (“Recognized Clearing House”) or its agent, the share transfer form may be executed by hand or in mechanically-printed form.

Article 36 All overseas-listed foreign invested shares shall be transferred by a transfer form in writing in the usual or common form accepted by the Hong Kong Stock Exchange or any other form which the board of directors may accept. The instrument of transfer of any share may be executed by hand without seal. If the assignor or the assignee is a recognized clearing house as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (“Recognized Clearing House”) or its agent, the share transfer form may be executed by hand or in mechanically-printed form.

Article 37 The Company shall not accept its own shares as pledge object.

Article 37 The Company shall not accept its own shares as pledge subject ~~object~~ .

Article 38 Shares of the Company held by the promoters shall not be transferred within one year after incorporation of the Company. Shares already issued by the Company before public offering shall not be transferred within one year after the shares of the Company are listed on the stock exchange.

The directors, supervisors and senior executives shall report to the Company about their shareholdings and changes thereof and shall not transfer more than 25% of their shares per annum during their terms of office; the shares they hold in the Company shall not be transferred within one year after the shares of the Company are listed. The aforesaid persons shall not transfer their shares in the Company within half a year after they terminate service with the Company.

The directors, supervisors and senior executives shall report to the Company about their shareholdings and changes thereof and shall not transfer more than 25% of the same class of their shares per annum during their terms of office; the shares they hold in the Company shall not be transferred within one year after the shares of the Company are listed. The aforesaid persons shall not transfer their shares in the Company within half a year after they terminate service with the Company.

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APPENDIX III

Original Articles Amended Articles Article 43 The Company’s shares are all Article 43 The Company’s shares are all registered shares. registered shares. Particulars that should be specified on the share Particulars that should be specified on the share certificate of the Company, in addition to those certificate of the Company, in addition to those requirements under the Company Law, shall also requirements under the Company Law, shall also include other particulars required by the stock include other particulars required by the stock exchange where the shares of the Company are exchange where the shares of the Company are listed. listed.

Particulars that should be specified on the share certificate of the Company, in addition to those requirements under the Company Law, shall also include other particulars required by the stock exchange where the shares of the Company are listed.

If the share capital of the Company includes non-voting shares, the name of such shares must be denoted by the wordings of “non-voting”. If the share capital includes shares with different voting rights, the name of each category of shares (except for shares with the most preferential voting rights) must be denoted by the wordings of “restricted voting right” or “limited voting right”. The Company may issue overseas listed foreign shares in form of foreign depository receipts or other derivative means of shares in accordance with the laws and the practice of registration and depository of securities in the listing place.

Article 45 Share certificates shall be signed by the chairman of the board of directors. Where the signatures of other senior management officers are required by the stock exchange where the shares of the Company are listed, other relevant senior management officers shall also sign on the share certificates. The share certificates shall become effective after being affixed or imprinted with the corporate seal. The share certificates shall only be affixed with the corporate seal under the authorization of the board of directors. The signatures of the chairman of the board of directors or other relevant senior management officers on the share certificates may also be in printed form.

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		Original Articles
	Where the issuance and trading of the shares of the Company are in non-paper form, relevant provisions enacted separately by the securities regulatory authorities of the place where the shares of the Company are listed shall be applicable.
	Article 46The Company shall maintain a register of shareholders to record the following particulars: (I) The name (title), address (domicile), occupation or nature of each shareholder; (II) The category and number of shares held by each shareholder; (III) The amount paid or payable in respect of the shares held by each shareholder; (IV) The serial numbers of the shares held by each shareholder; (V) The date on which each shareholder is registered as a shareholder; (VI) The date on which each shareholder ceases to be a shareholder.		Article 46 register of

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Original Articles

Article 47 Paragraph 2

The Company shall keep a duplicate of the register of holders of overseas listed foreign shares at the Company’s address; the appointed overseas agent(s) shall ensure the consistency between the original and the duplicate of the register of holders of overseas listed foreign shares at all times.

Article 51 No change may be made in the register of shareholders as a result of a transfer of shares within 30 days prior to the date of convening a general meeting or within 5 days prior to the benchmark date on which the Company decides the distribution of dividends.

Amended Articles Article 47 Paragraph 2 The Company shall keep a duplicate of the register of holders of overseas listed foreign shares at the Company’s address; the appointed overseas agent(s) shall ensure the consistency between the original and the duplicate of the register of holders of overseas listed foreign shares ~~at all times~~ .

If the securities regulatory authorities of the place where the shares of the Company are listed make other provisions, such provisions shall prevail.

Article 52 When the Company convenes a general meeting, distributes dividends, conducts liquidation or other acts that require confirmation of shareholdings, the board of directors shall decide a date to be the shareholding confirmation date, and the shareholders who are registered in the register of shareholders at the close of the shareholding confirmation date shall be the shareholders of the Company.

Article 52 When the Company convenes a general meeting, distributes dividends, conducts liquidation or other acts that require confirmation of identity of sharehold ~~ing~~ er s, the board of directors or the convener of any such general meeting shall decide a date to be the shareholding confirmation date, and the shareholders who are registered in the register of shareholders at the close of the shareholding confirmation date shall be the shareholders of the Company.

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Original Articles

Article 54 For any shareholder registered in the register of shareholders or any person who requests his name (title) to be registered in the register of shareholders, if his share certificate (the “original share certificate”) has been lost, he may apply to the Company to reissue a new share certificate as replacement in respect of the relevant shares (the “relevant shares”).

Application for replacement of lost share certificates for shareholders of domestic shares shall be processed in accordance with the requirements of the Company Law.

Application for replacement of lost share certificates for shareholders of overseas listed foreign shares may be processed in accordance with the laws, rules of the stock exchange or other relevant provisions of the place where the original register of shareholders of overseas listed foreign shares is kept.

In application for replacement of lost share certificates from shareholders of H shares, the reissue of a replacement share certificate shall comply with the following requirements:

(I) The applicant shall submit an application in the standard format specified by the Company and attached with a notarial certificate or statutory declaration document. The contents of the notarial certificate or statutory declaration document shall include the applicant’s reason for application, information and evidence about the loss of the share certificate, and a statement that no other person may request to be registered as a shareholder of the relevant shares.

Amended Articles

Article 54 For any shareholder registered in the register of shareholders or any person who requests his name (title) to be registered in the register of shareholders, if his share certificate (the “original share certificate”) has been stolen, lost or destroyed, he may apply to the Company to reissue a new share certificate as replacement in respect of the relevant shares (the “relevant shares”).

Application for replacement of stolen, lost or destroyed ~~share certificates~~ for shareholders of domestic shares shall be processed in accordance with the requirements of the Company Law.

Application for replacement of stolen, lost or destroyed share certificates for shareholders of overseas listed foreign shares may be processed in accordance with the laws, rules of the stock exchange or other relevant provisions of the place where the original register of shareholders of overseas listed foreign shares is kept. In application for replacement of lost share certificates from shareholders of H shares, the reissue of a replacement share certificate shall comply with the following requirements:

(I) The applicant shall submit an application in the standard format specified by the Company and attached with a notarial certificate or statutory declaration document. The contents of the notarial certificate or statutory declaration document shall include the applicant’s reason for application, information and evidence about the loss of the share certificate, and a statement that no other person may request to be registered as a shareholder of the relevant shares.

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(II) Before deciding to issue a new share certificate for replacement, the Company has not received any statement from any person other than the applicant to request for registration as shareholder of such shares.
(III) If the Company has decided to reissue a new share certificate for replacement to the applicant, an announcement on preparing to reissue new share certificate for replacement shall be published on the newspapers designated by the board of directors; the announcement period shall be 90 days, with repeated publication of at least one announcement in every 30 days.
(IV) Before publishing the announcement on preparing to reissue new share certificate, the Company shall submit a copy of the announcement intended to be published to the stock exchange where the Company is listed, and may publish the announcement only after receiving a reply from the said stock exchange confirming that the said announcement has been displayed in the stock exchange. The duration of display of the said announcement in the stock exchange is 90 days.
If the application for reissue of share certificate for replacement is not consented by the registered shareholder of the relevant shares, the Company shall mail a copy of the announcement intended to be published to the said shareholder.
(V) If upon expiry of the 90-day period for announcement and display as specified in (III) and (IV) above, the Company has not received any objection to the reissue of share certificate from any person, the Company may reissue new share certificate for replacement according to the application from the applicant.

