Shandong Gold Mining Co., Ltd. — Proxy Solicitation & Information Statement 2020

Oct 27, 2020

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 licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Shandong Gold Mining Co., Ltd. , you should at once hand this circular to the purchaser or transferee or to the bank or stockbroker or other licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular is for information purposes only and does not constitute any invitation or offer to acquire, purchase, subscribe for or otherwise deal in the securities of the Company. This circular is not for release, publication or distribution in or into any jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction.

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) PRE-CONDITIONAL PROPOSAL TO TAKE PRIVATE OF HENGXING GOLD HOLDING COMPANY LIMITED BY THE COMPANY BY WAY OF SCHEME OF ARRANGEMENT UNDER SECTION 86 OF THE COMPANIES LAW

(2) DISCLOSEABLE TRANSACTION OF THE COMPANY INVOLVING ISSUE OF NEW H SHARES UNDER SPECIFIC MANDATE PURSUANT TO THE SCHEME

AND

(3) NOTICES OF 2020 FIFTH EXTRAORDINARY GENERAL MEETING AND 2020 FOURTH H SHARES CLASS MEETING

A notice convening the 2020 fifth extraordinary general meeting (the “ EGM ”) and a notice convening the 2020 fourth class meeting for holders of H Shares (the “ H Shares Class Meeting ”) of Shandong Gold Mining Co., Ltd. (“ 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, 13 November 2020 and on Friday, 13 November 2020 immediately after the conclusion of the 2020 fourth class meeting for holders of A Shares of the Company are set out on pages I-1 to I-2 and II-1 to II-2 respectively of this circular.

The proxy forms for use in connection with the EGM and the H Shares Class Meeting are enclosed herewith. The proxy forms are 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 and the H Shares Class Meeting 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 the H Shares Class Meeting and vote on your behalf, you are requested to complete the accompanying proxy forms in accordance with the instructions printed thereon and return them by hand, by post or by facsimile to the Company’s H share registrar, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, 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 and the H Shares Class Meeting or any adjournment thereof (as the case may be) (i.e. before 9:00 a.m. on Thursday, 12 November 2020). Completion and return of the proxy forms will not preclude you from attending and voting at the EGM and the H Shares Class Meeting or any adjournment hereof should you so wish.

28 October 2020

CONTENTS

			Page
DEFINITIONS	. .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			8
APPENDIX I	–	NOTICE OF 2020 FIFTH EXTRAORDINARY
		GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
APPENDIX II	–	NOTICE OF 2020 FOURTH H SHARES CLASS MEETING . . . . . . .	II-1

— i —

DEFINITIONS

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

• “acting in concert” has the meaning ascribed to it in the Takeovers Code and “concert parties” shall be construed accordingly

• “Approvals” authorisations, registrations, filings, rulings, consents, opinions, permissions, waivers, notices and approvals

• “A Shareholder(s)” holder(s) of A Shares

• “A Shares” domestic shares in the share capital of the Company, with a nominal value of RMB1.00 each, which are listed on the Shanghai Stock Exchange and traded in RMB

• “A Shares Class Meeting” the 2020 fourth A shares class meeting of the Company to be held on Friday, 13 November 2020

• “Articles of Association” the articles of association of the Company (as amended from time to time)

• “Board” the board of directors of the Company

• “BVI” the British Virgin Islands

• “CICC” China International Capital Corporation Hong Kong Securities Limited, a company incorporated in Hong Kong with limited liability and licensed under the SFO to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 6 (advising on corporate finance) regulated activities, and the financial adviser to the Company in respect of the Proposal and the Scheme

• “Class Meeting(s)”

the class meeting of holders of A Shares and the class meeting of holders of H Shares to be held to consider and approve, among other matters, the Specific Mandate

• “Companies Law”

the Companies Law (2020 Revision) of the Cayman Islands, as consolidated and revised from time to time

• “Conditions”

the conditions to the implementation of the Proposal, as set out under the section headed “5. CONDITIONS OF THE PROPOSAL AND THE SCHEME” of this circular

— 1 —

DEFINITIONS

“Court”

the Grand Court of the Cayman Islands

• “Court Meeting”

a meeting of the Scheme Shareholders to be convened at the direction of the Court at which the Scheme (with or without modification) will be voted upon, or any adjournment thereof

• “Directors” directors of the Company

• “Disinterested Shareholders” all the Scheme Shareholders, other than the Company and the SDGM Concert Parties (except in respect of the holding of HXG Shares by the CICC group in the capacity of an exempt principal trader or exempt fund manager in each case recognised by the Executive as such for the purposes of the Takeovers Code and excluding HXG Shares held by the CICC group for and on behalf of its non-discretionary investment clients)

• “Executive” the Executive Director of the Corporate Finance Division of the SFC or any of his delegates

• “EGM”

• the 2020 fifth extraordinary general meeting of the Company to be held at 9:00 a.m. on Friday, 13 November 2020 at the conference room of the Company, Building No. 3, Shuntai Plaza, Shunhua Road No. 2000, Jinan, Shandong Province, the PRC

• “Gold Mountain Mine” 金山金礦, a gold mine located in Yining County of Xinjiang, China, which covers five gold prospects, namely the Yelmand prospect, the Mayituobi prospect, the Jingxi-Balake prospect, the Kuangou prospect and the Lion prospect

• “Gold Virtue”

• Gold Virtue Limited, a company incorporated under the laws of the BVI with limited liability on 16 March 2012 and a controlling shareholder of HXG holding approximately 60% of the issued share capital thereof, which is wholly-owned by Mr. Ke Xiping

• “Group”

• the Company and its subsidiaries

• “H Shares”

overseas listed foreign shares in the share capital of the Company, with a nominal value of RMB1.00 each, which are subscribed for and traded in HK$ and which are listed on the Main Board of the Stock Exchange

— 2 —

DEFINITIONS

“H Shares Class Meeting” the 2020 fourth H Shares class meeting of the Company to be held on Friday, 13 November 2020 “H Shareholder(s)” holder(s) of H Shares

• “HK$” Hong Kong dollar, the lawful currency of Hong Kong

• “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China

• “HXG” Hengxing Gold Holding Company Limited (恒興黃金控股 有限公司), a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 2303)

• “HXG Board” the board of directors of HXG

• “HXG EGM” the extraordinary general meeting of HXG to be held to consider and approve, among other matters, the capital reduction arising as a result of the Scheme

• “HXG Group” HXG and its subsidiaries “HXG Independent Board Committee” the independent board committee of HXG established by the HXG Board to make a recommendation to the Disinterested Shareholders in respect of, amongst others, the Proposal and the Scheme

• “HXG Independent Financial Adviser” Octal Capital Limited, a licensed corporation permitted to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, the independent financial adviser appointed by HXG for the purpose of providing advice to the HXG Independent Board Committee in respect of the Proposal and the Scheme

• “HXG Last Full Trading Day” 28 September 2020, being the last full trading day on which HXG Shares were traded on the Stock Exchange immediately prior to their suspension in trading on the Stock Exchange pending the publication of the Joint Announcement

— 3 —

DEFINITIONS

• “HXG Last Trading Day”

• 29 September 2020, being the last trading day on which HXG Shares were traded on the Stock Exchange immediately prior to their suspension in trading on the Stock Exchange pending the publication of the Joint Announcement

• “HXG Shares”

• ordinary shares with par value of HK$0.01 each in the share capital of HXG

• “HXG Shareholders” registered holders of HXG Shares

• “HXG Special Dividend”

• the special dividend of HK$0.3585 per HXG Share declared by the HXG Board on 29 September 2020, for which the record date was 16 October 2020

• “Irrevocable Undertaking” the irrevocable undertakings and warranties given by the IU Shareholders whose liabilities are guaranteed by the IU Guarantors in favour of the Company dated 30 September 2020

• “IU Guarantors”

• Mr. Ke Xiping and Mr. Ke Jiaqi, being the sole shareholder of Gold Virtue and Xi Wang respectively

• “IU Shareholders”

• Gold Virtue and Xi Wang

• “IU Shares”

