Shanghai Able Digital Science&Tech Co., Ltd. — Annual Report 2017

Mar 31, 2017

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Major income driver with steady
production and
development in
oilfields located in Kazakhstan, China and
Indonesia.
A 22.5% participating
interest in the Portland
Aluminium Smelter joint venture, one of the
largest and most efficient
aluminium smelting operations in the world;
and a 9.685% equity
A 14% participating
interest in Alumina
interest in the
Limited (ASX: AWC), one
Coppabella and
of Australia’s leading
Moorvale coal mines
companies with significant
joint venture (a major
global interests in bauxite
producer of low volatile mining, alumina refining
pulverized coal injection and selected aluminium
coal in the international
seaborne market) and smelting operations.
interests in a number
of coal exploration
operations in Australia
with significant resource potential. Single largest shareholder of CITIC
Dameng Holdings
Limited (SEHK: 1091),
one of the largest
vertically integrated
manganese producers
in the world.
An import and export
of commodities
business, based on
strong expertise
and established
marketing networks,
with a focus on
international trade.
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Contents
目錄
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Corporate Information

Chairman’s Statement Management’s Discussion and Analysis Board of Directors and Senior Management Corporate Governance Report Report of the Directors

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Financial Results 財務業績

Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to Financial Statements Five Year Financial Summary Reserve Quantities Information

• 公司資料

• 1 主席報告書 5 管理層討論和分析

• 18 董事會和高級管理人員 21 企業管治報告 32 董事會報告

42 獨立核數師報告 47 綜合利潤表 48 綜合全面利潤表 49 綜合財務狀況報表 51 綜合權益變動表 53 綜合現金流量表 55 財務報表附註 140 五年財務資料概要 140 儲量資料

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Corporate Information

Board of Directors

Executive Directors

Mr. Kwok Peter Viem (Chairman) Mr. Suo Zhengang (Vice Chairman and Chief Executive Officer) Mr. Sun Yang (Vice Chairman) Ms. Li So Mui

Non-executive Director

Mr. Ma Ting Hung

Independent Non-executive Directors

Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji Mr. Look Andrew

Company Secretary

Mr. Cha Johnathan Jen Wah

Registered Office

Clarendon House 2 Church Street, Hamilton HM 11, Bermuda

Head Office and Principal Place of Business

Suites 3001-3006, 30/F, One Pacific Place 88 Queensway, Hong Kong

Telephone : (852) 2899 8200 Facsimile : (852) 2815 9723 E-mail : ir@citicresources.com Website : http://resources.citic http://irasia.com/listco/hk/citicresources

Audit Committee

Mr. Fan Ren Da, Anthony (Chairman) Mr. Gao Pei Ji Mr. Look Andrew

Remuneration Committee

Mr. Gao Pei Ji (Chairman) Mr. Fan Ren Da, Anthony Mr. Look Andrew Mr. Suo Zhengang

Nomination Committee

Mr. Kwok Peter Viem (Chairman) Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji

Hong Kong Branch Share Registrar and Transfer Office

Tricor Tengis Limited Level 22, Hopewell Centre 183 Queen’s Road East, Hong Kong

Stock Code : 1205

Auditor

Ernst & Young Certified Public Accountants 22/F, CITIC Tower 1 Tim Mei Avenue, Central, Hong Kong

Principal Bankers

Risk Management Committee

Mr. Look Andrew (Chairman) Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji Mr. Kwok Peter Viem Mr. Ma Ting Hung Mr. Suo Zhengang

Bank of China (Hong Kong) Limited China CITIC Bank International Limited China Construction Bank (Asia) Corporation Limited China Development Bank Corporation DBS Bank Ltd. Mizuho Bank, Ltd.

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Chairman’s Statement

The Group’s operations ended 2016 in a better position than they began at the start of the year.

The beginning of 2016 saw the difficult economic and business conditions of 2015 carry over and continue to adversely impact the Group for much of the first half of the year, with already low prices trending lower alongside subdued demand. In particular, Brent oil prices fell as low as US$26 per barrel in January, with negative implications for the Group’s oil business and overall performance. These challenging conditions eased somewhat towards the end of 1H 2016 as prices of oil, aluminium and coal rallied, with oil and aluminium prices improving marginally for the remainder of the year, albeit still remaining at relatively low levels, and coal prices upturning in the last quarter. Overall, these improvements in prices helped reverse some of the adverse impact of lower prices from the first half of 2016 on the Group’s operations and contributions from its investments and, coupled with the Group’s ongoing efforts to manage capital and operating costs and expenditure, helped the Group finish the year with a profit attributable to shareholders and some positivity heading into 2017. As we move further into 2017, prices have remained steady and appear to have seen support at these levels. Time will tell if they are sustainable or if they will increase further.

Financial Results

During the year, the Group’s revenue fell 20.4% year-on-year to HK$2,956.7 million. However, the Group recorded a positive EBITDA of HK$1,803.7 million and a profit attributable to shareholders of HK$363.0 million. As of 31 December 2016, the Group’s total assets amounted to HK$13,268.7 million and equity attributable to shareholders was HK$4,804.8 million.

Business Review

Crude oil

The Group achieved an average oil production of 50,580 barrels per day (100% basis) for the year, an overall increase of 2% year-on-year; but low oil prices continued to have a significant impact on the Group’s oil business resulting in contrasting performances from its three oilfields at Kazakhstan, China and Indonesia after taking into account their respective production costs.

At the start of 2016, oil prices continued to decline, with the Brent oil price at one point falling to US$26 per barrel in January. A modest recovery began in February and thereafter trended upwards for the rest of the year, albeit the recovery was modest and oil prices still remained at relatively low levels.

JSC Karazhanbasmunai (“KBM”) which owns, manages and operates the Karazhanbas oilfield in Kazakhstan achieved a profit for the year, attributable to a number of factors, including reductions in rent tax and export duty and a write-back of a provision made previously in respect of prior years tax assessment, allowing the Group to record a share of profit in respect of its interest in CITIC Canada Energy Limited, a joint venture in which the Group owns 50% and which indirectly owns all of the voting rights of KBM. The Karazhanbas oilfield remained the largest contributor to the Group’s oil production during the year with an average daily production of 38,800 barrels (100% basis), a slight drop of 1% when compared to 2015.

01 CITIC Resources Holdings Limited

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Chairman’s Statement

Although the Group was able to reduce production costs at the Yuedong oilfield in China and the Seram Block in Indonesia during the year through its program of ongoing cost controls, the Group was not able to offset the effect of low oil prices and recorded a loss in respect of these two oilfields.

One of the key objectives at the Yuedong oilfield has been to promote suitable oil recovery methods to further enhance production. Following favourable results from the deployment of thermal recovery in 2015, the Group has utilised this method on a more extensive scale within the Yuedong oilfield during the year, resulting in a boost to average daily production by 10% year-on-year to 8,010 barrels (100% basis).

Attributable to the commencement of production of new development wells in the Oseil area, average daily production at the Seram Block reached 3,770 barrels (100% basis) during the year, growing by 13% year-on-year.

Metals

Aluminium prices recovered gradually but moderately during 1H 2016 from their low levels in 2015 and remained steady for the remainder of the year, with decreases in aluminium supply in China one of the reasons for the price increase. Despite the improvement in aluminium prices, the Portland Aluminium Smelter (the “PAS”) still suffered a decrease in the average selling price of aluminium as well as a drop in sales volume when compared to 2015. However, these negative factors were mitigated by a decrease in the unit cost of sales leading to the PAS recording an operating profit for the year.

In December 2016, the PAS experienced a power outage which disrupted its operation and reduced its production capacity. As a result, the Group provided for an impairment in respect of the PAS for the year. In January 2017, the Group secured financial support from the State Government of Victoria and the Commonwealth Government of Australia to assist in funding the restart of the PAS and ongoing operations under four year agreements and entered into a new hedging agreement in respect of the supply of electricity. As operations to restart capacity at the PAS are expected to take time, the performance of the PAS is expected to be affected until pre-outage capacity is restored.

The Group retains a strategic shareholding in Alumina Limited (“AWC”) which invests in bauxite mining, alumina refining and selected aluminium smelting operations world-wide. The Group’s equity interest in AWC is classified as a financial asset at fair value through profit or loss. As the closing price of AWC shares at the end of the year was higher than at the end of 2015, the Group recorded a significant fair value gain in respect of its interest in AWC.

CITIC Dameng Holdings Limited (“CDH”) continued to be affected by a number of adverse factors, most notably low selling prices of major manganese products. However, a decrease in unit cost of sales and more stringent cost control measures helped CDH record a material reduction in its loss for the year when compared to 2015. As a result, the Group recorded a significantly reduced share of loss for the year with respect to its interest in CDH.

Annual Report 2016 02

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Chairman’s Statement

Coal

During the year, the Group’s coal segment managed to achieve a turnaround in its operating results and recorded a profit from normal operations amidst a decline in sales volume, primarily because of an upturn in coal selling prices in the last quarter of 2016 and a decrease in unit cost of sales for the year. Adding to the improved operating performance, the coal segment also realised a gain from the disposal of certain coal interests during the year.

Import and export of commodities

The lacklustre commodities markets continued to weigh on the Group’s import and export of commodities business. This segment recorded a material decrease in both revenue and operating results when compared to 2015.

Financial Management

In December 2016, the Group successfully concluded an unsecured term loan facility of US$310 million with a syndicate of financial institutions, the proceeds of which were used to refinance a maturing loan.

Outlook

The Group’s prospects will continue to be shaped by prices of and global supply and demand for oil and commodities, the likelihood of a sustained recovery in the world economy and global political developments. All of these aspects will continue to bring about challenges for the Group’s businesses and raise an element of uncertainty in the Group’s outlook for 2017 and beyond.

Oil and commodity prices have remained steady at the start of 2017, and pending any sustainable improvement, the Group will continue to implement cost efficiencies within its existing operations and adapt its business plans to mitigate the current adverse conditions.

The Group will also continue to seek quality investment opportunities to strengthen its business portfolio, including through collaboration with ITOCHU Corporation. The ongoing support from CITIC Limited will enhance the Group’s capabilities to achieve its objectives.

The Group believes its actions will help create reasonable return for shareholders in a changing marketplace.

Board Members Changes

In April 2016, Mr. Qiu Yiyong resigned as a non-executive director of the Company and, as a result, Mr. Suo Zhengang ceased to be Mr. Qiu’s alternate.

The Board would like to thank Mr. Qiu for his efforts and invaluable contribution to the Company.

03 CITIC Resources Holdings Limited

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Chairman’s Statement

Appreciation

I, on behalf of the Board, would like to extend my sincere appreciation to my fellow directors, management and all of my colleagues for their hard work, dedication, and commitment in delivering our strategy in the face of challenging market conditions. For myself and on behalf of the Board, I would like to express our heartfelt gratitude to our shareholders, customers, suppliers, bankers and business associates for their continuous support throughout the year.

The Group is monitoring a number of strategic initiatives and will seek to conclude those which are capable of augmenting its ability to better withstand market risks and achieve sustainable growth. I look forward to the continuous support of our stakeholders as we bring these initiatives to fruition.

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Kwok Peter Viem Chairman

Hong Kong, 17 February 2017

04

Annual Report 2016

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Management’s Discussion and Analysis

The board of directors (the “ Board ”) of CITIC Resources Holdings Limited (the “ Company ”) presents the 2016 annual results of the Company and its subsidiaries (collectively, the “ Group ”).