Amended Articles

(II) Before deciding to issue a new share certificate for replacement, the Company has not received any statement from any person other than the applicant to request for registration as shareholder of such shares.
(III) If the Company has decided to reissue a new share certificate for replacement to the applicant, an announcement on preparing to reissue new share certificate for replacement shall be published on the newspapers designated by the board of directors; the announcement period shall be 90 days, with repeated publication of at least one announcement in every 30 days.
(IV) Before publishing the announcement on preparing to reissue new share certificate, the Company shall submit a copy of the announcement intended to be published to the stock exchange where the Company is listed, and may publish the announcement only after receiving a reply from the said stock exchange confirming that the said announcement has been displayed in the stock exchange. The duration of display of the said announcement in the stock exchange is 90 days.
If the application for reissue of share certificate for replacement is not consented by the registered shareholder of the relevant shares, the Company shall mail a copy of the announcement intended to be published to the said shareholder.
(V) If upon expiry of the 90-day period for announcement and display as specified in (III) and (IV) above, the Company has not received any objection to the reissue of share certificate from any person, the Company may reissue new share certificate for replacement according to the application from the applicant.

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(VI) When the Company reissues new share certificate for replacement according to the provisions of this Article, the original share certificate must be cancelled immediately, and such cancellation and reissue events shall be recorded in the register of shareholders.
(VII) All the costs and expenses incurred by the Company in the cancellation of the original share certificate and the reissue of new share certificate for replacement shall be borne by the applicant. Before the applicant has provided a reasonable guarantee, the Company has the right to refuse taking any action.

Article 57 A shareholder of the Company is a person who lawfully holds shares of the Company and whose name is registered in the register of shareholders. Shareholders shall enjoy rights and have obligations in accordance with the class of shares held by them. Shareholders holding the same class of shares shall be entitled to equal rights and have equal obligations.

The Company shall enter into share safekeeping agreements with the securities registrar to regularly monitor the information and changes in shareholdings (including capital contribution) of substantial shareholders, in order to ascertain the shareholding structure of the Company in a timely manner.

Article 58 Shareholders of the Company shall enjoy the following rights:

(I) The rights to receive dividends and other forms of distribution in proportion to the number of shares held by them;

Amended Articles

(VI) When the Company reissues new share certificate for replacement according to the provisions of this Article, the original share certificate must be cancelled immediately, and such cancellation and reissue events shall be recorded in the register of shareholders.
(VII) All the costs and expenses incurred by the Company in the cancellation of the original share certificate and the reissue of new share certificate for replacement shall be borne by the applicant. Before the applicant has provided a reasonable guarantee, the Company has the right to refuse taking any action.

~~The Company shall enter into share safekeeping agreements with the securities registrar to regularly monitor the information and changes in shareholdings (including capital contribution) of substantial shareholders, in order to ascertain the shareholding structure of the Company in a timely manner.~~

Article 58 Shareholders of the Company ’s ordinary shares shall enjoy the following rights:

(I)	The rights to receive dividends and other
	forms of distribution in proportion to the
	number of shares held by them;

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(II) The rights to request, convene, chair, (II) The rights to request, convene, chair, attend or appoint proxy to attend attend or appoint proxy to attend shareholders’ meetings and exercise shareholders’ meetings and exercise corresponding voting rights in accordance corresponding voting rights in accordance with laws; with laws;
(III) The rights to supervise the operation of the Company and to put forward proposals and raise inquiries;
(III) The rights to supervise the operation of the Company and to put forward proposals and raise inquiries;
(IV) The rights to transfer, donate, or pledge shares held by them in accordance with laws, administrative regulations and the Articles of Association;
(V) The rights to obtain relevant information in accordance with the Articles of Association of the Company, including:
(IV) The rights to transfer, donate, or pledge shares held by them in accordance with laws, administrative regulations and the Articles of Association;
(V) The rights to obtain relevant information in accordance with the Articles of Association of the Company, including:

1.	to obtain a copy of the Articles of	to obtain a copy of the Articles of	1.	to obtain a copy of the Articles of	to obtain a copy of the Articles of
	Association upon payment of the			Association upon payment of the
	cost	of such copy;		cost of such copy;
2.	to have free access and photocopy		2.	to have free access and photocopy
	upon payment of a reasonable			upon	payment of a reasonable
	charge, of:			charge, of:
	(1)	all parts of the register of		(1)	all parts of the register of
		shareholders;			shareholders;
	(2)	personal particulars of each		(2)	personal particulars of each
		of the directors, supervisors,			of the directors, supervisors,
		general manager and other			general manager and other
		senior management of the			senior management of the
		Company, including:			Company, including:
		(a) current and previous			(a) current and previous
		names and aliases;			names and aliases;
		(b) main address			(b) main address
		(domicile);			(domicile);
		(c) nationality;			(c) nationality;
		(d) full-time and all other			(d) full-time and all other
		part-time occupations			part-time occupations
		and duties;			and duties;

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		Original Articles	Original Articles

	(e) identification documents and their numbers. (3) the status of the Company’s share capital; (4) reports of the aggregate par value, number of shares, highest and lowest prices paid by the Company in respect of each class of shares bought back by the Company since the end of the last financial year and all the expenses paid by the Company therefor; (5) minutes of shareholders’ general meetings; (6) special resolutions of the Company; (7) The latest audited financial statements of the Company, and the reports of directors, auditors, and supervisors; (8) Copy of the latest annual return filed with the State Administration for Industry and Commerce or other competent authorities; (3) (4) (5) (6) (7) (8)

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Original Articles Amended Articles The Company shall deposit The Company shall deposit the above clauses (1), (3), (4), the above clauses (1), (3), (4), (5), (6), (7), and (8) (5), (6), (7), and (8) documents at its Hong Kong documents at its Hong Kong address (residence) as address (residence) as required by the Listing Rules required by the Listing Rules of the Hong Kong available of the Hong Kong available for free inspection of the for free inspection of the public and H shareholders (of public and H shareholders ~~(of~~ which clause (5) is for the ~~which clause (5) is for the~~ shareholders’ inspection ~~shareholders~~ ’ ~~inspection~~ only). ~~only).~~

(VI) The rights to participate in the distribution of remaining assets of the Company corresponding to the number of shares held in the event of the termination or liquidation of the Company;
(VI) The rights to participate in the distribution of remaining assets of the Company corresponding to the number of shares held in the event of the termination or liquidation of the Company;
(VII) The rights to demand the Company to acquire the shares held by them with respect to shareholders voting against any resolution adopted at the shareholders’ meeting on the merger or division of the Company;
(VII) The rights to demand the Company to acquire the shares held by them with respect to shareholders voting against any resolution adopted at the shareholders’ meeting on the merger or division of the Company;
(VIII) Shareholders individually or jointly holding 3% or more of the shares of the Company may propose ad hoc proposals and submit to the board of directors in writing 10 days before the convening of the shareholders’ meeting;
(VIII) Shareholders individually or jointly holding 3% or more of the shares of the Company may propose ad hoc proposals and submit to the board of directors in writing 10 days before the convening of the shareholders’ meeting;
(IX) Other rights conferred by laws, administrative regulations, departmental rules, or the Articles of Association.
(IX) Other rights conferred by laws, administrative regulations, departmental rules, or the Articles of Association.

The register of shareholders mentioned in clause (5) of the previous Article refers to the list of all shareholders at the close of trading on the record date of the Company’s latest periodic report.