• collectively, the 555,000,000 HXG Shares held by Gold Virtue and the 138,750,000 HXG Shares held by Xi Wang

• “Joint Announcement”

• the joint announcement of the Company and HXG dated 30 September 2020 in relation to, among other things, the Proposal involving the issue of the New H Shares under the Specific Mandate

• “Last Trading Day” HXG Last Trading Day (with respect to HXG Shares) or SDGM Last Trading Day (with respect to the Shares)

• “Latest Practicable Date”

• 22 October 2020, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Mr. Ke Jiaqi”

• Ke Jiaqi (柯家琪), an executive director and a controlling shareholder of HXG, Mr. Ke Xiping’s son

— 4 —

DEFINITIONS

• “Mr. Ke Xiping”

• “New H Shares”

• “PRC” or “China”

• “Pre-Conditions”

• “Proposal”

• “relevant securities”

• “RMB”

• “Scheme”

• “Scheme Document”

• Ke Xiping (柯希平), an executive director, the chairman and a controlling shareholder of HXG

• the 159,482,759 new H Shares to be allotted and issued out of the share capital of the Company and credited as fully paid to the Scheme Shareholders as consideration for the Proposal pursuant to the Proposal and the Scheme and in accordance with the Specific Mandate to be granted to the Directors by the Shareholders

• the People’s Republic of China, which, for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

• the pre-conditions to the making of the Proposal, as set out under section headed “4. PRE-CONDITIONS TO THE MAKING OF THE PROPOSAL” of this circular

• the proposal to take private of HXG by the Company by way of the Scheme involving the cancellation and the extinguishment of the Scheme Shares, the restoration of the share capital of HXG to the amount immediately before the cancellation of the Scheme Shares by means of the issuance of new HXG Shares to the Company or its wholly owned subsidiary (as the case may be), and the withdrawal of listing of HXG Shares on the Stock Exchange, on terms and subject to the conditions set out in this circular

• has the meaning ascribed to it under in Note 4 to Rule 22 of the Takeovers Code

• Renminbi, the lawful currency of the PRC

• the scheme of arrangement under section 86 of the Companies Law involving, amongst others, the cancellation of all the Scheme Shares and the restoration of the issued share capital of HXG to the amount immediately before the cancellation of the Scheme Shares by the issuance of new HXG Shares to the Company or its wholly owned subsidiary (as the case may be)

• the scheme document to be despatched to all Scheme Shareholders in connection with the Scheme and containing, inter alia, further details of the Proposal and the Scheme

— 5 —

DEFINITIONS

• “Scheme Effective Date”

• “Scheme Long Stop Date”

• “Scheme Record Date”

• “Scheme Share(s)”

• “Scheme Shareholder(s)”

• “SDGM” or “Company”

• “SDGM Concert Party(ies)”

• “SDGM Last Trading Day”

• “Shanghai Stock Exchange”

• “Shareholders”

• “Shares”

the date on which the Scheme becomes effective in accordance with the Companies Law

• 30 June 2021 or such later date as the Company and HXG may agree, or to the extent applicable, as the Court may direct and, in all cases, as permitted by the Executive

• the record date to be announced for determining entitlements under the Scheme

• the HXG Shares in issue as at the Scheme Record Date other than those held by the Company and SDGM Concert Parties

• holder(s) of the Scheme Share(s) as at the Scheme Record Date

• Shandong Gold Mining Co., Ltd. (山東黃金礦業股份有限 公司), a joint stock company incorporated under the laws of the PRC with limited liability on 31 January 2000, the H shares and A shares of which are listed on the main board of the Stock Exchange (Stock Code: 1787) and the Shanghai Stock Exchange (Stock Code: 600547) respectively, being the offeror under the Proposal

• any party(ies) acting in concert, or presumed to be acting in concert with the Company under the definition of “acting in concert” under the Takeovers Code (except in the capacity of an exempt principal trader or exempt fund manager in each case recognised by the Executive as such for the purpose of the Takeovers Code and excluding HXG Shares held by the CICC group on behalf of non-discretionary investment clients)

• 29 September 2020, being the last full trading day on which the H Shares were traded on the Stock Exchange immediately prior to their suspension in trading on the Stock Exchange pending the publication of the Joint Announcement

Shanghai Stock Exchange (上海證券交易所)

• registered holders of the Shares

ordinary shares of the Company with a nominal value of RMB1.00 each, comprising both A Shares and H Shares

— 6 —

DEFINITIONS

“SFC” the Securities and Futures Commission of Hong Kong “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “Share Exchange Ratio” the exchange ratio of 5/29 new H Share for every Scheme Share cancelled under the Scheme “Specific Mandate” the specific mandate for the allotment and issue, credited as fully paid, of the New H Shares as consideration for the Proposal to the Scheme Shareholders pursuant to the Scheme “Stock Exchange” The Stock Exchange of Hong Kong Limited “subsidiary(ies)” has the meaning ascribed to it under the Listing Rules “Takeovers Code” the Hong Kong Code on Takeovers and Mergers and Share Buy-backs

• “trading day” a day on which the Stock Exchange is open for the business of dealings in securities

• “Xi Wang” Xi Wang Developments Limited (熙望發展有限公司), a limited liability company incorporated in the BVI on 11 May 2012 and a controlling shareholder of HXG holding approximately 15% of the issued share capital thereof, which is wholly-owned by Mr. Ke Jiaqi

“%” per cent

Words importing the singular shall, where applicable, include the plural and vice versa. Words importing the masculine gender shall, where applicable, include the feminine and neuter genders. References to persons shall, where applicable, include corporations.

Any reference in this circular to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any word defined under the Listing Rules, the SFO or any modification thereof and used in this circular shall, where applicable, have the meaning assigned to it under the Listing Rules, the SFO or any modification thereof, as the case may be.

If there is any inconsistency between the English and Chinese versions of this circular, the English version shall prevail.

— 7 —

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 4003-4006 China Resources Building No. 26 Harbour Road Wanchai Hong Kong

To the Shareholders

Dear Sir or Madam,

(1) PRE-CONDITIONAL PROPOSAL TO TAKE PRIVATE OF HENGXING GOLD HOLDING COMPANY LIMITED BY THE COMPANY BY WAY OF SCHEME OF ARRANGEMENT UNDER SECTION 86 OF THE COMPANIES LAW (2) DISCLOSEABLE TRANSACTION OF THE COMPANY INVOLVING ISSUE OF NEW H SHARES UNDER SPECIFIC MANDATE PURSUANT TO THE SCHEME AND

(3) NOTICES OF 2020 FIFTH EXTRAORDINARY GENERAL MEETING AND 2020 FOURTH H SHARES CLASS MEETING

1. INTRODUCTION

On behalf of the Board, I invite you to attend the EGM and the H Shares Class Meeting to be held at the conference room of the Company, Building No. 3, Shuntai Plaza, Shunhua Road No. 2000, Jinan, Shandong Province, PRC at 9:00 a.m. on Friday, 13 November 2020 and on Friday, 13 November 2020 immediately after the conclusion of the A Shares Class Meeting respectively. The purpose of this circular is to issue the notices of EGM and the H Shares Class Meeting and provide you with all reasonably necessary information to enable you to make an informed decision as to the resolutions to be proposed at the EGM and at the H Shares Class Meeting.

— 8 —

LETTER FROM THE BOARD

2. BACKGROUND

Reference is made to the Joint Announcement.

On 29 September 2020 (after trading hours), the Company has formally requested, subject to the satisfaction of the Pre-Conditions, the HXG Board to put forward to the Scheme Shareholders the Proposal regarding its proposal to take private of HXG by the Company by way of a scheme of arrangement under section 86 of the Companies Law involving:

• (i) the reduction of the issued share capital of HXG by the cancellation of the Scheme Shares and in consideration therefor, 5/29 H Share will be allotted and issued to the holders of Scheme Shares on the Scheme Effective Date for every Scheme Share so cancelled;

• (ii) forthwith upon the capital reduction referred to in (i) above, the restoration of the issued share capital of HXG to the amount immediately before the cancellation of the Scheme Shares by means of the issuance of new HXG Shares in the same number as the Scheme Shares (which were cancelled) to the Company credited as fully paid out of the credit arising in HXG’s books of account as a result of the capital reduction referred to in (i) above; and

• (iii) the withdrawal of the listing of the HXG Shares on the Stock Exchange immediately following the Scheme Effective Date pursuant to Rule 6.15 of the Listing Rules.