Financial Review

Group’s financial results:

HK$’000

Operating results and ratios

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Year ended 31 December
2016 2015 Decrease
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Revenue	2,956,732	3,713,127	(20.4%)
EBITDA1	1,803,719	(3,062,507)	N/A
Adjusted EBITDA2	1,100,244	(551,141)	N/A
Profit/(loss) attributable to shareholders	362,985	(6,104,909)	N/A
Adjusted EBITDA coverage ratio3	3.4 times	N/A
Earnings/(loss) per share (Basic)4	HK 4.62 cents	(HK 77.63 cents)

Financial position and ratios

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31 December Increase /
2016 2015 (decrease)
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Cash and cash equivalents	1,160,989	1,300,197	(10.7%)
Total assets *	13,268,749	14,066,526	(5.7%)
Total debt5	7,552,800	7,844,099	(3.7%)
Net debt6	6,391,811	6,543,902	(2.3%)
Equity attributable to shareholders	4,804,758	4,167,381	15.3%
Current ratio7	1.8 times	1.8 times
Net debt to net total capital8	57.1%	61.1%
Net asset value per share9	HK$0.61	HK$0.53

1 profit/(loss) before tax + finance costs + depreciation + amortisation + asset impairment losses, net

2 EBITDA + (share of depreciation, amortisation, finance costs, asset impairment loss, income tax expense/(credit) and non-controlling interests of a joint venture) + fair value loss/(gain) on financial asset at fair value through profit or loss

3 adjusted EBITDA / (finance costs + share of finance costs of a joint venture)

4 profit/(loss) attributable to shareholders / weighted average number of ordinary shares in issue during the year

5 bank borrowings + finance lease payables

6 total debt – cash and cash equivalents

7 current assets / current liabilities

8 net debt / (net debt + equity attributable to shareholders) x 100%

9 equity attributable to shareholders / number of ordinary shares in issue at end of year

• including capital expenditure in respect of exploration, development and mining production activities during the year, totalling HK$44,946,000 (2015: HK$515,720,000)

05 CITIC Resources Holdings Limited

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Management’s Discussion and Analysis

During the year, the Group continued to be adversely affected by low oil and commodities prices and weak demand. In particular, Brent oil prices fell as low as US$26 per barrel in January. Oil prices remained at relatively low levels throughout the year with an average Brent price of US$43.3 (2015: US$52.1) per barrel.

Notwithstanding the challenging operating environment and a couple of unexpected impairments, the Group recorded a profit attributable to shareholders of HK$363.0 million for the year (2015: a loss of HK$6,104.9 million). The profit attributable to shareholders was primarily attributable to:

• the Group’s program of cost controls which reduced the impact of low oil and commodities prices and narrowed operating losses;

• a share of profit of HK$210.9 million (2015: a share of loss of HK$1,858.6 million) from the Group’s investment in the Karazhanbas oilfield (as defined on page 14);

• share of loss reduced to HK$29.6 million (2015: HK$352.8 million) with respect to the Group’s interest in CITIC Dameng Holdings Limited (“ CDH ”); and

• a fair value gain of HK$1,045.0 million (2015: a loss of HK$1,281.8 million) in respect of the Group’s interest in Alumina Limited (“ AWC ”).

The following is a description of the operating activities in each of the Group’s business segments in 2016, with a comparison of their results against those in 2015.

Aluminium smelting

• The Group holds a 22.5% participating interest in the Portland Aluminium Smelter joint venture in Australia. The Portland Aluminium Smelter (the “ PAS ”) sources alumina and produces aluminium ingots.

• Revenue HK$858.3 million (2015: HK$1,030.5 million) ▼ 17% Segment results a profit of HK$ 3.8 million (2015: a loss of HK$ 49.8 million) N/A

Aluminium prices recovered gradually but moderately during 1H 2016 from their low levels in 2015 and remained steady for the remainder of the year, with decreases in aluminium supply in China one of the reasons for the price increase. Despite the improvement in aluminium prices, average selling price of aluminium and sales volume for the year decreased by 6% and 12% respectively compared to 2015. Consequently, the segment had a significant drop in revenue when compared to 2015.

These negative factors were, however, mitigated by a 14% decrease in cost of sales per tonne leading to an improvement in the segment’s gross margin and results.

The Group’s aluminium smelting business is a net United States dollar (“ US$ ”) denominated asset while certain costs are payable in Australian dollar (“ A$ ”). Fluctuations between A$ and US$ throughout the year caused a net exchange loss of HK$34.5 million (2015: a net exchange gain of HK$48.1 million).

• The pricing mechanism used in the electricity supply agreement signed between the Group and the State Electricity Commission of Victoria, Australia (the “ ESA ”) included a component that was subject to the price of aluminium. In accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”), the component was considered to be an embedded derivative. The embedded derivative was revalued at the end of each reporting period during its term and on its expiry, based on future aluminium prices with its fair value gain or loss recognised in the consolidated income statement. On 31 October 2016, the ESA expired and accordingly, a realised fair value gain of HK$35.1 million was recorded in “Other income and gains” in the consolidated income statement (2015: an unrealised fair value gain of HK$46.3 million arising from the revaluation).

The revaluation of the embedded derivative had no cash flow consequences for the Group’s operations but the movement in valuation (if any) introduced volatility into the consolidated income statement.

06

Annual Report 2016

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Management’s Discussion and Analysis

• On 1 March 2010, a base load electricity contract was signed between the Group and an independent electricity supplier (the “ EHA ”). The EHA effectively allowed the PAS to hedge the spot price for electricity in the National Electricity Market for a specific load from 1 November 2016 to 31 December 2036. The counterparties to the Group under the EHA were subsidiaries of AGL Energy Limited (“ AGL ”), an integrated renewable energy company listed on the Australian Securities Exchange (the “ ASX ”) (Stock Code: AGL). In accordance with HKFRSs, the EHA was considered to be a derivative financial instrument which was revalued at the end of each reporting period during its term.

On 12 August 2016, as the hedged price agreed under the EHA was considerably higher than the then prevailing spot price of electricity resulting in higher cost of sales of aluminium and hardship, the Group served a notice to terminate the EHA effective August 2017. Details of the matter are set out in the announcement of the Company dated 7 November 2016.

As notice of termination of the EHA has been served, the EHA was revalued at the end of the year based on forward market prices of electricity with its fair value gain or loss recognised in the consolidated income statement. As a result, the net fair value change of the EHA from the date notice of termination was served to 31 December 2016 was recorded in “Other income and gains” in the consolidated income statement, being a fair value gain of HK$54.1 million (2015: Nil).

• On 1 December 2016, the PAS experienced a five-hour power outage due to a fault on the Victorian transmission network. The power outage disrupted operations and caused a reduction in production capacity of the PAS. In January 2017, the Group secured financial support from the State Government of Victoria and the Commonwealth Government of Australia to assist in funding the restart of the PAS’s production capacity and ongoing operations under four year agreements. In addition, the Group entered into a new hedging agreement with several subsidiaries of AGL in relation to the supply of electricity from 1 August 2017 to 31 July 2021. Details of the matters are set out in the announcements of the Company dated 2 December 2016 and 20 January 2017.

As operations to restart capacity at the PAS are expected to take time, the performance of the PAS is expected to be affected until pre-outage capacity is restored. As such, an impairment of HK$226.2 million (before tax credit) (2015: Nil) was provided in respect of the plant, machinery and equipment of the PAS and charged to “Provision for impairment of items of property, plant and equipment” in the consolidated income statement.

Coal

• The Group holds a 14% participating interest in the Coppabella and Moorvale coal mines joint venture (the “ CMJV ”) and interests in a number of coal exploration operations in Australia. The CMJV is a major producer of low volatile pulverized coal injection coal in the international seaborne market.

Revenue HK$514.9 million (2015: HK$584.1 million) ▼ 12% Segment results a profit of HK$ 29.1 million (2015: a loss of HK$157.8 million) N/A

With an upturn in selling prices in 4Q 2016, the average selling price of coal increased by 13% compared to 2015. However, sales volume dropped 22%, resulting in a decrease in revenue when compared to 2015.

Despite the decrease in revenue, the segment’s gross margin and results improved when compared to 2015, attributable to an increase in selling price and a 14% decrease in cost of sales per tonne.

The Group’s coal business is a net US$ denominated asset while most of its costs are payable in A$. Fluctuations between A$ and US$ throughout the year caused a net exchange gain of HK$8.1 million (2015: HK$8.8 million).

07 CITIC Resources Holdings Limited

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Management’s Discussion and Analysis

• In 2015, due to continuing depressed coal prices and limited prospects for recovery in the near term, an impairment of HK$411.1 million (before tax credit) was provided in respect of the mining assets and exploration and evaluation assets of the CMJV and charged to “Provision for impairment of other assets” in the consolidated income statement.

• In May 2016, the Group disposed of its interests in the Olive Downs South, Olive Downs South Extended and Willunga metallurgical coal tenements located in Queensland’s Bowen Basin in Australia to the Pembroke Resources Group. As a result, a pre-tax gain on disposal of other assets of HK$49.7 million was recorded in “Other income and gains” in the consolidated income statement. The disposal of the Group’s interest in the Olive Downs North tenement is still awaiting approval from the minority participants in such tenement. Details of the transactions are set out in the announcement of the Company dated 9 May 2016.

Import and export of commodities

• Exported products include aluminium ingots, coal, iron ore, alumina and copper sourced from Australia and other countries for trade into China and other Asian countries. Imported products include steel, and vehicle and industrial batteries and tyres from China and other countries into Australia.

Revenue	HK$697.3	million	(2015: HK$1,136.8	million)	▼	39%
Segment results	HK$ 6.9	million	(2015: HK$ 42.9	million)	▼	84%

The lacklustre commodities markets continued to weigh on the Group’s import and export of commodities business. As market and operating conditions remained difficult during the year, the segment recorded a material decrease in both revenue and results when compared to 2015.

The Group’s import and export of commodities business is a net US$ denominated asset while certain costs are payable in A$. Fluctuations between A$ and US$ throughout the year caused a net exchange loss of HK$7.2 million (2015: a net exchange gain of HK$46.1 million).

• In 2014, the Chinese authorities commenced an investigation into the allegedly fraudulent multiple use of warehouse receipts in respect of certain aluminium and copper products stored at Qingdao port, China (the “ Investigation ”). Although the Group is not involved in the Investigation, the Investigation has had significant adverse impact on the Group’s export business since 2H 2014.

• The Group has certain alumina and copper stored in bonded warehouses at Qingdao port (the “ Inventories ”). In light of the Investigation, the Group applied to the Qingdao Maritime Court (the “ Qingdao Court ”) in June 2014 for asset protection orders in respect of the Inventories. The Qingdao Court, however, did not grant an asset protection order in respect of certain alumina amongst the Inventories (the “ Non-protected Alumina ”). The Group also claimed against the operator of the bonded warehouses at Qingdao port and related parties (collectively, the “ Operator ”) requiring the Operator to confirm the Group’s ownership of the Inventories and to release and deliver all of the Inventories to the Group or, failing which, to compensate the Group (the “ Claim ”). Details of the Claim are set out in the announcements of the Company dated 9 June 2014, 17 June 2014 and 7 July 2014.

Pursuant to the decisions of the Qingdao Court in September 2016 (the “ Qingdao Court Decisions ”), the Claim was transferred to the Southern Branch of the Qingdao Public Security Bureau (the “ Public Security Bureau ”) pursuant to Article 12 of “最高人民法院關於在審理經濟糾紛案件中涉及 經濟犯罪嫌疑若干問題的規定” (The Provisions of the Supreme People’s Court on Several Issues Concerning Suspected Economic Crimes in the Trials of Economic Dispute Cases) (“ Article 12 ”) for determination in accordance with China’s criminal procedures. As a result of the Qingdao Court Decisions, the Claim has terminated. Details of the judgment of the Qingdao Court are set out in the announcement of the Company dated 28 October 2016.