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Amended Articles

Article 65 Neither the controlling shareholder nor the de facto controller of the Company may misappropriate the assets and prejudice the interests of the Company by taking advantage of his connected relationship. Anyone who causes any loss to the Company as a result of violating the provisions shall be liable for the compensation.

The controlling shareholder and the de facto controller of the Company owe a fiduciary duty to the Company and its publicly issued shares shareholders. The controlling shareholder shall strictly exercise the rights as a subscriber, and shall not impair the legitimate rights and interests of the Company and the publicly issued shares shareholders in the ways of profit distribution, asset reorganization, overseas investment, capital use and loans and guarantees, and shall not impair the interests of the Company and the publicly issued shares shareholders by using its controlling status in the Company.

Article 67 The shareholders’ meeting is the organ of authority of the Company, which exercises its functions and powers in accordance with laws:

The controlling shareholder and the de facto controller of the Company owe a fiduciary duty to the Company and its publicly issued shares shareholders. ~~The controlling shareholder~~ They shall strictly exercise the rights as a subscriber, and shall not impair the legitimate rights and interests of the Company and the publicly issued shares shareholders in the ways of profit distribution, asset reorganization, overseas investment, capital use and loans and guarantees, and shall not impair the interests of the Company and the publicly issued shares shareholders by using its controlling status in the Company.

Article 67 The shareholders’ meeting is the organ of authority of the Company, which exercises its functions and powers in accordance with laws:

(I) to decide on operational policies and (I) to decide on operational policies and investment plans of the Company; investment plans of the Company;
(II) to elect and replace the directors and (II) to elect and replace the directors and supervisors who are not representatives of supervisors who are not representatives of the employees, and to decide on matters the employees, and to decide on matters relevant to remuneration of directors and relevant to remuneration of directors and supervisors; supervisors;
(III) to consider and approve reports of the (III) to consider and approve reports of the board of directors; board of directors;
(IV) to consider and approve reports of the (IV) to consider and approve reports of the board of supervisors; board of supervisors;

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		Original Articles
	(V) to consider and approve annual financial budget plans and final accounting plans of the Company; (VI) to consider and approve the profit distribution plan and loss recovery plan of the Company; (VII) to determine the increases or decrease of the registered capital of the Company; (VIII) to determine the issuance of corporate bonds by the Company; (IX) to determine matters such as the merger, division, dissolution, liquidation or change of corporate form of the Company; (X) to amend the Articles of Association; (XI) to determine the appointment of, removal of and non-reappointment of an auditor by the Company; (XII) to consider and approve the proposal raised by shareholders who hold (3%) or more of the total number of voting shares of the Company; (XIII) to consider and approve guarantees specified in Article 68 of the Articles of Association; (XIV) to consider matters relating to the purchases and disposals of material assets, which are more than 30% of the latest audited total assets of the Company, within one year; (XV) to review and approve the change of the purpose for raising funds; (XVI) to consider share incentive plans; (V) (VI) (VII) (VIII) (IX) (X) (XI) (XII) (XIII) (XIV) (XV)

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(XVII) to review other matters which, in accordance with laws, administrative regulations, departmental rules, or the provisions of the Articles of Association, shall be approved at a shareholders’ meeting.

The functions and powers of the shareholders’ meeting mentioned above shall not be delegated in any form to the Board or any other body or individual.

Amended Articles
(XVI) to consider share incentive plans;
(XVII) to review other matters which, in accordance with laws, administrative regulations, departmental rules, the respective listing rules of the places where the shares of the Company are listed, or the provisions of the Articles of Association, shall be approved at a shareholders’ meeting.

The functions and powers of the shareholders’
meeting mentioned above shall not be delegated
~~in any form~~to the Board or any other body or
individual. When it is deemed necessary and
reasonable, in relation to resolutions that have
been made but their relevant specific matters
cannot be decided upon during the
shareholders’ general meeting, the general
meeting may authorize the Board to decide
upon such matters within the scope of
authorization of the shareholders’ general
meeting subject to the applicable laws,
regulations and Articles of Association.

Article 68 The following external guarantees to be given by the Company shall be examined and approved by the shareholders’ meeting:

(I) Provision of any external guarantee by the (I) Provision of any external guarantee by the Company and its subsidiaries, the total Company and its subsidiaries, the total amount of which exceeds 50% of the latest amount of which exceeds 50% of the latest audited net assets of the Company; audited net assets of the Company;
(II) Provision of any external guarantee by the (II) Provision of any external guarantee by the Company, the total amount of which Company, the total amount of which reaches or exceeds 30% of the latest reaches or exceeds 30% of the latest audited total assets of the Company(after audited total assets of the Company(after deducting clients’ margins); deducting clients’ margins);
(III) Provision of guarantee to anyone whose (III) Provision of guarantee to anyone whose liability-asset ratio exceeds 70%; liability-asset ratio exceeds 70%;

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(IV) Provision of a single guarantee whose (IV) Provision of a single guarantee whose amount exceeds 10% of the latest audited amount exceeds 10% of the latest audited net assets of the Company; and net assets of the Company; and
(V) Provision of guarantees to the shareholders, de facto controllers and their related parties. External guarantees to be approved at shareholders’ meeting shall be considered and approved by the Board before submission to the shareholders’ meeting. When the shareholders’ meeting is considering a proposal to provide guarantee for any shareholder, de facto controller or related connected party, the said shareholder or the shareholders controlled by the said de facto controller shall be abstained from voting on the proposal, and the proposal shall be subject to approval by more than half of the voting rights of the other attending shareholders.

Article 69 Shareholders’ meetings are divided into annual general meetings and extraordinary general meetings. Annual general meetings are held once every year and within 6 months from the end of the preceding accounting year.

(V) Provision of guarantees to the shareholders, de facto controllers and their related parties. ~~External guarantees to be approved at shareholders~~ ’ ~~meeting shall be considered and approved by the Board before submission to the shareholders~~ ’ ~~meeting. When the shareholders~~ ’ ~~meeting is considering a proposal to provide guarantee for any shareholder, de facto controller or related connected party, the said shareholder or the shareholders controlled by the said de facto controller shall be abstained from voting on the proposal, and the proposal shall be subject to approval by more than half of the voting rights of the other attending shareholders.~~

If the meeting has to be adjourned for special circumstances, the Company shall promptly report to the delegated authority of the CSRC where the Company is domiciled and the stock exchange where the shares of the Company are listed, explain the reasons for the postponement and publish an announcement.

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Article 70 The Board shall convene an extraordinary general meeting within two (2) months after the occurrence of any one of the following circumstances:

(I) where the number of Directors is less than the number stipulated in the Company Law or is no more than two-thirds of the number required by the Articles of Association;
(II) where the accrued losses of the Company amount to one-third of its total share capital;
(III) where shareholders holding ten (10) per cent. or more of the Company’s issued shares make a request to convene an extraordinary general meeting. Shareholding is calculated as at the date which the shareholders put forward written request;
(IV) where the Board considers it necessary;
(V) where the board of supervisors proposes to call for such a meeting;
(VI) other circumstances stipulated by laws, administrative regulations, departmental rules, or the Articles of Association.

Article 71 The venue of shareholders’ meetings of the Company is: Conference Room, Building No.3, Shuntai Plaza, Shunhua Road No. 2000, Jinan, Shandong Province.

Amended Articles Article 70 The Board shall convene an extraordinary general meeting within two (2) months after the occurrence of any one of the following circumstances:

(I) where the number of Directors is less than the number stipulated in the Company Law or is no more than two-thirds of the number required by the Articles of Association;
(II) where the accrued losses of the Company amount to one-third of its total share capital;
(III) where shareholders holding ten (10) per cent. or more of the Company’s issued shares make a written request to convene an extraordinary general meeting. ~~Shareholding is calculated as at the date which the shareholders put forward written request~~ ;
(IV) where the Board considers it necessary;
(V) where the board of supervisors proposes to call for such a meeting;
(VI) other circumstances stipulated by laws, administrative regulations, departmental rules, or the Articles of Association.