The Company reserves the right to require HXG to issue new HXG Shares to a wholly-owned subsidiary of the Company (in lieu of the Company itself) for the purpose of (ii) above.

If the Scheme is approved by the Scheme Shareholders, and if the Scheme is sanctioned by the Court, all requirements of the Companies Law are complied with, including the registration by the Cayman Islands Registrar of Companies of the relevant Court order, and all other Conditions are fulfilled or waived (as the case may be), the Scheme will be binding on each holder of Scheme Shares, irrespective of whether or not he, she or it attends and/or votes at the Court Meeting or the HXG EGM. Subject to the Scheme becoming effective, the entire issued share capital of HXG will be owned by the Company or its wholly-owned subsidiary (as the case may be) upon completion of the Proposal.

Each of HXG and the Disinterested Shareholders and their respective ultimate beneficial owners are third parties independent of the Company and connected persons of the Company.

— 9 —

LETTER FROM THE BOARD

HXG Special Dividend

At a meeting of the HXG Board held on 29 September 2020, the HXG Board has approved the declaration of the HXG Special Dividend which will be payable to HXG Shareholders whose names appeared on the register of members of HXG on 16 October 2020. The HXG Special Dividend is expected to be paid on 30 October 2020.

The payment of HXG Special Dividend will not result in any adjustment to the Share Exchange Ratio.

3. TERMS OF THE PRE-CONDITIONAL PROPOSAL

Subject to the satisfaction of the Pre-Conditions, under the Proposal, if the Scheme becomes effective, all of the Scheme Shares will be cancelled in exchange for newly issued H Share(s) according to the Share Exchange Ratio:

For every Scheme Share cancelled . . . . . . 5/29 H Share (approximate to 0.17241* H Share)

• The approximate figure of 0.17241 is included in this circular for illustrative purpose only and is subject to rounding adjustment. Please use the fraction of 5/29 for calculation of exact entitlement.

The Share Exchange Ratio has been determined on a commercial basis after taking into account, (i) the historical performance and business potential of the Company and HXG, (ii) the prevailing and historical market price levels of both the H Shares and HXG Shares traded on the Stock Exchange, (iii) other comparable share exchange transactions in Hong Kong and in the global gold mining industries in recent years, and (iv) the HXG Special Dividend.

The New H Shares will only be issued to holders of Scheme Shares if the Scheme becomes effective.

The number of the New H Shares to be issued to holders of Scheme Shares under the Scheme will be in accordance with the Share Exchange Ratio and will not be increased, and the Company does not reserve the right to do so.

— 10 —

LETTER FROM THE BOARD

Comparison of Value

The premia represented by the issue of the New H Shares as calculated by reference to various ratios between the average closing prices per HXG Share and the average closing prices per H Share in various historical periods, are as follows:

		Trading Periods up to and including the	Trading Periods up to and including the	Trading Periods up to and including the	Trading Periods up to and including the	Trading Periods up to and including the
			respective Last Trading Day
		10	30	60	90	120
		Trading	Trading	Trading	Trading	Trading
		Days	Days	Days	Days	Days
A	Average closing price per HXG	3.15	3.28	3.24	2.93	2.70
	Share based on the daily
	closing prices as quoted on
	the Stock Exchange, less the
	HXG Special Dividend (HK$)
B	Average closing price per	20.09	21.02	21.54	19.78	18.87
	SDGM H Share based on the
	daily closing prices as quoted
	on the Stock Exchange (HK$)
C	Premium = (5/29)/(A/B)-1	9.99%	10.33%	14.78%	16.23%	20.53%

Notes:

1. “C” corresponds to the premium represented by the issuance of 5/29 new H Share for every Scheme Share based on the ratio between the average closing price per HXG Share for any of the specified period up to the HXG Last Trading Day and the average closing price per H Share for any of the specified period up to the SDGM Last Trading Day.

2. The figures shown in the table above are rounded to two decimal places.

3. Exact premium figures may not be replicated using the share prices shown in the table due to rounding differences.

Based on the closing price of HK$19.08 per H Share as at the SDGM Last Trading Day, the issuance of 5/29 new H Share for every Scheme Share ascribes a value of HK$3.29 per Scheme Share, which represents:

• (i) a discount of approximately 2.43% to the closing price of HK$3.73 per HXG Share as quoted on the Stock Exchange on the HXG Last Trading Day less the HXG Special Dividend resulting in a net price of HK$3.37 per HXG Share;

• (ii) a premium of approximately 9.60% over the closing price of HK$3.36 per HXG Share as quoted on the Stock Exchange on the HXG Last Full Trading Day less the HXG Special Dividend resulting in a net price of HK$3.00 per HXG Share;

— 11 —

LETTER FROM THE BOARD

• (iii) a premium of approximately 4.45% over the average closing price of approximately HK$3.51 per HXG Share based on the daily closing prices as quoted on the Stock Exchange for the 10 trading days up to and including the HXG Last Trading Day less the HXG Special Dividend resulting in a net price of HK$3.15 per HXG Share;

• (iv) a premium of approximately 0.16% over the average closing price of approximately HK$3.64 per HXG Share based on the daily closing prices as quoted on the Stock Exchange for the 30 trading days up to and including the HXG Last Trading Day less the HXG Special Dividend resulting in a net price of HK$3.28 per HXG Share;

• (v) a premium of approximately 1.67% over the average closing price of approximately HK$3.59 per HXG Share based on the daily closing prices as quoted on the Stock Exchange for the 60 trading days up to and including the HXG Last Trading Day less the HXG Special Dividend resulting in a net price of HK$3.24 per HXG Share;

• (vi) a premium of approximately 12.10% over the average closing price of approximately HK$3.29 per HXG Share based on the daily closing prices as quoted on the Stock Exchange for the 90 trading days up to and including the HXG Last Trading Day less the HXG Special Dividend resulting in a net price of HK$2.93 per HXG Share;

• (vii) a premium of approximately 21.90% over the average closing price of approximately HK$3.06 per HXG Share based on the daily closing prices as quoted on the Stock Exchange for the 120 trading days up to and including the HXG Last Trading Day less the HXG Special Dividend resulting in a net price of HK$2.70 per HXG Share;

• (viii) a premium of approximately 248.16% over approximately RMB0.83 (equivalent to approximately HK$0.94) which is the audited consolidated net asset value of HXG as at 31 December 2019 per HXG Share less the HXG Special Dividend; and

• (ix) a premium of approximately 262.27% over approximately RMB0.80 (equivalent to approximately HK$0.91) which is the unaudited consolidated net asset value of HXG as at 30 June 2020 per HXG Share less the HXG Special Dividend.

The Scheme will be implemented at the Share Exchange Ratio. The comparisons above are provided solely for the convenience of investors. They are illustrations only. Shareholders should use the comparisons with care and take into account other disclosures in this circular, including but not limited to the reasons for and benefits of the Proposal.

New H Shares to be issued pursuant to the Scheme

As at the date of this circular, (i) the entire issued share capital of HXG comprises 925,000,000 HXG Shares, all of which will constitute the Scheme Shares; and (ii) there are no outstanding options, convertible securities, warrants, derivatives or other relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) issued by HXG that carry a right to subscribe for or which are convertible or exchangeable into HXG Shares.

— 12 —

LETTER FROM THE BOARD

As at the date of this circular, neither the Company nor any SDGM Concert Parties holds any HXG Shares.