Annual Report 2016 08

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Management’s Discussion and Analysis

In 2014, a full provision of HK$319.8 million (before tax credit) was made in respect of the Non-protected Alumina. In 2015, a further provision of HK$389.7 million (before tax credit) was made in respect of the Inventories (excluding the Non-protected Alumina). At the end of 2016, a further provision of HK$89.4 million (before tax credit) was made in respect of the Inventories (excluding the Non-protected Alumina). These provisions were charged to “Provision for impairment of inventories” in the consolidated income statement. As at 31 December 2016, the net carrying value of the Inventories was HK$180.3 million (31 December 2015: HK$269.7 million).

• In August 2014, 山煤煤炭進出口有限公司 (Shanxi Coal Import & Export Co., Ltd.) (“ Shanxi Coal I/E ”), a wholly-owned subsidiary of 山煤國際能源集團股份有限公司 (Shanxi Coal International Energy Group Co., Ltd.), commenced a claim in 山西省高級人民法院 (the Shanxi High People’s Court) (the “ Shanxi Court ”) against, amongst others, CITIC Australia Commodity Trading Pty Limited (“ CACT ”), an indirect wholly-owned subsidiary of the Company (“ Shanxi Claim A ”). Shanxi Coal I/E claimed from CACT (a) the sum of US$89.8 million (HK$700.1 million) plus interest for breach of contract resulting from the alleged non-delivery of certain aluminium ingots by CACT to Shanxi Coal I/E; and (b) costs in respect of Shanxi Claim A.

In connection with Shanxi Claim A, Shanxi Coal I/E obtained an asset protection order from the Shanxi Court over a certain quantity of the Inventories. Service of Shanxi Claim A was effected on CACT in September 2015 by way of a public notice issued by the Shanxi Court. Court hearings were held subsequently. Details of Shanxi Claim A are set out in the announcements of the Company dated 27 August 2014 and 9 September 2015.

In January 2017, pursuant to a civil ruling of the Shanxi Court, Shanxi Claim A was transferred to the Public Security Bureau pursuant to Article 12. Any remedy Shanxi Coal I/E may have in respect of the aluminium ingots that are the subject of Shanxi Claim A will be determined in accordance with China’s criminal procedures. Following its transfer to the Public Security Bureau, Shanxi Claim A has terminated and Shanxi Coal I/E has no further recourse or rights against CACT in respect of Shanxi Claim A. Details of the ruling of the Shanxi Court are set out in the announcement of the Company dated 19 January 2017.

• In 2H 2015, CACT received an arbitration request notice from the International Court of Arbitration of the International Chamber of Commerce (the “ ICC ”) in respect of an arbitration application by Shanxi Coal I/E pursuant to which, Shanxi Coal I/E is (a) alleging that CACT has entered into two contracts for the supply of, and has failed to deliver, copper cathodes to Shanxi Coal I/E (the “ Contracts ”); and (b) claiming the amount of US$27.9 million (HK$217.5 million) as the aggregate purchase price Shanxi Coal I/E alleges it has paid to CACT under the Contracts, plus interest (“ Shanxi Claim B ”).

CACT has not entered into the Contracts as alleged by Shanxi Coal I/E, has not agreed or submitted to any process of arbitration by the ICC, and denies that it is in any respect subject to the jurisdiction or rules of the ICC and CACT has responded to the ICC in these terms. Details of Shanxi Claim B are set out in the announcement of the Company dated 21 December 2015.

In November 2016, a hearing was held in Singapore to determine the jurisdiction of Shanxi Claim B. However, up to the date of this report, the determination is still pending. The Group will continue to follow up the associated market risks arising from Shanxi Claim B.

09 CITIC Resources Holdings Limited

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Management’s Discussion and Analysis

Crude oil (the Seram Island Non-Bula Block, Indonesia)

• CITIC Seram Energy Limited (“ CITIC Seram ”), an indirect wholly-owned subsidiary of the Company, owns a 51% participating interest in the production sharing contract which grants the right to explore, develop and produce petroleum from the Seram Island Non-Bula Block, Indonesia (the “ Seram Block ”) until 2019 (the “ PSC ”). CITIC Seram is the operator of the Seram Block.

As at 31 December 2016, the Seram Block had estimated proved oil reserves of 2.9 million barrels (2015: 4.9 million barrels) as determined in accordance with the standards of the Petroleum Resources Management System (the “ PRMS ”).

• For the year, the segment results of CITIC Seram recorded a loss of HK$75.4 million (2015: a loss of HK$184.7 million). The following table shows a comparison of the performance of the Seram Block for the years stated:

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2016 2015
(51%) (51%) Change
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Average benchmark Mean of
Platts Singapore (MOPS):
Platts HSFO 180 CST Singapore	(US$ per barrel)	36.4	44.8	▼	19%
Average crude oil realised price	(US$ per barrel)	34.2	37.8	▼	9%
Sales volume	(barrels)	676,000	561,000	▲	20%
Revenue	(HK$ million)	180.3	165.3	▲	9%
Total production	(barrels)	665,000	588,000	▲	13%
Daily production	(barrels)	1,820	1,610	▲	13%

Although the average crude oil realised price decreased by 9%, sales volume increased by 20% resulting in a 9% increase in revenue when compared to 2015. Production increased by 13% compared to 2015, attributable to the full year contribution from two new development wells in the Oseil area completed in 2015 and contribution from a new development well completed in 1Q 2016.

During the year, direct operating costs per barrel decreased by 34% compared to 2015, attributable to continuous cost saving efforts and also benefits of economies of scale from increased production and sales volumes. However, cost of sales per barrel decreased by 8% only, due to an 8% increase in depreciation, depletion and amortisation per barrel as a result of lower proved developed reserves. The reserves substantially decreased as no additional new development wells were drilled in the year.

• At the end of 2016, an impairment of HK$36.3 million (2015: Nil) was provided in respect of the obsolete and slow-moving raw materials and charged to “Provision for impairment of inventories” in the consolidated income statement.

In 2015, as it was uncertain whether any equity oil would be available for distribution to the government prior to the expiry of the PSC, a provision of HK$105.7 million was made in respect of the potentially unrecoverable value added tax reimbursement and charged to “Other expenses, net” in the consolidated income statement. The uncertainty was caused by a new tax regulation in Indonesia effective 1H 2015, which limits value added tax reimbursements to equity oil distributed to the government under the PSC.

Annual Report 2016 10

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Management’s Discussion and Analysis

Also in 2015, due to continuing depressed oil prices and lack of prospects for recovery in the near term, an impairment of HK$395.7 million (before tax credit) was provided in respect of certain oil and gas properties of CITIC Seram and charged to “Provision for impairment of items of property, plant and equipment” in the consolidated income statement.

Also in 2015, as it was uncertain whether the Seram Block would generate enough taxable profit by the expiry of the PSC to fully utilise the deferred tax asset arising from the unrecovered cost pool, an impairment of HK$94.1 million was provided in respect of the deferred tax asset and charged to “Income tax expense” in the consolidated income statement.

• The depressed oil prices have been posing a significant challenge for CITIC Seram. In 2015, a number of initiatives have been implemented to mitigate the impact of low oil prices and further mitigation measures were carried out in 2016. These included increasing production volume and reducing or postponing expenditure that should not have an adverse effect on normal operations.

• The Lofin area has been temporarily plugged and abandoned since 2H 2015. The Group will determine the development program of the Lofin area after CITIC Seram obtains a renewal of the PSC from the Indonesian government.

Crude oil (the Hainan-Yuedong Block, China)

• CITIC Haiyue Energy Limited (“ CITIC Haiyue ”), an indirect wholly-owned subsidiary of the Company, owns a 90% interest in Tincy Group Energy Resources Limited (“ Tincy Group ”).

Pursuant to a petroleum contract entered into with China National Petroleum Corporation (“ CNPC ”) in February 2004 as supplemented by an agreement signed in May 2010, Tincy Group holds the right to explore, develop and produce petroleum from the Hainan-Yuedong Block in the Bohai Bay Basin in Liaoning Province, China (the “ Hainan-Yuedong Block ”) until 2034. Tincy Group is the operator of the Hainan-Yuedong Block in cooperation with CNPC.

As at 31 December 2016, the Yuedong oilfield (the “ Yuedong oilfield ”), the principal field within the Hainan-Yuedong Block, had estimated proved oil reserves of 19.2 million barrels (2015: 22.2 million barrels) as determined in accordance with the standards of the PRMS.

• For the year, the segment results of CITIC Haiyue recorded a loss of HK$191.3 million (2015: a loss of HK$128.7 million). The following table shows a comparison of the performance of the Yuedong oilfield for the years stated:

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2016 2015
(Tincy Group’s share) Change
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Average benchmark quote:
Platts Dubai crude oil	(US$ per barrel)	41.3	50.9	▼	19%
Average crude oil realised price	(US$ per barrel)	43.2	52.0	▼	17%
Sales volume	(barrels)	2,106,000	1,997,000	▲	5%
Revenue	(HK$ million)	706.0	796.4	▼	11%
Total production	(barrels)	2,194,000	1,987,000	▲	10%
Daily production	(barrels)	5,990	5,440	▲	10%

11 CITIC Resources Holdings Limited

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Management’s Discussion and Analysis

Although sales volume increased by 5%, the average crude oil realised price decreased by 17% resulting in an 11% decrease in revenue when compared to 2015. Production increased by 10% compared to 2015, attributable to the deployment of thermal recovery.

During the year, the 5% devaluation of Renminbi (“ RMB ”), which is the functional currency of Tincy Group’s financial statements, had a favourable impact on the costs payable in RMB. Direct operating costs per barrel decreased by 5% compared to 2015, attributable to continuous cost saving efforts and also benefits of economies of scale from increased production and sales volumes. Cost of sales per barrel decreased by 7%, attributable to an 11% decrease in depreciation, depletion and amortisation per barrel as a result of the provision for impairment of certain oil and gas properties of Tincy Group in 2015.

• In 2015, due to continuing depressed oil prices and lack of prospects for recovery in the near term, an impairment of HK$544.3 million (before tax credit) was provided in respect of certain oil and gas properties and certain construction in progress of Tincy Group and charged to “Provision for impairment of items of property, plant and equipment” in the consolidated income statement.

• One of the key objectives at the Yuedong oilfield has been to promote suitable oil recovery methods to further enhance production. Following favourable results from the deployment of thermal recovery in 2015, Tincy Group has utilised this method on a more extensive scale within the Yuedong oilfield during the year.

Tincy Group is actively prospecting potential exploration areas within the Bohai Bay Basin with the objective of increasing oil reserves.

• Capital expenditure will continue to be applied but stringently controlled in respect of the remaining development works of the Yuedong oilfield. Depending on the drilling data and the evaluation of the seismic data, adjustments may be made to the development plan.

Bauxite mining and alumina refining

• The Group has an interest in a world-class global portfolio of upstream mining and refining operations in the aluminium sector through its 9.6846% equity interest in AWC, a leading Australian company listed on the ASX (Stock Code: AWC). Other subsidiaries of CITIC Limited have a total 8.5886% equity interest in AWC.

AWC has significant global interests in bauxite mining, alumina refining and selected aluminium smelting operations through its 40% ownership of the Alcoa World Alumina and Chemicals joint venture, the world’s largest alumina producer.

• The Group’s equity interest in AWC is classified as a financial asset at fair value through profit or loss and, as a result, is measured at its fair value based on the closing price of AWC shares at the end of each reporting period. Any difference between the fair value and the carrying value is recognised in the consolidated income statement.