Article 71 The venue of shareholders’ meetings of the Company is: Conference Room, Building No.3, Shuntai Plaza, Shunhua Road No. 2000, Jinan, Shandong Province.

A venue shall be set aside for the convening of such physical shareholders’ meetings. Such meetings may also be participated via Internet pursuant to relevant requirements. A shareholder who participates in a shareholders’ meeting by online means ~~in the aforesaid manner~~ shall be deemed to have been present at the meeting , and the shareholder’s identity shall be confirmed by the system of the stock exchange or online voting system.

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Article 73 Half of the independent non-executive directors shall be entitled to propose to the Board to convene an extraordinary general meeting. Regarding the proposal of the independent non-executive directors to convene an extraordinary general meeting, the Board shall, pursuant to relevant laws, administrative regulations and the Articles of Association, give a written reply on whether to convene the extraordinary general meeting or not within 10 days after receipt of the proposal.

If the Board agrees to convene the extraordinary general meeting, it shall serve a notice of such meeting within 5 days after the resolution is made by the Board. If the Board does not agree to hold the extraordinary general meeting, it shall give the reasons and publish an announcement.

Any other requirements as required by the securities regulatory authority at the place where the Company’s shares are listed should be followed.

Article 76 Where the board of supervisors or shareholders decide to convene a shareholders’ meeting by itself/themselves, it/they shall notify the Board in writing and file with the Shandong office of the CSRC and the stock exchange.

The shareholding of shareholders who convene the shareholders’ meeting shall be no less than 10% before a resolution passed at the shareholders’ meeting is announced. The convening shareholders shall, before the notice of shareholders’ meeting is issued, apply to the stock exchange for lock-up of all or part of the shares held by them during the above period.

The written notice served by the board of supervisors or the shareholders who convene an extraordinary general meeting on the Board and the notice of convening the extraordinary general meeting shall meet the following requirements:

Amended Articles

~~Any other requirements as required by the securities regulatory authority at the place where the Company~~ ’ ~~s shares are listed should be followed.~~

The shareholding of shareholders who convene the shareholders’ meeting shall be no less than 10% before a resolution passed at the shareholders’ meeting is announced. The convening shareholders shall, ~~before the notice of shareholders~~ ’ ~~meeting is issued, apply to the stock exchange for lock-up of all or part of the shares held by them during the above period.~~

~~The written notice served by the board of supervisors or the shareholders who convene an extraordinary general meeting on the Board and the notice of convening the extraordinary general meeting shall meet the following requirements:~~

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the content of the motions for the meeting shall be identical to the written proposals or request to the Board without any amendment, supplement or deletion; if otherwise, the supervisors and the relevant shareholders shall re-submit the proposal or request for convening an extraordinary general meeting to the Board in accordance with the relevant provisions of the Articles of Association;
the venue for such meeting shall be the designated place required by the Articles of Association;

The convening shareholders shall, when the notice of shareholders’ meeting is issued and a resolution made at the shareholders’ meeting is announced, submit relevant evidential documents to the Shandong office of the CSRC and the stock exchange.

Article 77 For the shareholders’ meeting convened by the supervisory committee or shareholders on its/their own, the Board and the secretary to the Board shall cooperate. The Board shall provide the register of shareholders on the record date of the equity interests.

If the Board does not provide the register of shareholders, the convener may apply to the securities depository and clearing authority for obtaining the register of shareholders with the announcement in relation to the notice convening the shareholders’ meeting. The register of shareholders obtained by the convener shall not be used for any other purposes other than to convene a shareholders’ meeting.

Amended Articles
~~1. the content of the motions for the meeting shall be identical to the written proposals or request to the Board without any amendment, supplement or deletion; if otherwise, the supervisors and the relevant shareholders shall re-submit the proposal or request for convening an extraordinary general meeting to the Board in accordance with the relevant provisions of the Articles of Association;~~
~~2. the venue for such meeting shall be the designated place required by the Articles of Association;~~

~~The convening shareholders shall,~~ when the notice of shareholders’ meeting is issued and a resolution made at the shareholders’ meeting is announced, submit relevant evidential documents to the Shandong office of the CSRC and the stock exchange.

~~If the Board does not provide the register of shareholders, the convener may apply to the securities depository and clearing authority for obtaining the register of shareholders with the announcement in relation to the notice convening the shareholders~~ ’ ~~meeting. The register of shareholders obtained by the convener shall not be used for any other purposes other than to convene a shareholders~~ ’ ~~meeting.~~

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	Original Articles		Amended Articles
Article 78 The procedure for convening of the shareholders’ meeting convened by the supervisory committee or shareholders on its/their own shall be identical with that of the Board. Expenses incurred by the meeting shall be borne by the Company, and deducted from the amount payable by the Company to the defaulting Directors. The board of supervisors or the convening shareholders shall notify the Company’s standing legal counsel that they shall issue legal opinions in accordance with laws, administrative regulations, and the Articles of Association. If hiring another lawyer, the Company shall not bear the legal fees.		Article 78 The procedure for convening of the shareholders’ meeting convened by the supervisory committee or shareholders on its/their own shall be identical with that of the Board. Any necessary expenses incurred ~~by~~ to convene the meeting shall be borne by the Company, and deducted from the amount payable by the Company to the defaulting Directors. ~~The board of supervisors or the convening~~ ~~shareholders shall notify the Company~~’~~s standing~~ ~~legal counsel that they shall issue legal opinions~~ ~~in~~ ~~accordance~~ ~~with~~ ~~laws,~~ ~~administrative~~ ~~regulations, and the Articles of Association. If~~ ~~hiring another lawyer, the Company shall not~~ ~~bear the legal fees.~~
Article 81 When the Company convenes a shareholders’ meeting, written notice of the meeting shall be given 45 days before the date of the meeting to notify all of the shareholders in the share register of the matters to be considered and the date and the place of the meeting. A shareholder who intends to attend the meeting shall deliver his/her written reply concerning the attendance of the meeting to the Company 20 days before the date of the meeting. In determining the commencement date and the period, the Company shall not include the date on which the meeting is held.		Article 81 When the Company convenes a shareholders’ meeting, written notice of the meeting shall be given 45 days before the date of the meeting to notify all of the shareholders in the share register of the matters to be considered and the date and the place of the meeting. A shareholder who intends to attend the meeting shall deliver his/her written reply concerning the attendance of the meeting to the Company 20 days before the date of the meeting. In determining the commencement date and the period, the date of the meeting convened shall be excluded but the date of issuing the notice may be included ~~the Company shall not include~~ ~~the date on which the meeting is held~~.

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Article 82 The Company shall, based on the written replies received 20 days before the date of the shareholders’ meeting from the shareholders, calculate the number of voting shares represented by shareholders who intend to attend the meeting. If the number of voting shares represented by the shareholders who intend to attend the meeting reaches more than 1/2 of the Company’s total voting shares, the Company may hold the meeting. If not, the Company shall within 5 days notify the shareholders again by public announcement of the matters to be considered, the place and the date for the meeting. The Company may hold the meeting after the publication of such notice.

An extraordinary general meeting shall not decide on those matters not stated in the notice of meeting.

Article 85 Unless otherwise required in laws, regulations and the Articles of Association, notice of shareholders’ general meeting shall be served on the shareholders (whether or not entitled to vote at the meeting), by personal delivery or prepaid mail to their addresses as shown in the register of shareholders.

For holders of domestic shares, notice of the meetings may be issued by way of announcement.

The announcement in the previous article shall be published in one or multiple newspapers designated by the securities supervisory authority of the State Council within the interval between 45 days and 50 days before the date of the meeting. After the publication of such notice, the holders of domestic shares shall be deemed to have received the notice of the relevant shareholders’ general meeting.