Based on the Share Exchange Ratio and assuming no changes to either the Company’s issued share capital or HXG’s issued share capital from the date of this circular to the Scheme Effective Date and subject to the Scheme becoming effective, the Company will allot and issue a total of 159,482,759 New H Shares to the holders of Scheme Shares on the Scheme Effective Date, which will represent (i) approximately 3.68% of the issued share capital of the Company as at the date of this circular; and (ii) approximately 3.54% of the issued share capital of the Company of 4,498,939,042 Shares as enlarged only by the issuance of the aforesaid number of the New H Shares.

As the New H Shares to be issued under the Scheme will be allotted and issued by the Company to the holders of Scheme Shares on the Scheme Effective Date for the sole purpose of the Proposal, no cash proceeds will be received by the Company in connection with such allotment.

The New H Shares to be issued pursuant to the Scheme are expected to be issued under the Specific Mandate to be proposed for voting by the Shareholders at the EGM and the Class Meetings, respectively, and will be issued free from all liens, charges and encumbrances, and together with all rights attaching to them, including the right to receive all dividends and other distributions, if the record time for determining the entitlement to such dividends and distributions falls on or after the date of issue of the New H Shares, and will rank pari passu in all respects with all other H Shares then in issue. The Specific Mandate, if approved, will be valid until the earlier of completion of the Proposal or lapse of the Scheme.

The Company will make an application to the Stock Exchange for the listing of, and permission to deal in, the H Shares to be issued pursuant to the Scheme on the Main Board of the Stock Exchange.

4. PRE-CONDITIONS TO THE MAKING OF THE PROPOSAL

The making of the Proposal is conditional upon the Approvals in connection with the Proposal and the Scheme having been obtained by the Company from (i) the National Development and Reform Commission of the PRC or the Development and Reform Commission of Shandong Provincial Government; and (ii) the Ministry of Commerce of the PRC or the Department of Commerce of Shandong Provincial Government, for outbound direct investment.

None of the Pre-Conditions can be waived. Further announcement(s) will be made as soon as practicable after the Pre-Conditions have been satisfied. If any of the Pre-Conditions is not satisfied, the Proposal would not be made and the Scheme Shareholders will be notified by a further announcement as soon as practicable thereafter.

5. CONDITIONS OF THE PROPOSAL AND THE SCHEME

The implementation of the Proposal is, and the Scheme will only become effective and binding on HXG and all the holders of Scheme Shares subject to the satisfaction or waiver (as applicable) of the following Conditions:

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LETTER FROM THE BOARD

• (a) the approval of the Scheme (by way of poll) by a majority in number of the Scheme Shareholders present and voting either in person or by proxy at the Court Meeting representing not less than 75% in value of the Scheme Shares held by the Scheme Shareholders;

• (b) the approval of the Scheme (by way of poll) by at least 75% of the votes attaching to the Scheme Shares held by the Disinterested Shareholders that are voted either in person or by proxy at the Court Meeting, provided that the number of votes cast (by way of poll) by the Disinterested Shareholders present and voting either in person or by proxy against the resolution to approve the Scheme at the Court Meeting is not more than 10% of the votes attaching to all of the Scheme Shares held by the Disinterested Shareholders;

• (c) the passing of a special resolution by a majority of not less than three-fourths of the votes cast by the HXG Shareholders present and voting in person or by proxy at the HXG EGM to approve and give effect to (i) the reduction of the issued share capital of HXG by cancelling and extinguishing the Scheme Shares; (ii) immediately thereafter the increase of the issued share capital of HXG to the amount prior to the cancellation of the Scheme Shares by issuing to the Company or its wholly owned subsidiary (as the case may be) such number of new HXG Shares as is equal to the number of Scheme Shares cancelled as a result of the Scheme; and (iii) the application of the credit arising in HXG’s books of accounts as a result of such issued share capital reduction in paying up in full at par value the new HXG Shares as is equal to the number of Scheme Shares cancelled as a result of the Scheme, credited as fully paid, for issuance to the Company or its wholly owned subsidiary (as the case may be);

• (d) the Company having obtained approval of the Shareholders at the EGM and Class Meetings for the Proposal and the Scheme (including, without limitation, the grant of the Specific Mandate for the allotment and issuance of H Shares to the holders of Scheme Shares on the Scheme Effective Date pursuant to the Scheme) in compliance with the Listing Rules and the Articles of Association;

• (e) the Court’s sanction of the Scheme (with or without modifications) and its confirmation of the reduction of the share capital of HXG, and the delivery to the Registrar of Companies in the Cayman Islands of a copy of the order of the Court for registration;

• (f) all necessary Approvals in connection with the Proposal and the Scheme having been obtained by the Company from, given by or made with or by (as the case may be) the relevant Authorities in the PRC, including:

• (1) the State Administration for Market Regulation of the PRC for merger filing; and

• (2) the China Securities Regulatory Commission for the issuance of H Shares by the Company; and

all such Approvals remaining in full force and effect without variation;

• (g) the listing committee of the Stock Exchange having granted the listing of, and permission to deal in, the H Shares to be issued pursuant to the Scheme on the Stock Exchange;

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LETTER FROM THE BOARD

• (h) all necessary Approvals in connection with the Proposal and the Scheme having been obtained from, given by or made with or by (as the case may be) the relevant Authorities in the Cayman Islands, Hong Kong and any other relevant jurisdictions, and all such Approvals remaining in full force and effect without variation, and all necessary statutory or regulatory obligations in all relevant jurisdictions having been complied with in all material respects and no requirement having been imposed by the relevant Authorities which are not expressly provided for, or are in addition to requirements expressly provided for, in any relevant laws, rules, regulations or codes in connection with the Proposal or any related matters, documents (including circulars) or things, in each case up to and at the time when the Scheme becomes effective;

• (i) all necessary third party consents or waivers in relation to the Proposal and the Scheme which may be required under any existing contractual obligations of the HXG Group having been obtained (and remaining in effect), where any failure to obtain such consent or waiver would have a material adverse effect on the implementation of the Proposal or the Scheme or the business, assets or liabilities of the HXG Group;

• (j) no Authority in any jurisdiction having taken or instituted any action, proceeding, suit, investigation or enquiry, or enacted or, made, and there not continuing to be outstanding, any statute, regulation, demand or order that would make the Proposal or the Scheme or the implementation thereof in accordance with their terms void, unenforceable, illegal or impracticable (or which would impose any material and adverse conditions or obligations with respect to the Proposal or the Scheme or the implementation thereof in accordance with their terms), other than such actions, proceedings, suits, investigations or enquiries as would not have a material adverse effect on the legal ability of the Company to proceed with the Proposal and the Scheme; and

• (k) all warranties provided under the Irrevocable Undertaking remaining true, accurate and not misleading in all material respects and there having been no material breach of any undertakings, terms and conditions therein.

All of the above Conditions would have to be fulfilled or waived, as applicable, on or before the Scheme Long Stop Date, failing which the Proposal and the Scheme shall lapse.

The Company reserves the right to waive the Conditions set out in paragraphs (i) and/or (k) either in whole or in part, either generally or in respect of any particular matter. The Conditions set out in paragraphs (a) to (h) and (j) (all inclusive) cannot be waived in any event. HXG is not entitled to waive any of the Conditions.

In respect of the Conditions set out in paragraphs (f), (h) and (i), other than those specifically set out as Conditions above and the application for the withdrawal of the listing of the HXG Shares on the Stock Exchange upon the Scheme becoming effective, as at the date of this circular, the Company is not aware of any such necessary Approvals, consents or waivers which may be required to be obtained in connection with the Proposal and the Scheme.

Pursuant to Note 2 to Rule 30.1 of the Takeovers Code, the Company may only invoke any or all of the Conditions above as a basis for not proceeding with the Proposal or the Scheme if the circumstances which give rise to the right to invoke any such Condition are of material significance to the Company in the context of the Proposal.

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LETTER FROM THE BOARD

WARNING: The Shareholders should exercise caution when dealing in the Shares or any options or other rights in respect of them. The making of the Proposal is subject to the satisfaction of the Pre-Conditions. Even if the Proposal is made, the implementation of the Proposal and the Scheme is subject to the Conditions being fulfilled or waived, as applicable, and thus the Proposal may or may not be implemented and the Scheme may or may not become effective. Persons who are in doubt as to the action they should take should consult their licensed securities dealers or registered institutions in securities, bank manager, solicitor or other professional advisers.