At the end of the year, attributable to a higher closing price of AWC shares as compared to that at the end of 2015 and a slight depreciation of A$, a pre-tax fair value gain of HK$1,045.0 million was recorded in “Other income and gains” (2015: a fair value loss of HK$1,281.8 million (before tax credit), which was charged to “Other expenses, net”) in the consolidated income statement in respect of the Group’s interest in AWC.

During the year, the Group received a dividend of HK$102.2 million (2015: HK$127.8 million) from AWC. The dividend income was recorded in “Other income and gains” in the consolidated income statement.

Detailed financial results of AWC are available on its website at http://www.aluminalimited.com .

12

Annual Report 2016

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Management’s Discussion and Analysis

Manganese

• The Group has an interest in manganese mining and production through its 34.39% equity interest in CDH, a company listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) (Stock Code: 1091). CDH is an associate of the Group and the Group is the single largest shareholder of CDH.

In 2015, the Group’s equity interest in CDH was diluted from 38.98% to 34.36% following the issue of new shares by CDH, and increased marginally to its current interest of 34.39% upon the cancellation of shares repurchased by CDH.

• CDH owns a 100% interest in the Daxin manganese mine, the Tiandeng manganese mine and the Waifu manganese mine in Guangxi Province, China; a 64% interest in the Changgou manganese mine in Guizhou Province, China; and a 51% interest in the Bembélé manganese mine in Gabon, West Africa. CDH is one of the largest vertically integrated manganese producers in the world, engaged in the production and sale of manganese products at various stages of the production chain.

Since July 2015, following the acquisition of a 29.81% interest in China Polymetallic Mining Limited, a company listed on the Main Board of the Stock Exchange (Stock Code: 2133), CDH has diversified its investment into the non-ferrous metal sector, changing itself from a pure manganese producer to an integrated mineral producer.

Share of loss of an associate HK$29.6 million (2015: HK$352.8 million) N/A

The Group recorded a share of loss for the year with respect to its interest in CDH. CDH’s performance continued to be adversely affected by the economic slowdown in China. As there was no improvement in the steel sector during the year, the average selling prices of major manganese products continued to fall. Notwithstanding this, attributable to a decrease in unit cost of sales, more stringent cost control measures, a smaller provision for inventories and no provision for impairment of the mining right compared to 2015, CDH recorded a material reduction in its loss for the year. As a result, the Group recorded a significantly reduced share of loss for the year with respect to its interest in CDH.

Detailed financial results of CDH are available on the websites of the Stock Exchange and CDH at http://www.hkexnews.hk and http://www.dameng.citic.com respectively.

• In 2015, due to the weak performance of CDH and the low price of CDH shares, an impairment of HK$330.0 million (before tax credit) was provided with respect to the Group’s interest in CDH and charged to “Provision for impairment of an associate” in the consolidated income statement.

13 CITIC Resources Holdings Limited

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Management’s Discussion and Analysis

Crude oil (the Karazhanbas oilfield, Kazakhstan)

• CITIC Oil & Gas Holdings Limited, an indirect wholly-owned subsidiary of the Company, and JSC KazMunaiGas Exploration Production through CITIC Canada Energy Limited (“ CCEL ”), a joint venture, own, manage and operate JSC Karazhanbasmunai (“ KBM ”) jointly. Effectively, the Group owns 50% of the issued voting shares of KBM (which represents 47.31% of the total issued shares of KBM).

KBM is engaged in the development, production and sale of oil and holds the right to explore, develop, produce and sell oil from the Karazhanbas Oil and Gas Field in Mangistau Oblast, Kazakhstan (the “ Karazhanbas oilfield ”) until 2035.

As at 31 December 2016, the Karazhanbas oilfield had estimated proved oil reserves of 241.3 million barrels (2015: 233.4 million barrels) as determined in accordance with the standards of the PRMS.

• Share of profit of a joint venture HK$210.9 million (2015: a loss of HK$1,858.6 million) N/A

The following table shows a comparison of the performance of the Karazhanbas oilfield for the years stated:

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2016 2015
(50%) (50%) Change
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Average benchmark end-market quotes:
Urals Mediterranean crude oil	(US$ per barrel)	42.0	51.4	▼	18%
Dated Brent crude oil	(US$ per barrel)	43.3	52.1	▼	17%
Average crude oil realised price	(US$ per barrel)	39.0	40.2	▼	3%
Sales volume	(barrels)	7,136,000	7,347,000	▼	3%
Revenue	(HK$ million)	2,158.9	2,291.6	▼	6%
Total production	(barrels)	7,104,000	7,142,000	▼	1%
Daily production	(barrels)	19,400	19,600	▼	1%

Both the average crude oil realised price and sales volume decreased by 3% resulting in a 6% decrease in revenue when compared to 2015. Production slightly dropped compared to 2015.

At CCEL level, mineral extraction tax is charged at progressive rates based on production volume and charged to “Cost of sales” in its consolidated income statement. Rent tax is charged on export revenue at progressive rates by reference to Urals or Brent oil prices (whichever is higher) while export duty is charged at a certain rate per tonne of oil exported. Both rent tax and export duty are charged to “Selling and distribution costs” in CCEL’s consolidated income statement.

Export duty decreased from US$80 to US$60 per tonne effective 1 April 2015, and further decreased to US$40 per tonne effective 1 January 2016. However, effective 1 March 2016, export duty is charged at progressive rates by reference to the average of Urals and Brent oil prices (the “ Average Price ”). In case the Average Price is US$35 or above but below US$40 per barrel, export duty is charged at US$35 per tonne. In case the Average Price is US$40 or above but below US$45 per barrel, export duty is charged at US$40 per tonne.

During the year, direct operating costs per barrel decreased by 19% compared to 2015, mainly attributable to the devaluation of Kazakhstan Tenge (“ KZT ”) which is the functional currency of KBM’s financial statements. The average exchange rate of US$1 against KZT in the year was 341.82 (2015: 223.15). Cost of sales per barrel decreased by 25%, attributable to a 40% decrease in depreciation, depletion and amortisation per barrel as a result of the provision for impairment of certain oil and gas properties of KBM in 2015.

Annual Report 2016 14

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Management’s Discussion and Analysis

Selling and distribution costs per barrel decreased by 19% compared to 2015, attributable to a decrease in rent tax and export duty. Benefiting from lower charge rates, rent tax per barrel decreased by 44% and export duty per barrel decreased by 22%.

• In 2015, due to continuing depressed oil prices and lack of prospects for recovery in the near term, an impairment of HK$2,100.0 million (before tax credit) was provided in respect of certain oil and gas properties of KBM and charged to “Provision for impairment of items of property, plant and equipment” in CCEL’s consolidated income statement. The Group’s share was HK$993.6 million (before tax credit).

• In 2014, the Kazakhstan tax authorities (the “ Tax Authorities ”) completed a tax inspection on KBM in respect of transfer pricing for the five years from 2008 to 2012 and issued a tax assessment on KBM. After several appeals to the courts in 2015, KBM was held liable for part of the tax assessment and, in respect of which, KBM lodged a final appeal to the Supervisory Board of the Supreme Court of Kazakhstan in December 2015. In 2015, the Group made a full provision for its share of the tax assessment, being HK$132.1 million.

The final appeal was concluded during the year and the tax assessment on KBM was cancelled. Accordingly, the Group wrote back the provision made previously of HK$167.3 million.

• In 2014, the Tax Authorities completed an integrated tax inspection on KBM for the four years from 2009 to 2012. As a result, the Tax Authorities issued a tax assessment on KBM and the Group’s share was HK$49.4 million. KBM made a provision for part of the tax assessment and the Group’s share was HK$7.0 million. In 2015, KBM made a further provision and the Group’s share was HK$22.8 million. Based on the advice from KBM’s legal counsel, KBM has justifiable arguments for its tax position. Though KBM has failed in a couple of appeals during the year, it is still considering making a further appeal.

Liquidity, Financial Resources and Capital Structure

Cash

As at 31 December 2016, the Group had cash and cash equivalents of HK$1,161.0 million.

During the year, the Group has fully drawn US$310 million (HK$2,418 million) under the D Loan (as defined below) to fully prepay the B Loan (as defined below).

Borrowings

As at 31 December 2016, the Group had total debt of HK$7,552.8 million, which comprised:

• unsecured bank borrowings of HK$7,527.3 million; and

• finance lease payables of HK$25.5 million.

Most of the transactions of the Group’s import and export of commodities business are debt funded. However, in contrast to term loans, these borrowings are self liquidating, transaction specific and of short durations, and matching the terms of the underlying transaction. When sale proceeds are received at the completion of a transaction, the related borrowings are repaid accordingly.

15 CITIC Resources Holdings Limited

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Management’s Discussion and Analysis

In September 2012, the Company entered into a facility agreement with a bank in respect of an unsecured 5-year term loan facility of US$40 million (HK$312 million) (the “ A Loan ”) to finance the general corporate funding requirements of the Company. The outstanding balance of the A Loan as at 31 December 2016 was US$40 million.

In March 2014, the Company entered into a facility agreement with a syndicate of financial institutions in respect of an unsecured term loan facility (the “ B Loan ”) to part finance the repayment of the Group’s US$1,000,000,000 6.75% senior notes due 2014. The B Loan has a total facility amount of US$310 million (HK$2,418 million) and a tenor of three years commencing from the date of first utilisation, being 12 May 2014. The B Loan was fully prepaid in December 2016 using the proceeds of the D Loan (as defined below).

In June 2015, the Company entered into a facility agreement with a syndicate of financial institutions in respect of an unsecured term loan facility of US$490 million (HK$3,822 million) (the “ C Loan ”). The C Loan has two tranches, Tranche A and Tranche B, in the respective amounts of US$380 million (HK$2,964 million) and US$110 million (HK$858 million). The proceeds of Tranche A were used to finance the repayment of an unsecured term loan facility of US$380 million that matured in June 2015. Tranche A has a tenor of three years commencing from the date of utilisation, being 29 June 2015. The proceeds of Tranche B were used to finance the general corporate funding requirements of the Company. Tranche B has a tenor of three years commencing from the date of first utilisation, being 31 December 2015. The outstanding balance of the C Loan as at 31 December 2016 was US$490 million.

In December 2016, the Company entered into a facility agreement with a syndicate of financial institutions in respect of an unsecured term loan facility of US$310 million (HK$2,418 million) (the “ D Loan ”) to finance the prepayment of the B Loan. The D Loan has a tenor of three years commencing from the date of utilisation, being 30 December 2016. The outstanding balance of the D Loan as at 31 December 2016 was US$310 million.

Further details of the bank borrowings are set out in note 30 to the financial statements.

The Group leases certain plant and machinery for its coal mine operations. The lease is classified as a finance lease. Further details of the finance lease payables are set out in note 31 to the financial statements.

As at 31 December 2016, the Group’s net debt to net total capital was 57.1% (2015: 61.1%). Of the total debt, HK$1,384.9 million was repayable within one year, including the A Loan, short-term revolvers, trade finance and finance lease payables.

Share capital

There was no movement in the share capital of the Company during the year.

Financial risk management

The Group’s diversified business is exposed to a variety of risks, such as market risks (including foreign currency risk, price risk, interest rate risk and inflation risk), credit risk and liquidity risk. The management of such risks is dictated by a set of internal policies and procedures designed to minimise potential adverse effects to the Group. The policies and procedures have proved effective.