Notice of shareholders’ general meeting can be issued to holders of overseas listed foreign shares through announcement on the designated website of Hong Kong Stock Exchange and the Company website. After the publication of such notice, the holders of overseas listed foreign shares shall be deemed to have received the notice of the relevant shareholders’ general meeting.

Amended Articles

Article 85 Unless otherwise required i n laws, regulations and the Articles of Association, notice of shareholders’ general meeting shall be served on the shareholders (whether or not entitled to vote at the meeting), by personal delivery or prepaid mail to their addresses as shown in the register of shareholders.

For holders of ~~domestic~~ A shares, notice of the meetings may be issued by way of announcement. The announcement ~~in the previous article s~~ hall be published in one or multiple newspapers designated by the securities supervisory authority of the State Council within the interval between 45 days and 50 days before the date of the meeting. After the publication of such notice, the holders of ~~domestic~~ A shares shall be deemed to have received the notice of the relevant shareholders’ general meeting.

Notice of shareholders’ general meeting can be issued to holders of ~~overseas listed foreign~~ H shares through announcement on the designated website of Hong Kong Stock Exchange and the Company website. After the publication of such notice, the holders of ~~overseas listed foreign~~ H shares shall be deemed to have received the notice of the relevant shareholders’ general meeting.

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Article 88 The board of directors of the Company and other convener shall take necessary measures to ensure the good order of the general meeting. Except for shareholders (or their proxies) attending the meeting, directors, supervisors, senior executives, lawyers engaged, accountants and those invited by the board of directors, the convener has the right to refuse the entry of other persons. Measures will be taken to deter any act disturbing the meeting, picking quarrels and provoking troubles or infringing the lawful rights and interests of any shareholder, and shall report in a timely manner such act to the relevant authority for investigation and punishment.

Article 91 Individual shareholders attending a general meeting in person shall produce their identity cards or other valid proof or evidence of their identities as well as stock account cards and, in the case of attendance by proxies, the proxies shall produce valid proof of their identities and the proxy forms from shareholders.

Where a shareholder is a legal entity, its legal representative or a proxy entrusted by such legal representative shall attend a general meeting. In case of attendance by legal representatives, they shall produce their identity cards, valid proof of their capacities as legal representatives and stock account cards of shareholders who are legal persons; in the case of attendance by proxies of such legal representatives, such proxies shall produce their identity cards and, letters of authorization duly issued by such legal representatives and stock account cards of the appointing shareholders.

Amended Articles

Article 88 The board of directors of the Company and other convener shall take necessary measures to ensure the good order of the general meeting. ~~Except for shareholders (or their proxies) attending the meeting, directors, supervisors, senior executives, lawyers engaged, accountants and those invited by the board of directors, the convener has the right to refuse the entry of other persons.~~ Measures will be taken to deter any act disturbing the meeting, picking quarrels and provoking troubles or infringing the lawful rights and interests of any shareholder, and shall report in a timely manner such act to the relevant authority for investigation and punishment.

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	Original Articles		Amended Articles
		If the shareholder is a recognized clearing house (or their agent) as defined in the relevant laws and regulations of Hong Kong, he/she may authorize one or more proxy(ies) as he/she thinks fit to act as his/her proxy(ies) at any shareholders’ general meeting or class meeting. However, if more than one proxy is appointed, the proxy form shall specify the number and class of shares represented by each of such proxies under the authorization. Authorization shall be signed by the authorized personnel of a recognized clearing house. Such authorized proxies are entitled to attend meetings and exercise the rights on behalf of the recognized clearing house (or their agent) (without presentation of evidence of their shareholding, notarized authorization and/or further proof demonstrating the duly granting of the same), as if they were the individual shareholders of the Company.

Article 95 The instrument appointing a voting proxy shall be placed at the domicile of the Company or at such other places as specified in the notice of convening the meeting 24 hours prior to convening of the meeting at which the proxy is authorized to vote or 24 hours prior to the designated time of voting. Where the instrument is signed by another person authorized by the principal, the authorization letter or other documents authorizing the signatory shall be notarized. The notarized authorized letter or other authorized documents shall be placed together with the instrument appointing the voting proxy at the domicile of the Company or at such other places as specified in the notice of convening the meeting.

Where the principal is a legal person, its legal representative or the person authorized by resolution of its board of directors or other decision-making body shall be entitled to attend the Company’s general meetings as the representative of such legal person.

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PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Original Articles

If the shareholder is a recognized clearing house (or their agent) as defined in the relevant laws and regulations of Hong Kong, he/she may authorize one or more proxy(ies) as he/she thinks fit to act as his/her proxy(ies) at any shareholders’ general meeting or class meeting. However, if more than one proxy is appointed, the proxy form shall specify the number and class of shares represented by each of such proxies under the authorization. Authorization shall be signed by the authorized personnel of a recognized clearing house. Such authorized proxies are entitled to attend meetings and exercise the rights on behalf of the recognized clearing house (or their agent) (without presentation of evidence of their shareholding, notarized authorization and/or further proof demonstrating the duly granting of the same), as if they were the individual shareholders of the Company.

Article 100 Where the shareholders’ general meeting is convened by the board of directors, the chairman of the board of directors shall act as the chairman of the meeting and preside over the meeting. In the event that the chairman of the board of directors is unable or fails to perform his/her duties, the vice chairman shall act as the chairman and preside over the meeting. In the event that the vice chairman of the board of directors is unable or fails to perform his/her duties, half or more of the directors shall designate a director to act as the chairman and preside over the meeting.

If a shareholders’ general meeting is convened by the supervisory committee, the chairman of the supervisory committee shall preside over the meeting. If the chairman of the supervisory committee is unable or fails to discharge his/her duties, half or more of the supervisors shall designate a supervisor to preside over the meeting.

Amended Articles ~~If the shareholder is a recognized clearing house (or their agent) as defined in the relevant laws and regulations of Hong Kong, he/she may authorize one or more proxy(ies) as he/she thinks fit to act as his/her proxy(ies) at any shareholders~~ ’ ~~general meeting or class meeting. However, if more than one proxy is appointed, the proxy form shall specify the number and class of shares represented by each of such proxies under the authorization. Authorization shall be signed by the authorized personnel of a recognized clearing house. Such authorized proxies are entitled to attend meetings and exercise the rights on behalf of the recognized clearing house (or their agent) (without presentation of evidence of their shareholding, notarized authorization and/or further proof demonstrating the duly granting of the same), as if they were the individual shareholders of the Company.~~

Article 100 Where the shareholders’ general meeting is convened by the board of directors, the chairman of the board of directors shall ~~act as the chairman of the meeting andp~~ reside over the meeting. In the event that the chairman of the board of directors is unable or fails to perform his/her duties, the vice chairman shall ~~act as the chairman andp~~ reside over the meeting. In the event that the vice chairman of the board of directors is unable or fails to perform his/her duties, half or more of the directors shall designate a director to ~~act as the chairman andp~~ reside over the meeting.

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PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Original Articles

If a shareholders’ general meeting is convened by the shareholders themselves, the convener will nominate a representative to preside over the meeting. If the shareholders fail to elect for any reason, the shareholder who holds the most voting shares (include the proxy) being present shall preside over the meeting.

When a shareholders’ general meeting is convened, if the chairman of the meeting contravenes the rules of procedures, rendering the meeting impossible to proceed, with the consent from half or more of the attending shareholders with voting rights, one person may be nominated at the shareholders’ general meeting to serve as the chairman and the meeting may proceed.

Article 109 The following matters shall be resolved by way of an ordinary resolution of the general meeting:

(I) work reports of the Board and the supervisory committee;
(II) plans for the distribution of profits and making up of losses drafted by the Board;
(III) appointment or dismissal of the members of the Board and supervisory committee, remuneration and payment methods thereof;
(IV) the Company’s annual budget, final accounts, balance sheet, profit statement and other financial statements;
(V) the annual report of the Company;
(VI) matters other than those that laws, administrative regulations or the Articles of Association require to be passed by way of a special resolution.