6. IRREVOCABLE UNDERTAKING AND WARRANTIES

The Company received the Irrevocable Undertaking from the IU Shareholders (being Gold Virtue and Xi Wang), pursuant to which each of the IU Shareholders has undertaken to, among other things, exercise all voting rights attached to the relevant IU Shares in favour of the resolutions to approve the Proposal and any such other matters in connection therewith at the Court Meeting and the HXG EGM. The 693,750,000 IU Shares held in aggregate by the IU Shareholders represent approximately 75% of the total issued share capital of HXG as at the date of this circular.

Further, each of the IU Shareholders has undertaken, inter alia, to exercise the voting rights attached to the relevant IU Shares in favour of the resolutions to approve matters assisting the implementation of the Proposal and not to (i) sell, transfer or otherwise dispose of the IU Shares held or owned by it; (ii) purchase or acquire any other HXG Shares without the consent of the Company; or (iii) take any actions which may adversely affect or impede giving effect to the Scheme. Customary representations and warranties in relation to the business operations of HXG Group and specific indemnity in relation to contingent liability of HXG Group have also been given by the IU Shareholders under the Irrevocable Undertaking. The IU Guarantors have agreed to jointly and severally guarantee the due performance of the obligations of the IU Shareholders under the Irrevocable Undertaking and a cash deposit was pledged by a company owned by one of the IU Guarantors, Mr. Ke Xiping, in favour of the Company as security for the specific indemnity.

The Irrevocable Undertaking will terminate and the obligations of the relevant IU Shareholders thereunder will cease to be binding if (i) the Proposal and the Scheme do not become effective by the Scheme Long Stop Date; (ii) the Proposal is not approved at the Court Meeting or the HXG EGM; (iii) the Company and the IU Shareholders mutually agree to terminate; or (iv) the Proposal is withdrawn or lapses.

7. EQUITY FUND RAISING ACTIVITIES IN THE PAST TWELVE MONTHS

The Company has not conducted any equity fund raising exercise in the past twelve months before the Latest Practicable Date.

8. INFORMATION AND SHAREHOLDING STRUCTURE OF HXG

Information on HXG

HXG is an exempted company incorporated in the Cayman Islands with limited liability, and its shares are listed on the Main Board of the Stock Exchange with the stock code 2303, whose principal business is engaged in gold mining and production.

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LETTER FROM THE BOARD

Set out below is certain financial information of the HXG Group for the three years ended 31 December 2019 extracted from the published audited consolidated financial statements of HXG for the years ended 31 December 2018 and 31 December 2019 and for the six months ended 30 June 2020 extracted from the published unaudited consolidated interim financial information of HXG for the six months ended 30 June 2020:

				For the six
				months
				ended
	**For the year ended 31 **		December	30 June
	2017	2018	2019	2020
	(Audited)	(Audited)	(Audited)	(Unaudited)
	RMB’000	RMB’000	RMB’000	RMB’000
Profit before tax	324,314	323,767	271,346	72,472
Profit attributable to
owners	240,303	260,897	214,544	55,154

The unaudited consolidated net asset value of HXG as at 30 June 2020 was approximately RMB1,030,544,000 according to its published unaudited consolidated interim financial information for the six months ended 30 June 2020.

Shareholding Structure of HXG

As at the date of this circular, there are 925,000,000 HXG Shares in issue, all of which will constitute the Scheme Shares and there are no outstanding options, convertible securities, warrants, derivatives or other relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) issued by HXG that carry a right to subscribe for or which are convertible or exchangeable into HXG Shares.

As at the date of this circular, neither the Company nor any SDGM Concert Parties holds any HXG Shares. Thus, the Disinterested Shareholders hold 925,000,000 HXG Shares, representing 100% of the issued share capital of HXG.

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LETTER FROM THE BOARD

Assuming there is no change to the issued share capital of HXG from the date of this circular up to the Scheme Effective Date, the table below sets out the shareholding structure of HXG (i) as at the date of this circular; and (ii) immediately upon completion of the Proposal (and the Scheme having become effective):

					**Immediately **	**Immediately **	upon
					completion of the
		**As at the **	**date **	of	**Proposal (and **	the Scheme
HXG Shareholders		this circular			having become effective)
	No. of HXG		Approximate		No. of HXG	Approximate
		Shares		%	Shares		%
SDGM (Note 1)		–		–	925,000,000		100.00
SDGM Concert Parties		–		–	–		–
Sub-total of SDGM and
SDGM Concert
Parties		–		–	925,000,000		100.00
Gold Virtue (Note 2)	555,000,000			60.00%	–		–
Xi Wang (Note 3)	138,750,000			15.00%	–		–
Other Public HXG
Shareholders (Note 4)	231,250,000			25.00%	–		–
Disinterested
Shareholders	925,000,000			100.00	–		–
Scheme Shareholders	925,000,000			100.00	–		–
Total number of HXG
Shares	925,000,000			100.00	925,000,000		100.00

Notes:

1. The Company reserves the right to require HXG to issue new HXG Shares to a wholly owned subsidiary of the Company (in lieu of the Company itself) immediately after the cancellation and extinguishment of the Scheme Shares upon the Scheme becoming effective. Please see note 4 below for further details.

2. Mr. Ke Xiping holds the entire issued share capital of Gold Virtue and therefore he is deemed to be interested in the 555,000,000 HXG Shares held by Gold Virtue. Mr. Ke Xiping is an executive director of HXG and the father of Mr. Ke Jiaqi.

3. Mr. Ke Jiaqi holds the entire issued share capital of Xi Wang and therefore he is deemed to be interested in the 138,750,000 HXG Shares held by Xi Wang. Mr. Ke Jiaqi is an executive director of HXG and the son of Mr. Ke Xiping.

4. Under the Scheme, the issued share capital of HXG will, on the Scheme Effective Date, be reduced by cancelling the Scheme Shares. On the assumption that there is no other change in the shareholding of HXG before completion of the Proposal, forthwith upon such reduction, the issued share capital of HXG will be increased to its former amount by the issue at par to the Company or its wholly owned subsidiary (as the case may be), credited as fully paid, of the same number of new HXG Shares as the number of the Scheme Shares cancelled. The reserve created in HXG’s books of account as a result of the capital reduction will be applied in paying up in full at par the new HXG Shares so issued to the Company or its wholly owned subsidiary (as the case may be).

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LETTER FROM THE BOARD

9. INFORMATION AND SHAREHOLDING STRUCTURE OF THE COMPANY

Information on the Company

The Company is a joint stock company incorporated under the laws of the PRC with limited liability. It is an integrated gold company with the A Shares listed on the Shanghai Stock Exchange (Stock Code: 600547) and H Shares listed on the Hong Kong Stock Exchange (Stock Code: 1787) since 2003 and 2018, respectively. The Company is principally engaged in gold exploration, mining, processing, smelting and sales and 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.

Set out below is certain financial information of the Group for the three years ended 31 December 2019 extracted from the published audited consolidated financial statements of the Company for the years ended 31 December 2018 and 31 December 2019 and for the six months ended 30 June 2020 extracted from the published unaudited consolidated interim financial information of the Company for the six months ended 30 June 2020:

				For the six
				months
				ended
	**For the year ended 31 **		December	30 June
	2017	2018	2019	2020
	(Audited)	(Audited)	(Audited)	(Unaudited)
	RMB’000	RMB’000	RMB’000	RMB’000
Profit before tax	1,604,445	1,580,028	2,072,690	1,646,982
Profit attributable to
owners	1,118,920	964,411	1,290,503	1,122,253

The unaudited consolidated net asset value of the Company as at 30 June 2020 was approximately RMB27,028,356,000 according to its published unaudited consolidated interim financial information for the six months ended 30 June 2020.

Shareholding Structure of the Company

As at the date of this circular, (i) the issued share capital of the Company comprises 699,503,419 H Shares and 3,639,952,864 A Shares; and (ii) there are no outstanding options, convertible securities, warrants, derivatives or other relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) issued by the Company that carry a right to subscribe for or which are convertible or exchangeable into the Shares.