Annual Report 2016 16

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Management’s Discussion and Analysis

The Group enters into derivative transactions, including principally forward currency contracts, forward commodity contracts, interest rate swap contracts, embedded derivatives and an electricity hedge agreement. Their purpose is to manage the foreign currency risk, price risk, interest rate risk and inflation risk arising from the Group’s operations and sources of finance.

Further details of the financial risk management objectives and policies are set out in note 43 to the financial statements.

New investment

There was no new investment concluded during the year.

Opinion

The Board is of the opinion that, after taking into account the existing available borrowing facilities and internal resources, the Group has sufficient resources to meet its foreseeable working capital requirements.

Employees and Remuneration Policies

As at 31 December 2016, the Group had around 340 full time employees, including management and administrative staff.

The Group’s remuneration policy seeks to provide fair market remuneration in a form and value to attract, retain and motivate high quality staff. Remuneration packages are set at levels to ensure comparability and competitiveness with other companies in the industry and market competing for a similar talent pool. Emoluments are also based on an individual’s knowledge, skill, time commitment, responsibilities and performance and by reference to the Group’s profits and performance. Rent-free quarters are provided to some employees in Indonesia.

The employees of the Group’s subsidiaries which operate in China are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute a certain percentage of their payroll costs to the central pension scheme.

The Group operates the following contribution retirement benefit schemes for its employees:

• (a) a defined scheme under the Government Law No.13/2003 of the Indonesian government for those employees in Indonesia who are eligible to participate;

• (b) a defined scheme under the superannuation legislation of the Australian government for those employees in Australia who are eligible to participate; and

• (c) a defined scheme under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those employees in Hong Kong who are eligible to participate.

Contributions are made based on a percentage of the employees’ basic salaries. The assets of the above schemes are held separately from those of the Group in independently administered funds. The Group’s employer contributions vest fully with the employees when contributed into these schemes.

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible persons.

17 CITIC Resources Holdings Limited

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Board of Directors and Senior Management

Directors

Mr. Kwok Peter Viem	Chairman and Executive Director
Mr. Suo Zhengang	Vice Chairman, Executive Director and Chief Executive Officer
Mr. Sun Yang	Vice Chairman and Executive Director
Ms. Li So Mui	Executive Director
Mr. Ma Ting Hung	Non-executive Director
Mr. Fan Ren Da, Anthony	Independent Non-executive Director
Mr. Gao Pei Ji	Independent Non-executive Director
Mr. Look Andrew	Independent Non-executive Director

Directors – Biographies

Mr. Kwok Peter Viem , aged 68, joined in 2013 as an executive director and the Chairman of the Company, having previously held the same positions between 2000 and 2007. He is the chairman of the nomination committee of the Company (he was a member between 2006 and 2007). Mr. Kwok was appointed a member of the risk management committee of the Company in February 2016. He is also a director of several subsidiaries of the Company. He is responsible for the strategic planning and corporate development of the Group. Mr. Kwok holds a Bachelor of Arts Degree in Commerce from National Taiwan University, a Master of Philosophy Degree in Management Studies from The University of Hong Kong and a Doctoral Degree in Finance from University of California, Berkeley. He is a director of Cathay Financial Holding Co., Ltd. listed on the Taiwan Stock Exchange (Stock Code: 2882). Mr. Kwok held senior positions with various international financial institutions and has over 40 years’ experience in banking and corporate finance. He is a member of the National Committee of the Chinese People’s Political Consultative Conference and a vice chairman of Committee for Liaison with Hong Kong, Macao, Taiwan and Overseas Chinese.

Mr. Suo Zhengang , aged 54, joined in 2015 as an executive director, a Vice Chairman and the Chief Executive Officer of the Company. He is a member of the remuneration committee of the Company. Mr. Suo was appointed a member of the risk management committee of the Company in February 2016. He is also a director of several subsidiaries of the Company. He is responsible for the strategic and corporate development, management and operations of the Group. Mr. Suo holds a Bachelor of Science Degree in Mechanical Engineering from North China University of Technology and was granted the title of senior economist by CITIC Senior Specialised Technique Qualification Evaluation Committee. He is a director of several subsidiaries of CITIC Limited, including Keentech Group Limited. Mr. Suo has held various positions in several subsidiaries of 中國中信集團有限公司 (CITIC Group Corporation) (“ CITIC Group ”) since 1988. He is a non-executive director of CDH listed on the Main Board of the Stock Exchange (Stock Code: 1091). Mr. Suo has over 27 years’ experience in business operations and development, and project investments. He has experience in the natural resources industry.

Mr. Sun Yang , aged 50, joined in 2014 as an executive director and a Vice Chairman of the Company. He is also a director of several subsidiaries of the Company. He is responsible for the strategic and corporate development, management and operations of the Group. Mr. Sun holds a Master’s Degree in Management from Renmin University of China. He is the President of CITIC Kazakhstan LLP, an independent director of JSC AB Bank of China Kazakhstan and a director of KBM. Mr. Sun has held senior positions in several subsidiaries of CITIC Group since 1995. Mr. Sun ceased to act as the chief representative of the Kazakhstan office of CITIC Group in September 2014. Mr. Sun has over 10 years’ experience in the oil and gas industry.

Annual Report 2016 18

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Board of Directors and Senior Management

Ms. Li So Mui , aged 62, joined in 2000 as an executive director of the Company. She was the Company Secretary of the Company between August 2000 and March 2015. She is also a director of several subsidiaries of the Company. She is responsible for the financial management of the Group. Ms. Li holds a Master’s Degree in Business Administration and is a fellow member of the Association of Chartered Certified Accountants, the Hong Kong Institute of Certified Public Accountants and the Association of International Accountants. Ms. Li has over 39 years’ experience in the accounting and banking field.

Mr. Ma Ting Hung , aged 53, joined in 2015 as a non-executive director of the Company, having previously held the same position between 2007 and 2009. He was appointed a member of the risk management committee of the Company in February 2016. He was an executive director and a Vice Chairman of the Company between 2000 and 2007, the Chief Executive Officer of the Company between 2000 and 2005 and a member of the remuneration committee of the Company between 2006 and 2007. Mr. Ma holds a Bachelor of Arts Degree majoring in Economics from the University of Southern California. He is the Chairman of Vision Credit Limited. Mr. Ma has over 28 years’ experience in banking, finance and natural resources industry.

Mr. Fan Ren Da, Anthony , aged 56, joined in 2000 as an independent non-executive director of the Company. He is the chairman of the audit committee of the Company and a member of the remuneration committee and nomination committee of the Company. He was appointed a member of the risk management committee of the Company in February 2016. Mr. Fan holds a Master’s Degree in Business Administration from the United States of America. He is the chairman and managing director of AsiaLink Capital Limited. He is also an independent non-executive director of LT Commercial Real Estate Limited (Stock Code: 112), Uni-President China Holdings Ltd. (Stock Code: 220), Raymond Industrial Limited (Stock Code: 229), Shanghai Industrial Urban Development Group Limited (Stock Code: 563), China Development Bank International Investment Limited (Stock Code: 1062), Technovator International Limited (Stock Code: 1206), Guodian Technology & Environment Group Corporation Limited (Stock Code: 1296), Renhe Commercial Holdings Company Limited (Stock Code: 1387), CGN New Energy Holdings Co., Ltd. (Stock Code: 1811), Neo-Neon Holdings Limited (Stock Code: 1868), Hong Kong Resources Holdings Company Limited (Stock Code: 2882) and Tenfu (Cayman) Holdings Company Limited (Stock Code: 6868), all listed on the Main Board of the Stock Exchange. He is also the President of The Hong Kong Independent Non-Executive Director Association. Mr. Fan held senior positions with various international financial institutions.

Mr. Gao Pei Ji , aged 69, joined in 2011 as an independent non-executive director of the Company. He is the chairman of the remuneration committee of the Company and a member of the audit committee and nomination committee of the Company. He was appointed a member of the risk management committee of the Company in February 2016. Mr. Gao holds a LL.M. Degree from the Law School of University of California, Berkeley. He has been admitted to practise law in China since 1984. He is a foreign legal consultant to Clifford Chance, Hong Kong office. He is also an independent non-executive director of CGN Mining Company Limited listed on the Main Board of the Stock Exchange (Stock Code: 1164). He was a partner of Clifford Chance between 1993 and 2007. Mr. Gao has extensive and diversified experience in general practice, including banking and finance, direct investment, international trade, construction contracts, arbitration and litigation in relation to financial matters, and insolvency.

19 CITIC Resources Holdings Limited

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Board of Directors and Senior Management

Mr. Look Andrew , aged 51, joined in 2015 as an independent non-executive director of the Company. He is a member of the audit committee and remuneration committee of the Company. He was appointed the chairman of the risk management committee of the Company in February 2016. Mr. Look holds a Bachelor of Commerce Degree from the University of Toronto. He is the founder, chief investment officer and managing director of Look’s Asset Management Limited, a Securities and Futures Commission of Hong Kong licensed corporation based in Hong Kong. He is also an independent non-executive director of Ka Shui International Holdings Limited (Stock Code: 822), Hung Fook Tong Group Holdings Limited (Stock Code: 1446) and Union Medical Healthcare Limited (Stock Code: 2138), all listed on the Main Board of the Stock Exchange. Mr. Look ceased to act as an independent non-executive director of TCL Communication Technology Holdings Limited (privatised in September 2016) and Man Sang Jewellery Holdings Limited (Stock Code: 1466) in September 2016 and December 2016 respectively. He was the head of Hong Kong research, strategy and product for Union Bank of Switzerland from 2000 to 2008, and an investment manager at Prudential Portfolio Managers (Asia) Limited from 1994 to 2000. Mr. Look has over 21 years’ experience in equity investment analysis of the Hong Kong and China stock markets.

Senior Management – Biographies

Mr. Cha Johnathan Jen Wah , aged 51, joined in 2005 as the General Counsel of the Company and is the Company Secretary of the Company. He is a solicitor admitted in Hong Kong and in England and Wales. Mr. Cha has over 26 years’ experience in mergers and acquisitions, corporate finance, regulatory and commercial work.

Mr. Chung Ka Fai, Alan , aged 49, joined in 1997 as the Chief Accountant of the Company. He is a certified practising accountant of CPA Australia. Prior to joining the Company, Mr. Chung worked for various multi-national companies. Mr. Chung has over 26 years’ experience in the accounting field.

Mr. Wu Ying Ha , aged 53, joined in 2014 as a Vice President of the Company. He is responsible for human resources and administrative management of the Group. Mr. Wu holds a Master’s Degree in Business Administration from Southeastern University, Washington, D.C. Prior to joining the Company, Mr. Wu was engaged in CITIC United Asia Investments Limited, a subsidiary of CITIC Limited. Mr. Wu has over 22 years’ experience in corporate management, especially in human resources and administration.

Mr. Yang Zaiyan , aged 58, joined in 2009 as a Vice President of the Company. He is also a director of several subsidiaries of the Company. He is responsible for the management, planning and development of the Group’s oil investments and portfolio. Mr. Yang holds a Bachelor of Engineering Degree from Huadong Petroleum Institute and is a senior geologist. Prior to joining the Company, Mr. Yang was engaged in the CNPC and the Sinochem group of companies. Mr. Yang has over 34 years’ experience in the oil and gas industry.

Annual Report 2016 20

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Corporate Governance Report

The Company is committed to maintaining a good and sensible framework of corporate governance and to complying with applicable statutory and regulatory requirements with a view to assuring the conduct of management as well as protecting the interests of all shareholders. The Board assumes responsibility for leadership and control of the Company and is collectively responsible for promoting the success of the Company.