Amended Articles

If a shareholders’ general meeting is convened by the shareholders themselves, the convener will nominate a representative to preside over the meeting. ~~If the shareholders fail to elect for any reason, the shareholder who holds the most voting shares (include the proxy) being present shall preside over the meeting.~~

Article 109 The following matters shall be resolved by way of an ordinary resolution of the general meeting:

(I) work reports of the Board and the supervisory committee;
(II) plans for the distribution of profits and making up of losses drafted by the Board;
(III) appointment or dismissal of the members of the Board and supervisory committee, remuneration and payment methods thereof;
(IV) the Company’s annual budget, final accounts, balance sheet, profit statement and other financial statements;
(V) the annual report of the Company;
(VI) the appointment or change of accountants’ firm conducting auditing for the Company;
(VI I ) matters other than those that laws, administrative regulations or the Articles of Association require to be passed by way of a special resolution.

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PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Original Articles

Article 110 The following matters shall be resolved by way of a special resolution of the general meeting:

(I) increase or reduction of the Company’s registered capital and issuance of any category of shares, warrants or other similar securities;
(II) issuance of Company’s bonds;
(III) division, merger, dissolution and liquidation of the Company;
(IV) amendment of the Articles of Association;
(V) amendment of the profit distribution plans drafted by the Board;
(VI) any purchase or disposal of substantial assets made or guarantee provided by the Company within one year, the amount of which exceeds 30% of the total assets as presented in the latest audited consolidated financial statements of the Company;
Amended Articles
Article 110 The following matters shall be resolved by way of a special resolution of the general meeting:
(I) increase or reduction of the Company’s registered capital and issuance of any category of shares, warrants or other similar securities;
(II) issuance of Company’s bonds; (III) division, merger, dissolution and liquidation of the Company , or change in the corporate form of the Company ;
(IV) amendment of the Articles of Association; (V) amendment of the profit distribution plans drafted by the Board;
(VI) any purchase or disposal of substantial assets made or guarantee provided by the Company within one year, the amount of which exceeds 30% of the total assets as presented in the latest audited consolidated financial statements of the Company;
(VII) share incentive plans;
(VII) share incentive plans;
(VIII) matters as required by laws, administrative regulations or the Articles of Association, or other matters that, as resolved by way of an ordinary resolution of the general meeting, may have a significant impact on the Company and require adoption by way of a special resolution.

(VIII) repurchase of the Company’s shares;

( ~~VIII~~ IX ) matters as required by laws, administrative regulations or the Articles of Association, or other matters that, as resolved by way of an ordinary resolution of the general meeting, may have a significant impact on the Company and require adoption by way of a special resolution.

— 85 —

PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Original Articles Amended Articles Unless the chairman makes a Article 119 Unless the chairman makes a spirit of honesty and credibility decision in the spirit of honesty and credibility the resolutions on relevant and agrees that the resolutions on relevant administrative matters shall be procedures or administrative matters shall be of hands, voting for a general voted on by show of hands, voting for a general held by ballot. meeting shall be held by ballot.

Article 119 Unless the chairman makes a decision in the spirit of honesty and credibility and agrees that the resolutions on relevant procedures or administrative matters shall be voted on by show of hands, voting for a general meeting shall be held by ballot.

Article 139 Directors shall be elected or changed by the general meeting and serve a term of 3 years. A director may serve consecutive terms if re-elected. Prior to the maturity of his term, a director shall not be removed without sake from his office by the general meeting.

That the minimum length of the period, during which notice to the Company of the intention to propose a person for election as a director and during which notice to the Company by such person of his willingness to be elected may be given, will be at least 7 days (the period will commence no earlier than the day after the despatch of the notice of the general meeting and end no later than 7 days prior to the date of such meeting).

For voting by show of hands, a declaration by the chairman of the meeting that a resolution has on a show of hands been carried, and an entry to that effect in the minutes of the meeting shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor or against such resolution at the meeting. Article 139 Directors shall be elected or changed by the general meeting , and may be removed from his office by the general meeting by an ordinary resolution in accordance with relevant laws and administrative regulations prior to the maturity of his term (but the director’s right to claim damages based on any contract shall not be affected). The term of office of a director is ~~and serve a term of~~ 3 years ~~.~~ A director may serve consecutive terms if re-elected. ~~Prior to the maturity of his term, a director shall not be removed without sake from his office by the general meeting.~~

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PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Original Articles Amended Articles of service commences from the A director’s term of service commences from the office, until the current term of date he takes office, until the current term of Board ends. A director shall service of the Board ends. A director shall continue to perform his/her duties as a director in the laws, administrative accordance with the laws, administrative rules and the Articles regulations, departmental rules and the Articles until a re-elected director takes of Association until a re-elected director takes is not conducted in a timely office, if re-election is not conducted in a timely expiry of his/her term of office. manner upon the expiry of his/her term of office. by the Board to fill a Any person appointed by the Board to fill a on or as an addition to the temporary vacancy on or as an addition to the office only until the next Board shall hold office only until the next meeting of the Company, and following general meeting of the Company, and for re-election. shall then be eligible for re-election. be removed by an ordinary ~~Any director may be removed by an ordinary~~ at a general meeting Prior to ~~resolution passed at a general meeting Prior to~~ term of office in accordance ~~the expiry of his/her term of office in accordance~~ and administrative regulations ~~with relevant laws and administrative regulations~~ right to claim damages based ~~(but the director~~ ’ ~~s right to claim damages based~~ shall not be affected). The ~~on any contract shall not be affected). T~~ he or other senior officers may general manager or other senior officers may concurrently serve as a director, provided that the of the directors who aggregate number of the directors who as general manager or other concurrently serve as general manager or other senior officers shall not exceed one half of all the Company. directors of the Company.

A director’s term of service commences from the date he takes office, until the current term of service of the Board ends. A director shall continue to perform his/her duties as a director in accordance with the laws, administrative regulations, departmental rules and the Articles of Association until a re-elected director takes office, if re-election is not conducted in a timely manner upon the expiry of his/her term of office. Any person appointed by the Board to fill a temporary vacancy on or as an addition to the Board shall hold office only until the next following general meeting of the Company, and shall then be eligible for re-election.

Any director may be removed by an ordinary resolution passed at a general meeting Prior to the expiry of his/her term of office in accordance with relevant laws and administrative regulations (but the director’s right to claim damages based on any contract shall not be affected). The general manager or other senior officers may concurrently serve as a director, provided that the aggregate number of the directors who concurrently serve as general manager or other senior officers shall not exceed one half of all the directors of the Company.

No employee representative(s) can serve as a director in the Board of the Company. A director is not required to hold shares of the Company.

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PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Original Articles

Article 168 The board of directors of the Company has established the strategy committee, the audit committee, the nomination committee and the remuneration and appraisal committee, which are all comprised of directors. In particular, more than half of the members of the audit committee, the nomination committee, the remuneration and appraisal committee are independent non-executive directors who are also the conveners. All members of the audit committee shall be non-executive directors, at least one of whom shall be an independent non-executive director who possesses appropriate professional qualifications provided in the Hong Kong Listing Rules or possesses appropriate accounting or relevant financial management expertise. The convenor of the audit committee shall be an independent non-executive director. Chairman of each of the special committees shall be appointed and dismissed by the board of directors.

The board of directors is responsible for formulating the rules of procedure of the special committees and stipulating the composition, functions and procedures of the special committees.