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LETTER FROM THE BOARD

Assuming the Scheme becomes effective, a total of 159,482,759 New H Shares will be issued. The table below sets out the shareholding structure of the Company as at the date of this circular and following completion of the Proposal (and the Scheme having become effective), assuming 159,482,759 New H Shares are issued and there are no other changes in the shareholdings in the Company prior to completion of the Proposal:

Non-public Shareholders Shandong Gold Group Co., Ltd. (“Shandong Gold Group”)(Note 1) Mr. Li Tao_(Note 2) Mr. Tang Qi(Note 2) Public Shareholders Gold Virtue Xi Wang Other Public Shareholders Total number of Shares (Note 3 & 4)_	As at the date of this circular No. of Shares A/H Shares Approximate % in the total issued Shares 2,042,292,447 A 47.06 129,182 A 0.01 149,056 A 0.01 – – – – – – 1,597,382,179 A 36.80 699,503,419 H 16.12 4,339,456,283 – 100.00	Immediately upon completion of the Proposal (and the Scheme having become effective) No. of Shares A/H Shares Approximate % in the total issued Shares 2,042,292,447 A 45.39 129,182 A 0.01 149,056 A 0.01 95,689,655 H 2.13 23,922,414 H 0.53 1,597,382,179 A 35.51 739,374,109 H 16.43 4,498,939,042 – 100.00	Immediately upon completion of the Proposal (and the Scheme having become effective) No. of Shares A/H Shares Approximate % in the total issued Shares 2,042,292,447 A 45.39 129,182 A 0.01 149,056 A 0.01 95,689,655 H 2.13 23,922,414 H 0.53 1,597,382,179 A 35.51 739,374,109 H 16.43 4,498,939,042 – 100.00
			100.00

Notes:

1. These 2,042,292,447 A Shares held by Shandong Gold Group comprise 1,671,709,197 A Shares directly held by Shandong Gold Group and 370,583,250 A Shares indirectly held by Shandong Gold Group through its various subsidiaries.

2. Mr. Li Tao and Mr. Tang Qi are executive Directors.

3. A bonus issue on the basis of 4 bonus Shares for every 10 Shares was made by the Company to all Shareholders on 19 August 2020.

4. An exempt share buy-back (as defined under the Takeovers Code) may be conducted by the Company by the end of 2020 in respect of 25,509,517 A Shares (having taken into account of the bonus issues made by the Company in 2019 and 2020), representing approximately 0.58% of the total issued share capital of the Company, from Shandong Gold Non-ferrous Metal Mine Group Co. Ltd (“ Non-ferrous Group ”) at a consideration of RMB1.00, as a result of Non-ferrous Group’s failure to achieve certain profit commitments under an asset acquisition agreement entered in May 2015. For details of the transaction and share buy-back, please refer to the circular dated 31 July 2020 issued by the Company.

5. Certain percentage figures included in this table have been subject to rounding adjustments. Figures shown as totals may not be an arithmetic aggregation of the figures preceding them.

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LETTER FROM THE BOARD

10. REASONS FOR AND BENEFITS OF THE PROPOSAL

(a) Solidification of industry leadership and enhancement of global competitiveness

The Company is a leading gold producer in China with operations across the entire industry chain comprising exploration, mining, processing, smelting, deep processing and sale of gold products, supported by a complementary technological R&D system. As of 31 December 2019, the Company controlled and operated 12 mines in China, and jointly operated the Veladero Mine in South America with Barrick Gold Corporation on a 50-50% basis.

HXG is an emerging gold producer in China which owns and operates the Gold Mountain Mine, the largest individual mine in Xinjiang, in terms of annual ore processing capacity and gold production. In 2019, the Gold Mountain Mine produced 2.66 tonnes of gold and was ranked 12th among the top individual gold mines in China. As of 30 June 2020, HXG has total gold resources of 77.28 tonnes and total gold reserves of 39.76 tonnes.

Continuous consolidations within the gold industry in recent years have further increased the market concentration, with large mining corporations gaining advantages from the economies of scale as the capital, technologies and market shares are dominated by top industry players. The Company believes that further expansion and appropriate integration of gold resources is one of the key approaches to achieve business growth.

With more gold reserves, resources and production capacity to be added to its existing portfolio, the Company’s competitiveness in terms of its resources diversity and resources capacity are expected to be further strengthened, thereby solidifying its industry-leading position in China and enhancing its scale and industry ranking globally. In addition, the stronger cash flow and enlarged balance sheet will support the organic growth and inorganic expansion of the Company going forward, creating value for both Shareholders and Scheme Shareholders.

(b) Diversification of mining asset portfolio with broadened geographic coverage and increased resilience to risks

The Company’s existing gold mines are mainly concentrated in Shandong, with benchmark projects such as Sanshandao Gold Mine, Jiaojia Gold Mine, Xincheng Gold Mine and Linglong Gold Mine located in Laizhou and Zhaoyuan regions in Yantai City, Shandong Province, and other assets located in provinces such as Fujian, Inner Mongolia and Gansu. The Proposal will allow the Company to gain access to its first gold mine project in Xinjiang, further expanding its domestic gold production network with potential synergies to be realised with mines in neighboring provinces. It would also facilitate the Company’s integration of resources and potential development of gold projects in the Northwest China region in the future.

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LETTER FROM THE BOARD

As a single mine company with the Gold Mountain Mine being the only asset in its portfolio, HXG has limited ability to resist risks on a standalone basis. The Proposal will provide an opportunity for the Scheme Shareholders to participate in the Company’s continuous optimisation of the Gold Mountain Mine, while eliminating such single-asset risk faced by HXG. Furthermore, through ownership of the H Shares, the Scheme Shareholders will gain exposure to a more diversified portfolio of assets with coverage across the entire industry chain, benefitting from an increased resilience to risks and more stable investment returns.

(c) Sharing of technological achievements and optimization of the management system

The Company values technological innovation. It has been continuously increasing its investments in R&D, actively participating in various national key R&D projects, strengthening the construction of its independent innovation platforms, and obtaining a set of cutting-edge core technologies of the mining industry. As of 31 December 2019, the Company owned 210 valid patents, including 61 invention patents. The Company possesses industry-leading underground mining technologies and advanced scientific mine management expertise, which can effectively support the existing operations of HXG and the development of its underground mining resources after depletion of the open-pit mining area. These technologies will help to further extend the life span of mines, reduce mining costs and enhance the operations of the Gold Mountain Mine.

HXG has been committed to technical optimisation over the past few years with a focus to increase production efficiency. Following the utilization of high-pressure grinding rollers in commercial operation in 2017 which effectively improved the ore processing capacity, HXG has been conducting research to further improve the leaching rate through biological pre-oxidation. Biological pre-oxidation has advantages including: (i) requiring limited incremental cost and low capital investment, (ii) being a simple and user-friendly process, and (iii) having a low energy consumption and being environmentally friendly, which make it an optimal solution for mining of low-grade ores that are generally difficult to process. HXG has already commenced semi-industrial tests on biological pre-oxidation since June 2020. The sharing and exchange of technological achievements following completion of the Proposal will enable the Company to improve its recovery rates, increase gold production volume and reduce production costs.

(d) Improvement in market liquidity as well as financial and capital markets profile

As the consideration for the Proposal will be settled by way of issuing the New H Shares, the Proposal is expected to improve the gearing ratio and debt indicators of the Company, as well as to expand the market capitalisation of the Company and further enhance the liquidity in H Shares, thereby increasing the attractiveness of the Company to institutional investors to further strengthen its financing capability in the future.

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LETTER FROM THE BOARD

11. IMPLEMENTATION OF THE PROPOSAL AND WITHDRAWAL OF LISTING OF HXG SHARES

(a) If the Scheme becomes effective

Upon the Scheme becoming effective, all Scheme Shares will be cancelled and the share certificates for the Scheme Shares will thereafter cease to have effect as documents or evidence of title. HXG will apply to the Stock Exchange for withdrawal of the listing of the HXG Shares on the Stock Exchange in accordance with Rule 6.15 of the Listing Rules immediately following the Scheme becoming effective.