Compliance with the Corporate Governance Code

The Board is of the view that the Company has, for the year ended 31 December 2016, applied the principles and complied with the applicable code provisions, and also complied with certain recommended best practices, of the Corporate Governance Code (the “ CG Code ”) as set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange (the “ Listing Rules ”).

Model Code for Securities Transactions by Directors

The Company has adopted a code of conduct for dealings in the securities of the Company by its directors (the “ Securities Dealings Code ”) that is based on the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) as set out in Appendix 10 to the Listing Rules (or on terms no less exacting than the Model Code).

All directors have confirmed, following specific enquiry by the Company, that they have complied with the required standards set out in the Securities Dealings Code throughout the year.

Board of Directors

As at 17 February 2017, the Board comprised a total of eight members, with four executive directors, one non-executive director and three independent non-executive directors.

Executive Directors:

Mr. Kwok Peter Viem (Chairman) Mr. Suo Zhengang (Vice Chairman and Chief Executive Officer) Mr. Sun Yang (Vice Chairman) Ms. Li So Mui

Non-executive Directors:

Mr. Ma Ting Hung Mr. Qiu Yiyong

(resigned on 1 April 2016)

Independent Non-executive Directors:

Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji Mr. Look Andrew

21 CITIC Resources Holdings Limited

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Corporate Governance Report

The Board possesses a balance of skills, experience and diversity of perspective appropriate to the requirements of the business of the Company. Directors take decisions objectively in the interests of the Company. The directors, individually and collectively, are aware of their responsibilities and accountability to shareholders and for the manner in which the affairs of the Company are managed and operated.

The Group has diversity of management expertise in the energy resources and commodities sectors, including oil, aluminium and coal, and the accounting and banking field. The Board has the required knowledge, experience and capabilities to operate and develop the Group’s businesses and implement its business strategies.

On appointment, each new director is briefed by senior management on the Group’s corporate goals and objectives, activities and business, strategic plans and financial situation. He/she is also provided with a package of orientation materials in respect of a director’s duties and responsibilities under the Listing Rules, the bye-laws of the Company (the “ Bye-laws ”), corporate governance and financial reporting standards. The company secretary is responsible for keeping all directors updated on the Listing Rules and other regulatory and reporting requirements.

All directors are subject to re-election at regular intervals. The Bye-laws provide that any director appointed by the Board to fill a casual vacancy or as an additional director shall hold office only until the general meeting of the Company or the annual general meeting of the Company (the “ AGM ”), whichever shall be the earlier, next following his/her appointment and such director shall be eligible for re-election at that meeting. In addition, every director is subject to retirement at least once every three years following his/her re-election with the result that, at each AGM, one-third of the directors shall retire from office by rotation.

To the best of the knowledge of the Company, save for Mr. Kwok Peter Viem and Mr. Ma Ting Hung who have common interests in certain private companies, there is no financial, business, family or other material or relevant relationship between board members or between the chairman and the chief executive officer.

Under the leadership of the chief executive officer, senior management is responsible for executing the Board’s strategy and implementing its policies through the day-to-day management and operations of the Group’s businesses.

The Board determines which functions are reserved to the Board and which are delegated to senior management. It delegates appropriate aspects of its management and administrative functions to senior management. It also gives clear directions as to the powers of senior management, in particular, with respect to the circumstances where senior management must report back and obtain prior approval from the Board before making decisions or entering into any commitments on behalf of the Company. These arrangements are reviewed periodically to ensure that they remain appropriate to the needs of the Company.

Important matters are reserved to the Board for its decision, including long term objectives and strategies, extension of the Group’s activities into new business areas, appointments to the Board and the board committees, annual budgets, material acquisitions and disposals, material connected transactions, material banking facilities, announcements of interim and final results and payment of dividends.

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Chairman and Chief Executive Officer

The role of the chairman is separate from that of the chief executive officer so as to delineate their respective areas of responsibility, power and authority. The chairman focuses on the Group’s strategic planning while the chief executive officer has overall executive responsibility for the Group’s development and management. They receive significant support from the directors and senior management.

The chairman has a clear responsibility to ensure that the whole Board receives, in a timely manner, adequate information which must be accurate, clear, complete and reliable. The Board, led by the chairman, sets the overall direction, strategy and policies of the Company.

The chairman provides leadership for the Board to ensure that it works effectively, performs its responsibilities and acts in the best interests of the Company. He is also responsible for overseeing effective functioning of the Board and application of good corporate governance practices and procedures. The chairman seeks to ensure that all directors are properly briefed on issues arising at board meetings. He also encourages the directors to make full and active contributions to the Board’s affairs, to voice their concerns or different views and ensure that the decisions fairly reflect the consensus.

Non-executive Directors

The non-executive directors (including the independent non-executive directors) are seasoned individuals from diversified backgrounds and industries and one member has appropriate accounting and related financial management expertise as required by the Listing Rules. With their expertise and experience, they serve the relevant function of bringing independent judgement and advice on the overall management of the Company. The total number of non-executive directors represented not less than half of the board members so that there is a strong independent element on the Board, which can effectively exercise independent judgement. The non-executive directors take the lead where potential conflicts of interests arise. Their responsibilities include maintaining a balance between the non-controlling interests and the Company as a whole.

All independent non-executive directors are invited to participate in board meetings so that they are able to provide at such meetings their experience and judgement on matters to be discussed in the meetings.

The non-executive directors are appointed for an initial term of one year and thereafter from year to year, subject to re-election at the general meeting of the Company or the AGM, whichever shall be the earlier, next following their appointment and thereafter retirement by rotation and re-election at the AGMs in accordance with the Bye-laws.

The Company has received an annual confirmation of independence from each of the independent non-executive directors. The Company is of the view that all of the independent non-executive directors meet the guidelines for assessing independence as set out in rule 3.13 of the Listing Rules and considers them to be independent.

During the year, the chairman has held a meeting with the non-executive directors (including independent non-executive directors) without the presence of other executive directors.

Directors’ Continuous Professional Development

During the year, to develop and refresh their knowledge and skills, all directors have participated in appropriate continuous professional development training which covered updates on laws, rules and regulations and also directors’ duties and responsibilities. The following shows the training of each of the directors received during the year:

23 CITIC Resources Holdings Limited

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----- Start of picture text -----

Attending Reading
seminars / briefings materials
----- End of picture text -----

Executive Directors:
Mr. Kwok Peter Viem	—	3
Mr. Suo Zhengang	3	3
Mr. Sun Yang	—	3
Ms. Li So Mui	3	3
Non-executive Director:
Mr. Ma Ting Hung	—	3
Independent Non-executive Directors:
Mr. Fan Ren Da, Anthony	3	3
Mr. Gao Pei Ji	3	3
Mr. Look Andrew	3	3

Board Meetings

Meetings of the Board are held regularly and at least four times a year at about quarterly intervals to approve, among other things, the financial results of the Company. Regular board meetings are scheduled in advance to give the directors an opportunity to attend. All directors are invited to include matters in the agenda for regular board meetings. Directors can attend board meetings either in person or by electronic means of communication.

There was satisfactory attendance for board meetings, which evidences prompt attention of the directors to the affairs of the Company. A total of four board meetings were held in 2016.

If a substantial shareholder or a director has a material conflict of interest in a matter to be considered by the Board, the matter will be dealt with by a physical board meeting (and not by a written resolution). Independent non-executive directors who, and whose associates, have no material interest in the transaction will be present at such board meeting.

Efforts are made to ensure that queries of the directors are dealt with promptly. All directors have access to the advice and services of the company secretary with a view to ensuring that board procedures and all applicable rules and regulations are followed. The directors also have separate and independent access to senior management to make further enquiries or to obtain more information where necessary.

Board Committees

The Board has established a remuneration committee, a nomination committee, an audit committee and a risk management committee. They are each established with specific written terms of reference which deal clearly with their respective authority and responsibilities.

There was satisfactory attendance for meetings of the board committees during the year. The minutes of the committee meetings are circulated to all members of the relevant committee unless a conflict of interest arises. The committees are required to report back to the Board on key findings, recommendations and decisions.

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Remuneration Committee

The purpose of the committee is to make recommendations to the Board on the remuneration policy and structure for all directors and senior management of the Group and the remuneration of all directors of each member of the Group.

The committee is responsible for making recommendations to the Board on the establishment of a formal and transparent procedure for developing remuneration policy on all directors and senior management and for determining remuneration packages of individual executive directors and senior management. It also makes recommendations to the Board on the remuneration of non-executive directors (including independent non-executive directors).

The committee consults the chairman and/or the chief executive officer about their remuneration proposals for other executive directors.

The Group’s remuneration policy seeks to provide fair market remuneration in a form and value to attract, retain and motivate high quality staff. Remuneration packages are set at levels to ensure comparability and competitiveness with other companies in the industry and market competing for a similar talent pool. Emoluments are also based on an individual’s knowledge, skill, time commitment, responsibilities and performance and by reference to the Group’s profits and performance.

Members of the committee are:

Mr. Gao Pei Ji (Independent Non-executive Director) (Chairman) Mr. Fan Ren Da, Anthony (Independent Non-executive Director) Mr. Look Andrew (Independent Non-executive Director) Mr. Suo Zhengang (Executive Director)

Two meetings were held during the year. During the year, the committee approved the remuneration and director’s fee payable to the directors. Also, the committee reviewed and approved the performance-based remuneration package of each individual executive director and approved the salary payable.

Nomination Committee

The purpose of the committee is to lead the process for Board appointments and for identifying and nominating for the approval of the Board candidates for appointment to the Board.

In order to maintain its competitive advantage and achieve a sustainable and balanced development, the Company recognises the benefits of having a diverse Board. The Board has adopted a diversity policy (the “ Policy ”) which sets out the approach by the Company to achieve diversity on the Board. According to the Policy, selection of candidates will be based on a range of diversity perspectives, including but not limited to gender, age, cultural and educational background and professional experience.

The committee is responsible for reviewing the structure, size and diversity (including without limitation, gender, age, cultural and educational background, skills, knowledge and professional experience) of the Board at least annually and making recommendations on any proposed changes to the Board to complement the Company’s corporate strategy, identifying individuals suitably qualified to become members of the Board and selecting or making recommendations to the Board on the selection of individuals nominated for directorships, and considering candidates on merit and against objective criteria with due regard to the Policy. The committee is also responsible for reviewing the Policy and the measurable objectives, the progress on achieving the objectives, assessing the independence of independent non-executive directors and making recommendations to the Board on the appointment or re-appointment of directors and succession planning for directors, in particular, the chairman, the vice chairman and the chief executive officer of the Company.

25 CITIC Resources Holdings Limited

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Corporate Governance Report

The committee consults the chairman of the Company about his proposals relating to the process for Board appointments and for identifying and nominating candidates as members of the Board.

The criteria for the committee to select and recommend a candidate for directorship include the candidate’s skills, knowledge, experience and integrity and whether he/she can demonstrate a standard of competence commensurate with his/her position as a director of the Company.

Members of the committee are:

Mr. Kwok Peter Viem (Executive Director) (Chairman) Mr. Fan Ren Da, Anthony (Independent Non-executive Director) Mr. Gao Pei Ji (Independent Non-executive Director)

One meeting was held in the year. During the year, the committee reviewed the structure, size and diversity of the Board and opined that the Board possesses a balance of skills, experience, expertise and diversity of perspectives appropriate to the requirements of the business of the Company.

Audit Committee

The Board has established formal and transparent arrangements to consider how it should apply financial reporting, risk management and internal control principles and maintain an appropriate relationship with the Company’s external auditor and internal auditor.