Amended Articles Article 168 The ~~b~~ B oard of ~~directors of~~ the Company has established the ~~strategy~~ audit committee, the ~~audit~~ strategy committee, the nomination committee and the remuneration and appraisal committee, which ~~are all comprised of directors. In particular, more than half of the member~~ shall be accountable to the Board and perform their duties in accordance with the Articles of Association and the authorization of the Board. The proposals of the ~~audit~~ special committee, ~~the nomination committee, the remuneration and appraiss~~ shall be submitted to the Board for consideration and decision. The speci al committee s are ~~independent non-executive directors who are also the conveners. All members of the audit committee shall be~~ all comprised of directors. In particular, the members of the audit committee are comprised of directors and all independent non – executive directors, and at least one of ~~whom shall be an~~ the independent non-executive director ~~who possesses~~ s must have appropriate professional qualifications that meet the requirements provided in the Hong Kong Listing Rules or possesses appropriate accounting or rel ~~evant~~ ated financial management expertise. The convenor of the audit committee shall be ~~an independent non-executive director. Chairman of each of the special committees shall be appointed and dismissed by the board of direct~~ accounting professional. The majority of the members of the nomination committee, remuneration and appraisal committee are independent non-executive directors who are also the conven ors.

The board of directors is responsible for formulating the rules of procedure of the special committees, and regulating the operation ~~stipulating the composition, functions and procedures~~ of the special committees.

— 88 —

PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Original Articles Amended Articles Article 174 The Company shall have a secretary Article 174 The Company shall have a secretary to the board of directors. The secretary to the to the board of directors. The secretary to the board of directors shall be a senior management board of directors shall be a senior management of the Company. of the Company. The provisions of Article 140 hereof concerning directors’ fiduciary duties and of Clauses (IV)-(VI) of Article 141 hereof concerning the duty of diligence shall also apply to secretary to the Board. Article 175 The secretary of the board of Article 175 The secretary of the board of directors of the Company shall be a natural directors of the Company shall be a natural person who has the requisite professional person who has the requisite professional knowledge and experience, and shall be knowledge and experience, and shall be appointed by the board of directors. The primary appointed by the board of directors. The primary responsibilities include: responsibilities include:

Article 175 The secretary of the board of directors of the Company shall be a natural person who has the requisite professional knowledge and experience, and shall be appointed by the board of directors. The primary responsibilities include:

(I) to ensure that the Company’s organizational documents and records are complete;
(II) to ensure the lawful preparation and submission by the Company of reports and documents as required by relevant authorities;

Article 184 The senior management shall not assume the duty of loyalty required for directors as set out in Article 140 and the duty of due diligence required for directors as set out in Article 141 of these Articles of Association in a dual capacity.

(I) to be responsible for the preparation of the general meeting and the meetings of the Board of the Company ~~ensure that the Company~~ ’ ~~s organizational documents and records are complete;~~
(II) to ensure that the Company’s organisation documents and records are complete and to ensure the lawful preparation and submission by the Company of reports and documents as required by relevant authorities;

Article 184 The ~~senior management shall not assume the duty of loyalty required for directors as set out in~~ Article 140 hereof concerning the duties of loyalty required for directors and the - Clauses (IV) (VI) of Article 141 concerning the obligations of diligence required for directors ~~duty of due diligence required for directors as set out in Article 141 of these Articles of Association in a dual capacity~~ shall also apply to the senior management of the Company .

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PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Original Articles Amended Articles Article 185 Any person working in the Article 185 Any person holding any executive controlling shareholder or actual controller of the position working in the controlling shareholder Company other than as a director shall not serve ~~or actual controller~~ of the Company other than as as senior management of the Company. a director or supervisor shall not serve as senior management of the Company. Article 194 The supervisors shall observe laws, Article 194 The supervisors shall observe laws, administrative regulations and these Articles of administrative regulations and these Articles of Association. They shall assume the duties of Association. They shall assume the duties of loyalty and due diligence to the Company, and loyalty and due diligence to the Company, and shall not accept any bribery or other illegal shall not accept any bribery or other illegal income by using his powers and position, or seize income by using his powers and position, or seize the assets of the Company in any manner. The the assets of the Company in any manner. provisions relating to the duty of loyalty required for directors as set out in Article 140 of these ~~The provisions relating to the duty of loyalty~~ Articles of Association shall apply to ~~required for directors as set out in Article 140 of~~ supervisors. ~~these Articles of Association shall apply to supervisors.~~

The Articles of Association and its amendments were written in Chinese. As such, any English translation shall be for reference only. In case of any discrepancies, the Chinese version shall prevail.

— 90 —

REVISED NOTICE OF 2019 THIRD EXTRAORDINARY GENERAL MEETING

APPENDIX IV

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SHANDONG GOLD MINING CO., LTD. 山東黃金礦業股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1787)

REVISED NOTICE OF

2019 THIRD EXTRAORDINARY GENERAL MEETING

Reference is made to the notice of third extraordinary general meeting (“ EGM ”) of Shandong Gold Mining Co., Ltd. (the “ Company ”) dated 21 June 2019 and the announcement of the Company dated 5 August 2019 in relation to, among other things, the postponement of the EGM.

NOTICE IS HEREBY GIVEN that the EGM of the Company will be postponed to be held at the conference room of the Company, Building No. 3, Shuntai Plaza, Shunhua Road No. 2000, Jinan, Shandong Province, the PRC at 9:00 a.m. on Friday, 23 August 2019 for the purpose of considering and, if thought fit, passing the following resolutions:

ORDINARY RESOLUTIONS

To consider and approve the resolution on the Company’s acquisition of 100% equity interest of SD Gold Capital Management Co., Ltd. (山金金控資本管理有限公司).
To consider and approve the resolution on the estimated new daily connected transactions of the Company after the acquisition of the equity interest of SD Gold Capital Management Co., Ltd. (山金金控資本管理有限公司).

SPECIAL RESOLUTIONS

To consider and approve the amendment of the Company’s Articles of Association.
To consider and approve the general mandate to issue H shares.

— 91 —

REVISED NOTICE OF 2019 THIRD EXTRAORDINARY GENERAL MEETING

APPENDIX IV

“ THAT :

(a) The Board be granted an unconditional general mandate to, separately or concurrently, issue, allot and deal with additional H shares (the “ H Shares ”) of the Company in accordance with the market conditions, including to decide on the class and number of shares to be issued; the pricing mechanism and/or the issue price (or the range of issue price); the commencement and end date and time of such issue, the class and number of shares to be issued and allotted to existing shareholders of the Company; and/or to make any proposals, enter into any agreements or grant any share options in relation to such H Shares;
(b) The total number of H Shares separately or concurrently, issued, allotted and dealt with by the Board of Directors (whether or not by way of the exercise of share options or by any other means) in accordance with the mandate mentioned as (a) above shall not exceed 20% of the number of the H Shares of the Company in issue as at the date of this resolution being approved by the EGM;
(c) The Board may make proposals, enter into any agreements or grant any share options which relates to the exercise, after the expiry of the Relevant Period (as defined in (d) below), of rights in relation to such H Shares;
(d) For the purpose of this resolution, “ Relevant Period ” means the period from the passing of this resolution on the EGM until whichever is the earlier of:
(i) the conclusion of the next annual general meeting of the Company following the passing of this resolution;
(ii) the expiration of a period of 12 months following the passing of this resolution; or
(iii) the date on which the authority conferred by this resolution is revoked or varied by a special resolution of the shareholders of the Company in a general meeting;
(e) The Board be and is hereby authorised to increase the registered share capital and make such amendments to the articles of association of the Company (the “ Articles of Association ”) as it thinks fit so as to reflect the increased registered share capital and the new capital structure of the Company in accordance to the manner of the allotment and issuance, class and number of shares of the Company allotted and issued, as well as the capital structure of the Company after such allotment and issuance;
(f) In order to facilitate the issuance of shares in accordance with this resolution in a timely manner, the Board be and is hereby authorised to exercise all such power granted to the Board to execute and do or procure to be executed and done all such documents, deeds and things as it may consider necessary in connection with the issue of such shares contingent on the passing of sub-paragraphs (a) to (e) of this resolution and within the Relevant Period. Such power shall include but not limited to the following:

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REVISED NOTICE OF 2019 THIRD EXTRAORDINARY GENERAL MEETING

APPENDIX IV

(i) depending on the actual market conditions, the Board is authorised to determine the method of issuance, the target for issuance as well as the amount and proportion of issuance, pricing method and/or issue price (including issue price range), the commencement and end time, the listing time, use of proceeds and other information;
(ii) engaging professional agencies and signing relevant engagement agreements;
(iii) signing the underwriting agreement, sponsor’s agreement, listing agreement and all other documents as considered necessary for executing the mandate to issue shares on behalf of the Company;
(iv) handling the issues on registration of change in registered share capital and share capital on a timely basis according to the method, type and amount of the shares issued and the actual situation of the capital structure of the Company;
(v) applying for approval, registration, filing and other procedures in connection with the issuance and listing of such shares from the relevant authorities on behalf of the Company;
(vi) determining and paying the relevant listing fee and application fee;
(vii) amending the Articles of Association from time to time and arranging necessary registration and filing procedures according to the method, type and number of the shares issued and the actual situation of the capital structure of the Company; and
(viii) all other procedures and matters as the Board may consider necessary in connection with the issuance of shares, so long as the same does not contravene any applicable laws, rules, regulations or the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Hong Kong Listing Rules ”) and the Articles of Association;
(g) The Board will only exercise its respective power under such mandate in accordance with the Company Law of the PRC, the Securities Law of the PRC, regulations or the Hong Kong Listing Rules (as amended from time to time) and only if all necessary approvals from the China Securities Regulatory Commission and/or other relevant PRC government authorities are obtained and the Board will only exercise its power under such mandate in accordance with the power granted by the shareholders to the Board at the EGM.”

By order of the Board Shandong Gold Mining Co., Ltd. Li Guohong Chairman

Jinan, the PRC 7 August 2019

As at the date of this notice, the executive directors of the Company are Mr. Wang Peiyue, Mr. Li Tao and Mr. Tang Qi; the non-executive directors of the Company are Mr. Li Guohong, Mr. Wang Lijun and Ms. Wang Xiaoling; and the independent non-executive directors of the Company are Mr. Gao Yongtao, Mr. Lu Bin and Ms. Hui Wing.

— 93 —

REVISED NOTICE OF 2019 THIRD EXTRAORDINARY GENERAL MEETING

APPENDIX IV

Notes:

All holders of H Shares whose names appear on the register of members of the Company on Saturday, 13 July 2019 are entitled to attend the EGM and should bring along their identity cards or passports when attending the EGM. Holders of the Company’s H Shares should note that the register of members of the Company will be closed from Saturday, 13 July 2019 to Friday, 23 August 2019 (both dates inclusive), during which period no transfers of H Shares will be effected. The record date and arrangements in respect of the holders of A Shares of the Company who are entitled to attend the EGM will be determined and announced separately in the PRC.
Any shareholder entitled to attend and vote at the EGM is entitled to appoint a proxy or more proxies (who need not be a shareholder of the Company) to attend the EGM and vote thereat in his stead. For any shareholder who appoints more than one proxy, the voting right can only be exercised by his/her proxies on a poll.
Any shareholder who intends to appoint a proxy to attend the EGM shall put it in writing, with the proxy form to be signed by the appointer or his attorney duly authorized in writing. If the appointer is a corporation, the proxy form must be affixed with its common seal, or signed by any of its directors or attorney duly authorized in writing. If the proxy form is signed by an attorney authorized by the appointer, the power of attorney or other authorization documents must be notarially certified. The notarially certified power of attorney or other authorization documents together with the proxy form must be delivered to the Company’s H share registrar, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for H shareholders only) not later than 24 hours before the time appointed for the holding of the EGM (i.e. before 9:00 a.m. on Thursday, 22 August 2019). Completion and return of the proxy form will not affect the rights of the shareholders to attend and vote at the EGM in person.
Proxies of holders of the Company’s H Shares shall bring along the proxy form, instrument(s) for appointing a proxy (if applicable) and the proxies’ identity cards or passports to attend the EGM.
According to Article 108 of the Articles of Association, an ordinary resolution shall be passed by more than half of the votes cast by the shareholders (including proxies) present at the general meeting, while a special resolution shall be passed by more than two-thirds of the votes cast by the shareholders (including proxies) present at the general meeting.
Directors, supervisors and senior management of the Company and the witnessing lawyers and other relevant personnel employed by the Company will attend the EGM.

— 94 —

AI assistant

Shandong Gold Mining Co., Ltd. — Proxy Solicitation & Information Statement 2019

50168_rns_2019-08-06_cdd8ed83-2c89-4c5e-ac18-46b838eb1a0f.pdf

SHANDONG GOLD MINING CO., LTD. 山東黃金礦業股份有限公司

(3) PROPOSED AMENDMENT TO ARTICLES OF ASSOCIATION (4) GENERAL MANDATE TO ISSUE H SHARES AND

(5) REVISED NOTICE OF 2019 THIRD EXTRAORDINARY GENERAL MEETING

DEFINITIONS

DEFINITIONS

DEFINITIONS

SHANDONG GOLD MINING CO., LTD. 山東黃金礦業股份有限公司

Executive Directors:

Non-executive Directors:

Independent non-executive Directors:

To the Shareholders

INTRODUCTION

THE SALE AND PURCHASE AGREEMENT

Date

Parties

Acquisition of the entire equity interest in the Target Company

Consideration

Conditions precedent

Completion

Profit or Loss for the Transition Period

Financial Position of the Target Company

Explanation for the operating performance of the Target Company in the first quarter of 2019

Measures implemented

2. Strengthen the management in the investment business

3. Strengthening the management of futures business

Analysis by the Directors on the operating performance of the Target Company in the first quarter of 2019

Valuation

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Analysis on the valuation results table

LETTER FROM THE BOARD

Fixed assets

INFORMATION ON THE PARTIES

The Company

SDG Group Co.

Target Group

Target Company

1. SDG Futures Co., Ltd. (“ SDG Futures ”)

2. SDG (Shanghai) Precious Metals Investment Co., Ltd. (“ SDG Precious Metals ”)

3. Jinchuang Gold (Shanghai) Co., Ltd. (“ Jinchuang Gold ”)

4. SDG International Capital Management Co., Ltd. (“ SDG International ”)

5. SDG Jinkong (Shenzhen) Gold Investment Co., Ltd. (“ Jinkong Shenzhen ”)

6. Shanghai Shengju Asset Operation and Management Co., Ltd. (“ Shanghai Shengju ”)

REASONS FOR AND BENEFITS OF THE ACQUISITION

2. Reducing horizontal competition

3. Enhancing the asset scale and financial performance of the Company

OPINION FROM THE BOARD

HONG KONG LISTING RULES IMPLICATION

Independent Board Committee

(2) ESTIMATED NEW DAILY CONNECTED TRANSACTIONS OF THE COMPANY AFTER THE ACQUISITION OF THE EQUITY INTEREST OF THE TARGET COMPANY

Original Annual Caps

Historical Figures

Basis for increase of the Revised Annual Caps

Procurement of gold (mainly including gold concentrate and doré)

Others (including training fees, property management fees, etc.)

Internal Control & Pricing Policies

Reasons for the amendment to the Revised Annual Caps

OPINION FROM THE BOARD

HONG KONG LISTING RULES IMPLICATION

(3) PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

(4) GENERAL MANDATE TO ISSUE H SHARES

EGM

CLOSURE OF REGISTER OF MEMBERS

VOTING

RECOMMENDATION

ADDITIONAL INFORMATION

SHANDONG GOLD MINING CO., LTD. 山東黃金礦業股份有限公司

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 100% EQUITY INTEREST IN THE TARGET COMPANY

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 100% EQUITY INTEREST IN THE TARGET COMPANY

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of the Group

(i) Principal activities

(ii) Financial performance

2. Reasons for and benefits of the Acquisition

3. Principal terms of the Sale and Purchase Agreement

Shandong Gold Mining Co., Ltd. Proxy Solicitation & Information Statement 2019