The holders of Scheme Shares will be notified by way of an announcement of the exact date of the last day for dealing in the HXG Shares on the Stock Exchange and the day on which the Scheme and the withdrawal of the listing of the HXG Shares on the Stock Exchange will be effective. A detailed timetable of the implementation of the Proposal will be included in the Scheme Document, which will also contain, inter alia, further details of the Proposal.

(b) If the Scheme is not approved or if the Proposal lapses

The Proposal will lapse if any of the Conditions has not been fulfilled or waived, as applicable, on or before the Scheme Long Stop Date. If the Scheme is not approved or if the Proposal otherwise lapses, the listing of HXG Shares on the Stock Exchange will not be withdrawn. If the Scheme is not approved or if the Proposal otherwise lapses, there are restrictions under Rule 31.1 of the Takeovers Code on making subsequent offers, to the effect that neither the Company nor any person who acted in concert with it in the course of the Proposal nor any person who is subsequently acting in concert with any of them may, within 12 months from the date on which the Scheme is not approved or the Proposal lapses, announce an offer or possible offer for HXG, except with the consent of the Executive.

If the HXG Independent Board Committee or the HXG Independent Financial Adviser does not recommend the Proposal or the Scheme, and the Scheme is not approved, all expenses incurred by HXG in connection therewith will be borne by the Company in accordance with Rule 2.3 of the Takeovers Code.

12. DISCLOSEABLE TRANSACTION INVOLVING ISSUE OF NEW H SHARES UNDER SPECIFIC MANDATE PURSUANT TO THE SCHEME AND LISTING RULES IMPLICATIONS FOR THE COMPANY

As the highest of the applicable percentage ratios as set out in Rule 14.07 of the Listing Rules in respect of the Proposal and the Scheme exceed 5% but are less than 25%, the Proposal and the Scheme constitute a discloseable transaction for the Company for the purposes of the Listing Rules, and are therefore subject to the reporting and announcement requirements but exempt from shareholders’ approval requirement under Chapter 14 of the Listing Rules.

Further, the New H Shares to be issued pursuant to the Scheme as consideration for the cancellation and extinguishment of the Scheme Shares will be allotted and issued pursuant to the Specific Mandate to be sought from the Shareholders at the EGM and Class Meetings, respectively.

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LETTER FROM THE BOARD

13. PROPOSAL IN RELATION TO THE GRANTING OF AUTHORISATION TO THE BOARD WITH FULL AUTHORITY TO DEAL WITH THE ISSUE OF AND THE LISTING OF THE NEW H SHARES ON THE STOCK EXCHANGE

On 30 September 2020, the Board has resolved to seek the approval from Shareholders at the EGM and the Class Meetings to authorise the Board and the persons delegated by the Board to deal with matters in relation to the issue of the New H Shares with full authority after granting the Specific Mandate to the Directors to allot and issue 159,482,759 New H Shares to the Scheme Shareholders in the share capital of the Company pursuant to the Proposal and the Scheme. Such matters include but are not limited to:

• (i) formulate and implement a specific plan for the issue of the New H Shares in accordance with the issuance as approved at the EGM, A Shares Class Meeting and the H Shares Class Meeting and the Company’s situation, and within the scope of relevant laws, regulations and normative documents, on matters including but not limited to time of the issuance, size of the issuance, starting and ending dates of the issuance, target subscribers and other matters related to the issuance plan;

• (ii) when necessary, make appropriate adjustments to the issuance plan of the New H Shares and continue to deal with matters in relation to the issuance pursuant to any new regulations, guidance and national policies formulated by domestic and overseas securities regulatory authorities and exchanges, market conditions and the actual needs of the Company, and in accordance with the principle of safeguarding the maximisation of interests of the Company and the purpose of the issue of the New H Shares, save for those which are required to be voted on again at the EGM in accordance with the relevant laws, regulations, normative documents and the Articles of Association;

• (iii) prepare, produce, amend, supplement, execute, submit, report, perform, publish, print, suspend and/or terminate all the agreements or documents related to the issue of the New H Shares (and subscription of shares thereunder), including but not limited to, application documents submitted to domestic and overseas regulatory authorities, announcements, circulars and other documents published or printed as required by the Listing Rules;

• (iv) engage professional parties to undertake all the works related to the issue and listing of the New H Shares and the examination, registration, filing, approval, postponement and/or withdrawal of the issue of the New H Shares, and to do all necessary, advisable or appropriate acts related to the issue and listing of the New H Shares in accordance with the requirements and guidelines of relevant government departments, regulatory authorities and stock exchanges;

• (v) amend terms in relation to the registered capital, total number of shares, shareholding structure and other corresponding terms in the Articles of Association according to the actual circumstances of the issue of the New H Shares, and to arrange for any changes in the relevant industrial and commercial registration and filing and any other relevant matters;

• (vi) proceed with the share registration procedures, listing and other relevant matters of the New H Shares upon completion of the issue of the New H Shares;

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LETTER FROM THE BOARD

• (vii) conduct other matters relating to the issue of the New H Shares within the scope permitted by the relevant laws, regulations and the Articles of Association.

The authorisation with full authority with respect to matters under items (iv) to (vi) above shall be valid upon approval at the EGM and/or the Class Meetings and remain valid as long as such matter persists, while the authorisation with full authority with respect to any other matters above shall be valid for a term of 12 months from the date of approval at the EGM and/or the Class Meetings.

14. PROPOSAL IN RELATION TO REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS ISSUANCE

Pursuant to the “Approval of the Issuance of Overseas Listed Foreign Securities of Shandong Gold Mining Co., Ltd.” (Zheng Jian Xu Ke [2018] No. 789) granted by the China Securities Regulatory Commission and as approved by the Stock Exchange, the Company issued 356,889,500 H Shares, including 29,159,500.00 H Shares issued upon exercise of the over-allotment options overseas. After deduction of transaction costs and other expenses, the net amount of proceeds raised was HK$5,245,726,677.24, equivalent to a net amount of proceeds of RMB4,618,818,884.84.

In accordance with the requirements of the Company Law of the PRC, Securities Law of the PRC, Regulations of the Reports on the Use of Proceeds From Previous Issuance and any other relevant laws, regulations and regulatory documents, the Company formulated the Specific Report on the Deposit and Use of Proceeds in 2019, and Beijing TianYuanQuan Certified Public Accountants LLP. verified the use of proceeds from previous issuance and issued the Assurance Report on the Deposit and Use of Proceeds by Shandong Gold Mining Co., Ltd. in 2019 (TianYuanQuan Zhuan Shen Zi [2020] No. 000148). (For details, please refer to the abovementioned reports disclosed on the website of the Shanghai Stock Exchange (http://www.sse.com.cn) on 17 April 2020).

Up to now, the proceeds raised from the initial public offering of H Shares of the Company were used in accordance with the proceeds investment plan, and the actual utilisation of proceeds were in line with the relevant disclosure in the prospectus of the initial public offering of H Shares of the Company.

15. ODD LOTS ARRANGEMENT AND FRACTIONS OF H SHARES

No arrangements are intended to be made for the trading of odd lots of H Shares resulting from the acceptance of the Proposal.

If the number of H Shares to be obtained by a HXG Shareholder according to the Share Exchange Ratio will not result in a whole number, the HXG Shareholder(s) concerned will be ranked according to the fractional value after the decimal point from highest to lowest, and one additional H Share will be given to each such HXG Shareholder in such order until the aggregate number of H Shares actually exchanged is equal to the total number of H Shares proposed to be issued, i.e. 159,482,759 H Shares.

If the number of HXG Shareholders with the same fractional value after the decimal point is more than the number of remaining H Shares to be issued, H Shares will be allocated randomly by a computerised system until the aggregate number of H Shares actually exchanged is equal to the total number of H Shares proposed to be issued.