The committee is responsible for making recommendations to the Board on the appointment, re-appointment and removal of the external auditor, and approving the remuneration and terms of engagement of the external auditor, and considering any questions of its resignation or dismissal.

The committee monitors the integrity of the Company’s accounts, financial statements, interim and annual reports, and reviews significant financial reporting judgements contained in them. The committee reports to the Board any suspected fraud and irregularities and suspected infringements of laws, rules and regulations which come to its attention and are of sufficient importance to warrant the attention of the Board.

Members of the committee are:

Mr. Fan Ren Da, Anthony (Independent Non-executive Director) (Chairman) Mr. Gao Pei Ji (Independent Non-executive Director) Mr. Look Andrew (Independent Non-executive Director)

The members of the committee possess appropriate professional qualifications and/or experience in financial matters. None of the committee members is or was a partner of the existing external auditor.

The committee meets as and when required to perform its responsibilities, and at least twice in each financial year of the Company. Two meetings were held in the year. During the year, the committee reviewed, together with senior management and the external auditor, the financial statements for the year ended 31 December 2015 and the financial statements for the six months ended 30 June 2016, the accounting principles and practices adopted by the Group, statutory compliance, other financial reporting matters, the adequacy and effectiveness of the Group’s internal control, including financial, operational and compliance controls and risk management. The committee has also considered the adequacy of resources, staff qualifications and experience of the Company’s accounting, internal audit and financial reporting functions. In addition, it has considered the continuing connected transactions of the Company.

The committee has recommended to the Board (which endorsed the recommendation) that, subject to shareholders’ approval at the forthcoming AGM, Ernst & Young be re-appointed as the Company’s external auditor for 2017.

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Risk Management Committee

The Board established the risk management committee in February 2016. The purpose of the committee is to assist the Board to oversee the overall risk management and internal control of the Group and to assist the Board in establishing and setting risk management and internal control policies and regulations appropriate and relevant for the Group.

The committee is responsible for, amongst others, considering the overall objective and policies of the Group’s comprehensive risk management and internal control; reviewing the risk philosophy and risk tolerance and appetite of the Group; overseeing the Group’s overall risk management framework to identify and deal with financial, operational, legal, regulatory, technology, business, strategic and other relevant risks faced by the Group from time to time; reviewing and assessing the effectiveness of the Group’s risk control and risk mitigation tools and considering any other matters in relation to risk management and internal control responsibilities to be performed by the committee or the Board.

Members of the committee are:

Mr. Look Andrew (Independent Non-executive Director) (Chairman) Mr. Fan Ren Da, Anthony (Independent Non-executive Director) Mr. Gao Pei Ji (Independent Non-executive Director) Mr. Kwok Peter Viem (Executive Director) Mr. Ma Ting Hung (Non-executive Director) Mr. Suo Zhengang (Executive Director)

The committee meets at least once in each financial year of the Company and when there is any issue which requires its consideration. Two meetings were held in the year. During the year, the committee reviewed and adopted a revision to the risk management policies of the Group and the risk management procedures and regulations of the Group and considered the financial risk, foreign currency risk and interest rate risk faced by the Group and other related issues.

Attendance at Meetings of the Board and the Board Committees, and the AGM

Executive Directors: Mr. Kwok Peter Viem Mr. Suo Zhengang Mr. Sun Yang Ms. Li So Mui Non-executive Directors: Mr. Ma Ting Hung Mr. Qiu Yiyong (resigned on 1 April 2016) Independent Non-executive Directors: Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji Mr. Look Andrew	Number of meetings held during the year Attended / Eligible to attend AGM Risk held on Remuneration Nomination Audit management 24 June Board committee committee committee committee 2016 3 / 4 1 / 1 1 / 2 1 / 1 4 / 4 2 / 2 2 / 2 1 / 1 4 / 4 1 / 1 4 / 4 1 / 1 3 / 4 2 / 2 1 / 1 0 / 1 4 / 4 2 / 2 1 / 1 2 / 2 2 / 2 1 / 1 4 / 4 2 / 2 1 / 1 2 / 2 2 / 2 1 / 1 4 / 4 2 / 2 2 / 2 2 / 2 1 / 1

27 CITIC Resources Holdings Limited

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Corporate Governance Report

Corporate Governance Functions

The Board has the following responsibilities:

• (a) to develop and review the Company’s policies and practices on corporate governance; and to review compliance with the CG Code and disclosures in the corporate governance report;

• (b) to review and monitor the Company’s policies and practices on compliance with legal and regulatory requirements;

• (c) to review and monitor the training and continuous professional development of the directors and senior management; and

• (d) to develop, review and monitor the code of conduct applicable to the directors and employees.

Financial Reporting

The directors acknowledge their responsibilities for preparing the financial statements for the Group. The directors are regularly provided with updates on the Company’s businesses, potential investments, financial objectives, plans and actions.

The Board aims at presenting a balanced, clear and comprehensive assessment of the Group’s performance, position and prospects. Senior management provides explanation and information to the directors to enable the Board to make informed assessments of the financial and other matters put before the Board for approval.

The Board considers that, through a review made by the audit committee, the resources, staff qualifications and experience, training programmes and budget of the Company’s accounting and financial reporting function are adequate.

Risk Management and Internal Control

The Board has overall responsibility for maintaining an adequate system of risk management and internal control and reviewing its effectiveness.

The Group has established a risk management and internal control system covering all the business units to monitor, assess and manage various risks in the Group’s business activities and the risk management committee has approved the relevant risk management policy under the delegation of the Board. The system identifies, evaluates and manages the significant risks through regular risk assessments, including both compliance assessment and self-assessment on risk management and internal control.

The risk management and internal control system is designed to facilitate the effectiveness and efficiency of operations, safeguard assets against unauthorised use and disposition, ensure the maintenance of proper accounting records and the truth and fairness of the financial statements, and ensure compliance with relevant legislation and regulations. The system provides reasonable, but not absolute, assurance against material misstatement or loss, and management rather than elimination of risks associated with its business activities.

The Company has taken appropriate measures to identify inside information and preserve its confidentiality until proper dissemination via the electronic publication system operated by the Stock Exchange.

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Corporate Governance Report

The Group’s risk management and internal control system comprises five levels based on the corporate governance structure:

• (a) the Board, responsible for evaluating and determining the nature and extent of the risks it is willing to take in achieving the Company’s strategic objectives;

• (b) the risk management committee, responsible for reviewing the Group’s risk management;

• (c) management, responsible for the day-to-day risk management in all departments and subsidiaries of the Company;

• (d) the risk management department, responsible for supervising, monitoring and centralising the Group’s risk management; and

• (e) the members of the Group, responsible for performing the daily risk management task.

During the year, the risk management department identified risk by multiple channels, including questionnaires, group discussion and scenario analysis, evaluated the risk as normal risk, significant risk and critical risk, and managed the risk with reference to the risk management policy. It also controlled the risks of subsidiaries through monthly risk management reporting and risk assessment as well as the monitoring of major projects and business. The result of the review, including health, safety and environment risk, asset impairment risk, foreign currency risk, price risk and litigation risk, has been summarised and reported twice during the year to the risk management committee and the Board with recommendations and follow-up results. The Board has received from management a confirmation on the effectiveness of the risk management and internal control system. No changes, since the last annual review, in the nature and extent of significant risks were noted.

Internal Audit

The internal audit department carries out an analysis and independent appraisal of the adequacy and effectiveness of the Group’s risk management and internal control system, and performs independent internal audit reviews for all business units and functions in the Group on a systematic and ongoing basis. Under the internal audit charter of the Company, the internal audit department has unrestricted access to all parts of the Group’s businesses and direct access to any level of management including the chairman of the Company and the chairman of the audit committee as it considers necessary.

The internal audit department conducts regular and independent reviews of the effectiveness of the Group’s risk management and internal control system. The audit committee reviews the findings and opinion of the internal audit department on the effectiveness of the system and reports to the Board if significant findings are noted.

During the year, the internal audit department prepared an annual internal audit plan in accordance with risk-based principles. Pursuant to the approved annual internal audit plan endorsed by the audit committee, detailed audit planning for each audit was devised, followed by field audits and discussions with management of the Company and subsidiaries. Internal audit reports addressed to management were prepared after completion of the audits. Concerns which have been reported by the internal audit department were monitored by management by taking appropriate remedial actions. The internal audit report, which included audit findings and follow-up results, has been summarised and reported to the audit committee during the year.

29 CITIC Resources Holdings Limited

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Corporate Governance Report

Auditor’s Remuneration

Ernst & Young were re-appointed by shareholders at the AGM held on 24 June 2016 as the Company’s external auditor until the next AGM. They are primarily responsible for providing audit services in connection with the financial statements of the Group for the year ended 31 December 2016.

For the year, Ernst & Young charged the Group HK$9,973,000 for the provision of audit services and HK$1,025,000 for the provision of non-audit services. The non-audit services included tax advices and preparation of tax returns.

Shareholders’ Rights

Procedures for shareholders to convene a special general meeting

Shareholders holding at the date of the requisition not less than 10% of the paid-up capital of the Company carrying the right to vote at general meetings shall at all times have the right, by written requisition to the Board or the company secretary, to require a general meeting to be called by the Board for the transaction of any business specified in such requisition.

The requisitionists must state the purpose of the meeting and contact details in the requisition and sign and deposit the requisition at the principal place of business of the Company for the attention of the company secretary.

The meeting shall be held within two months from the deposit of the requisition. If the Board fails to proceed to convene the meeting within 21 days of such deposit, the requisitionists, or any of them representing more than 50% of the total voting rights of all of them, may convene the meeting by themselves in accordance with the provisions of section 74(3) of the Companies Act 1981 of Bermuda (as amended), but any meeting so convened shall not be held after the expiration of three months from the deposit of the requisition.

Procedures for putting forward proposals at general meetings

Shareholders holding not less than 5% of the total voting rights of all shareholders having a right to vote at general meetings or not less than 100 shareholders can submit a written request stating a resolution to be moved at the AGM or a statement of not more than 1,000 words with respect to a matter referred to in any proposed resolution or the business to be dealt with at a particular general meeting.

The requisitionists must sign and deposit the written request or statement at the registered office of the Company and the principal place of business of the Company for the attention of the company secretary not less than six weeks before the AGM in the case of a requisition requiring notice of a resolution and not less than one week before the general meeting in the case of any other requisition.

If the written request is in order, the company secretary will ask the Board to include the resolution in the agenda for the AGM or, as the case may be, to circulate the statement for the general meeting, provided that the requisitionists have deposited a sum of money reasonably determined by the Board sufficient to meet the expenses in serving the notice of the resolution and/or circulating the statement submitted by the requisitionists in accordance with the statutory requirements to all the registered shareholders.

Annual Report 2016 30

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Procedures for directing shareholders’ enquiries to the Board

Shareholders may at any time send their enquiries and concerns with sufficient contact details to the Board at the principal place of business of the Company for the attention of the Investor Relations Department or e-mail to “ir@citicresources.com”.

Communication with Shareholders and Investor Relations

To enhance transparency, the Company endeavours to maintain open dialogue with shareholders through a wide array of channels such as AGMs and other general meetings. Shareholders are encouraged to participate in these meetings.

The Board will whenever it thinks fit and as required under the Bye-laws and the Listing Rules call general meetings for the purpose of asking shareholders to consider and, if thought fit, approving resolutions proposed by the Board; notably in relation to notifiable and/or connected transactions. In addition, the Company communicates with shareholders through the issue of announcements and press releases.

A separate resolution is proposed for each substantially separate issue at a general meeting by the chairman of that meeting, including the election and re-election of a director.

The chairman of the Company, the chairman or member of each of the board committees and external auditor attend and answer questions at the AGM.