— 25 —

LETTER FROM THE BOARD

16. EGM AND H SHARES CLASS MEETING

The EGM and the H Shares Class Meeting are 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, 13 November 2020 and on Friday, 13 November 2020 immediately after the conclusion of the A Shares Class Meeting respectively. The notices of the EGM and the H Shares Class Meeting are set out on pages I-1 to I-2 and II-1 to II-2 respectively of this circular.

Any Shareholder entitled to attend and vote at the EGM and the H Shares Class Meeting are 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 the H Shares Class Meeting and vote on your behalf, you are requested to complete the accompanying proxy forms in accordance with the instructions printed thereon and return them, by hand, by post or by facsimile, to the Company’s H share registrar, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, 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 and the H Shares Class Meeting or any adjournment thereof (as the case may be) (i.e. before 9:00 a.m. on Thursday, 12 November 2020). Completion and return of the proxy forms will not preclude you from attending and voting at the EGM and the H Shares Class Meeting or any adjournment thereof should you so wish.

17. CLOSURE OF REGISTER OF MEMBERS

For the purpose of ascertaining the Shareholders who are entitled to attend and vote at the EGM and the H Shares Class Meeting, the register of members of the Company will be closed from Tuesday, 10 November 2020 to Friday, 13 November 2020, both dates inclusive, during which period no transfers of Shares will be effected.

In order to qualify to attend and vote at the EGM and the H Shares Class Meeting, all transfer instruments accompanied by the relevant share certificates must be lodged by H Shareholders with the Company’s H share registrar, namely, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than 4:30 p.m. on Monday, 9 November 2020.

18. VOTING

Pursuant to Rule 13.39(4) of the 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.

As at the Latest Practicable Date, to the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, no Shareholders are required to abstain from voting at the EGM and/or Class Meetings.

— 26 —

LETTER FROM THE BOARD

19. RECOMMENDATION

The Directors are of the view that the proposed resolutions at the EGM and the H Shares Class Meeting are fair and reasonable and in the best interests of the Company and its shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolution(s) to be proposed at the EGM and the H Shares Class Meeting.

20. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the 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.

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

Jinan, the PRC, 28 October 2020

— 27 —

NOTICE OF 2020 FIFTH EXTRAORDINARY GENERAL MEETING

APPENDIX I

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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)

NOTICE OF 2020 FIFTH EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2020 Fifth Extraordinary General Meeting (“ EGM ”) of Shandong Gold Mining Co., Ltd. (the “ Company ”) will 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, 13 November 2020 for the purpose of considering and, if thought fit, passing the following resolutions:

SPECIAL RESOLUTIONS

• 1.00. “ THAT : the following resolutions in relation to approving the grant of the Specific Mandate to the Directors to issue the New H Shares and the listing of the New H Shares on the Stock Exchange pursuant to the Proposal and the Scheme, be and are hereby considered and individually approved

• 1.01. Types and Nominal Value of Shares to be Issued

• 1.02. Method and Time of Issuance

• 1.03. Target Subscribers and Method of Subscription

• 1.04. Size of Issuance

• 1.05. Share Exchange Ratio

• 1.06. Arrangement relating to the Accumulated Undistributed Profits

• 1.07. Place of Listing

• 1.08. Validity period of the Resolution”

• “ THAT : the proposal as set out under the section headed “13. PROPOSAL IN RELATION TO THE GRANTING OF AUTHORISATION TO THE BOARD WITH FULL AUTHORITY TO DEAL WITH THE ISSUE OF AND THE LISTING OF THE NEW H SHARES ON THE STOCK EXCHANGE” of the Company’s circular dated 28 October 2020, be and is hereby considered and approved.”

— I-1 —

NOTICE OF 2020 FIFTH EXTRAORDINARY GENERAL MEETING

APPENDIX I

ORDINARY RESOLUTION

1. The proposal as set out under the section headed “14. PROPOSAL IN RELATION TO REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS ISSUANCE” of the Company’s circular dated 28 October 2020, be and is hereby considered and approved.

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

Jinan, the PRC, 28 October 2020

Unless otherwise stated, the capitalized terms used herein shall have the same meanings as those defined in the circular of the Company dated 28 October 2020.

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

Notes:

1. All holders of H Shares whose names appear on the register of members of the Company on Tuesday, 10 November 2020 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 Tuesday, 10 November 2020 to Friday, 13 November 2020 (both dates inclusive). All transfer documents accompanied by the relevant share certificates must be lodged with the Company’s H share registrar, namely Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than 4:30 p.m. on Monday, 9 November 2020. 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.

2. 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.

3. 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 appointor or his attorney duly authorized in writing. If the appointor 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, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, 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, 12 November 2020). Completion and return of the proxy form will not affect the rights of the shareholders to attend and vote at the EGM in person.

4. 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.

5. 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.

6. Directors, supervisors and senior management of the Company and the witnessing lawyers and other relevant personnel employed by the Company will attend the EGM.

— I-2 —

NOTICE OF 2020 FOURTH H SHARES CLASS MEETING

APPENDIX II

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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)

NOTICE OF 2020 FOURTH H SHARES CLASS MEETING

NOTICE IS HEREBY GIVEN that the 2020 Fourth Class Meeting for H Shares (the “ H Shares Class Meeting ”) of Shandong Gold Mining Co., Ltd. (the “ Company ”) will be held immediately after the conclusion of the 2020 Fourth Class Meeting for Holders of Domestic Listed Shares (A shares) (or any adjourned meeting thereof) of the Company at the conference room of the Company, Building No. 3, Shuntai Plaza, Shunhua Road No. 2000, Jinan, Shandong Province, the PRC on Friday, 13 November 2020 for the purpose of considering and, if thought fit, passing the following resolutions:

SPECIAL RESOLUTIONS

• 1.00. “ THAT : the following resolutions in relation to approving the grant of the Specific Mandate to the Directors to issue the New H Shares and the listing of the New H Shares on the Stock Exchange pursuant to the Proposal and the Scheme, be and are hereby considered and individually approved

• 1.01. Types and Nominal Value of Shares to be Issued

• 1.02. Method and Time of Issuance

• 1.03. Target Subscribers and Method of Subscription

• 1.04. Size of Issuance

• 1.05. Share Exchange Ratio

• 1.06. Arrangement relating to the Accumulated Undistributed Profits

• 1.07. Place of Listing

• 1.08. Validity period of the Resolution”

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

Chairman

Jinan, the PRC, 28 October 2020

— II-1 —

NOTICE OF 2020 FOURTH H SHARES CLASS MEETING

APPENDIX II

Unless otherwise stated, the capitalized terms used herein shall have the same meanings as those defined in the circular of the Company dated 28 October 2020.

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

Notes:

1. All holders of H Shares whose names appear on the register of members of the Company on Tuesday, 10 November 2020 are entitled to attend the H Shares Class Meeting and should bring along their identity cards or passports when attending the H Shares Class Meeting. Holders of the Company’s H Shares should note that the register of members of the Company will be closed from Tuesday, 10 November 2020 to Friday, 13 November 2020 (both dates inclusive). All transfer documents accompanied by the relevant share certificates must be lodged with the Company’s H share registrar, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than 4:30 p.m. on Monday, 9 November 2020.

2. Any shareholder entitled to attend and vote at the H Shares Class Meeting is entitled to appoint a proxy or more proxies (who need not be a shareholder of the Company) to attend the H Shares Class Meeting 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.

3. Any shareholder who intends to appoint a proxy to attend the H Shares Class Meeting shall put it in writing, with the proxy form to be signed by the appointor or his attorney duly authorized in writing. If the appointor 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, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong (for H shareholders only) not later than 24 hours before the time appointed for the holding of the H Shares Class Meeting (i.e. before 9:00 a.m. on Thursday, 12 November 2020). Completion and return of the proxy form will not affect the rights of the shareholders to attend and vote at the H Shares Class Meeting in person.

4. 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 H Shares Class Meeting.

5. 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.

6. Directors, supervisors and senior management of the Company and the witnessing lawyers and other relevant personnel employed by the Company will attend the H Shares Class Meeting.

— II-2 —