The chairman of the independent board committee is available to answer questions at any general meeting to approve a connected transaction or any other transaction that is subject to independent shareholders’ approval.

The Company ensures compliance with the requirements about voting by poll contained in the Listing Rules and the Bye-laws. The representative of the share registrar of the Company is normally appointed as scrutineer of the votes cast by way of a poll. In relation to votes taken by way of a poll, their results are subsequently published on the websites of the Stock Exchange and the Company at http://www.hkexnews.hk and http://irasia.com/listco/hk/citicresources respectively.

The Company is committed to providing clear and reliable information on the performance of the Group to shareholders through interim and annual reports. The website of the Company offers timely and updated information of the Group.

The Company keeps contact with the media and holds briefings with investment analysts from time to time including following the announcement of financial results. Senior management also, whenever appropriate, participates in investor conferences, one-on-one meetings, forums, luncheons, conference calls and non-deal road shows which enable the Company to better understand investors’ concerns and expectations.

The Company maintains effective two-way communications with shareholders and other investors whose feedback is invaluable to the Company in enhancing corporate governance, management and competitiveness. Comments and suggestions are welcome and can be sent to the principal place of business of the Company for the attention of the Investor Relations Department or e-mailed to “ir@citicresources.com”.

31 CITIC Resources Holdings Limited

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Report of the Directors

The directors present their report and the audited financial statements of the Group for the year ended 31 December 2016.

Principal Activities

The principal activity of the Company is investment holding. Details of the principal activities of its subsidiaries are set out in note 1 to the financial statements. During the year, there were no significant changes in the nature of the Group’s principal activities.

Segment Information

An analysis of the Group’s revenue and results by principal operating activities and the Group’s revenue and non-current assets by geographical area of operations for the year ended 31 December 2016 is set out in note 4 to the financial statements.

Results and Dividends

The Group’s profit for the year ended 31 December 2016 and the state of affairs of the Group at that date are set out in the financial statements on pages 47 to 139.

The Board has recommended, subject to approval by shareholders at the forthcoming annual general meeting of the Company (“ AGM ”), the payment of a final dividend of HK1.50 cents (2015: Nil) per ordinary share for the year ended 31 December 2016, payable on or around 17 July 2017 to shareholders whose names appear on the register of members of the Company on 3 July 2017.

Business Review

A fair review of the Company’s business and a description of the principal risks and uncertainties being faced by the Company are provided in the Chairman’s Statement and Management’s Discussion and Analysis on pages 1 to 17. Particulars of important events affecting the Company that have occurred since the end of the year, and indication of likely future development in the Company’s business can also be found in these pages and note 44 to the financial statements. An analysis of the Group’s performance during the year using financial key performance indicators is set out on page 5. An account of the Company’s relationship with its shareholders and investors can be found on page 31.

Environmental Policies and Performance

The Group attaches importance to balancing the needs of business development and environmental protection, and endeavours to make continuous improvements by different means such as internal training and performance evaluations. The Group has established a well-functioning environmental, social and governance reporting system and compiles an environmental, social and governance report on an annual basis in order to regularly examine and review its environmental protection performance.

Annual Report 2016 32

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Report of the Directors

In particular, environmental protection shapes activities and operations at the Group’s oilfields. Suitable techniques have been employed to promote clean production and alleviate as far as possible the impact of the Group’s operations on the environment. During the year, the Karazhanbas Oil and Gas Field in Mangistau Oblast in Kazakhstan has developed a 10-year environmental protection plan, the Yuedong oilfield, the principal field within the Hainan-Yuedong Block, in China has completed the upgrading of its offshore sewage disposal system, and the Seram Island Non-Bula Block in Indonesia has strengthened emissions inspection and initiated an afforestation programme. Details of the Group’s environmental performance are available on the website of the Company at http://resources.citic .

Compliance with Laws and Regulations

The Company complies with the requirements under the Companies Act 1981 of Bermuda (as amended), the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and the Securities and Futures Ordinance (the “ SFO ”) for, among other things, the disclosure of information and corporate governance.

Summary of Financial Information

A summary of the results and of the assets, liabilities and non-controlling interests of the Group for the past five financial years, as extracted from the published audited financial statements and restated/reclassified as appropriate, is set out on page 140. This summary does not form part of the audited financial statements.

Property, Plant and Equipment

Details of movements in the property, plant and equipment of the Group during the year are set out in note 13 to the financial statements.

Share Capital and Share Options

There was no movement in the Company’s share capital or share options during the year.

Pre-emptive Rights

There are no provisions for pre-emptive rights under the bye-laws of the Company (the “ Bye-laws ”) or the laws of Bermuda which would oblige the Company to offer new shares on a pro rata basis to existing shareholders.

Purchase, Redemption or Sale of Listed Securities of the Company

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

Reserves

Details of movements in the reserves of the Group during the year are set out in the consolidated statement of changes in equity.

33 CITIC Resources Holdings Limited

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Report of the Directors

Distributable Reserves

In accordance with the Companies Act 1981 of Bermuda (as amended), the contributed surplus of the Company is available for distribution or payment of dividends to shareholders provided that, immediately following such distribution or payment, the Company is able to pay off its debts as and when they fall due. As at 31 December 2016, the Company’s reserves available for distribution amounted to HK$172,934,000, of which HK$117,866,000 has been proposed to be distributed as a final dividend for the year. The Company’s share premium account, with a balance of HK$9,706,852,000 as at 31 December 2016, may be distributed in the form of fully paid bonus shares.

Charitable Contributions

During the year, the Group made charitable contributions totalling HK$100,000 (2015: HK$120,000).

Major Customers and Major Suppliers

In the year under review, sales to the Group’s five largest customers accounted for 54.7% of the total sales for the year and sales to the largest customer amounted to 23.9%. Purchases from the Group’s five largest suppliers accounted for 24.5% of the total purchases for the year and purchases from the largest supplier amounted to 10.6%.

None of the directors or any of their associates or any shareholders (which, to the best of the knowledge of the directors, own more than 5% of the Company’s issued share capital) had any beneficial interest in the Group’s five largest customers or suppliers.

Directors

The directors of the Company during the year and up to the date of this report were as follows:

Executive Directors:

Mr. Kwok Peter Viem Mr. Suo Zhengang Mr. Sun Yang Ms. Li So Mui

Non-executive Directors:

Mr. Ma Ting Hung Mr. Qiu Yiyong (resigned on 1 April 2016)

Independent Non-executive Directors:

Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji Mr. Look Andrew

Annual Report 2016 34

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Report of the Directors

The non-executive directors, including independent non-executive directors, of the Company are appointed for an initial term of one year and thereafter from year to year and all of the directors, including executive directors, are subject to retirement by rotation and re-election in accordance with the Bye-laws.

In accordance with Bye-laws 87(1) and 87(2), Mr. Kwok, Mr. Sun and Mr. Gao will retire by rotation and, being eligible, will offer themselves for re-election at the forthcoming AGM.

Directors’ Service Contracts

No director proposed for re-election at the forthcoming AGM has a service contract with the Company which is not determinable by the Company within one year without payment of compensation other than statutory compensation.

Directors’ Remuneration

Directors’ remuneration is determined by the remuneration committee. The Group’s remuneration policy seeks to provide fair market remuneration in a form and value to attract, retain and motivate high quality staff. Remuneration packages are set at levels to ensure comparability and competitiveness with other companies in the industry and market competing for a similar talent pool. Emoluments are also based on an individual’s knowledge, skill, time commitment, responsibilities and performance and by reference to the Group’s profits and performance.

Directors’ Interests in Contracts

During the year, no director had an interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company or any of its subsidiaries was a party.

Save as disclosed herein and so far as is known to the directors, as at 31 December 2016, none of the directors or their respective associates was materially interested in any subsisting contract or arrangement which is significant in relation to the businesses of the Group taken as a whole.

Directors’ Competing Interests

So far as is known to the directors, as at 31 December 2016, none of the directors or their respective associates had any interest in a business, apart from the businesses of the Group, which competes or is likely to compete, either directly or indirectly, with the businesses of the Group.

35 CITIC Resources Holdings Limited

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Report of the Directors

Directors’ and Chief Executive’s Interests in Shares and Underlying Shares

As at 31 December 2016, the interests and short positions of the directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are deemed or taken to have under such provisions of the SFO), or which are required pursuant to section 352 of the SFO to be entered in the register referred to therein, or which are required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) as set out in Appendix 10 to the Listing Rules to be notified to the Company and the Stock Exchange are as follows:

Long positions in shares and underlying shares of the Company

Name of director	Nature of interest	Number of ordinary shares of HK$0.05 each held	Number of Percentage of underlying shares the total issued pursuant to share capital of share options the Company
Mr. Kwok Peter Viem	Directly beneficially owned	11,568,000	400,000,000 5.24
Mr. Sun Yang	Directly beneficially owned	4,000	— —
Ms. Li So Mui	Directly beneficially owned	2,388,000	— 0.03

Long positions in share options of the Company

Name of director	Number of share options directly beneficially owned
Mr. Kwok Peter Viem	400,000,000

Long positions in shares and underlying shares of associated corporations of the Company

Name of director	Name of associated corporation	Shares / equity derivatives	Number of shares / equity derivatives held	Nature of interest	Percentage of the total issued share capital of the associated corporation
Ms. Li So Mui	CITIC Dameng	Ordinary shares	3,154	Directly beneficially owned	—
	Holdings Limited
Mr. Gao Pei Ji	CITIC Limited	Ordinary shares	20,000	Directly beneficially owned	—

In addition to the above, one of the directors has non-beneficial shareholding interests in certain subsidiaries held for the benefit of the Company solely for the purpose of complying with the minimum company membership requirements.

Annual Report 2016 36

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Report of the Directors

Save as disclosed herein and in the section headed “Substantial Shareholders’ and Other Persons’ Interests in Shares and Underlying Shares” below, and so far as is known to the directors, as at 31 December 2016:

• (a) none of the directors or the chief executive of the Company had an interest or a short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are deemed or taken to have under such provisions of the SFO), or which are required pursuant to section 352 of the SFO to be entered in the register referred to therein, or which are required pursuant to the Model Code to be notified to the Company and the Stock Exchange; and

• (b) none of the directors was a director or employee of a company which had an interest or a short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Directors’ Rights to Acquire Shares or Debentures

Save as disclosed in the section headed “Directors’ and Chief Executive’s Interests in Shares and Underlying Shares” above and in the section headed “Share Option Scheme” below, at no time during the year was the Company or any of its subsidiaries a party to any arrangement to enable the directors of the Company or their respective spouses or children under 18 years of age to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate of the Group.

Permitted Indemnity Provision

The Bye-laws provide that every director of the Company is entitled to be indemnified and secured harmless out of the assets and profits of the Company from and against all actions, costs, charges, losses, damages and expenses which he/she may incur or sustain in or about the execution of the duties of his/her office or otherwise in relation thereto.

The Company has arranged Directors & Officers Liability and Company Reimbursement Insurance for the directors and officers of the Company and its subsidiaries.

Management Contracts

No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year.

Share Option Scheme

The share option scheme adopted by the Company on 30 June 2004 (the “ Old Scheme ”) for a term of 10 years expired on 29 June 2014. The share options that have been granted under the Old Scheme and remained outstanding as at the date of expiry of the Old Scheme remain valid and exercisable subject to and in accordance with the terms of the Old Scheme.

To enable the Company to continue to grant share options as an incentive or reward to eligible persons, a new share option scheme was adopted by the Company on 27 June 2014 (the “ New Scheme ”). Further details of the New Scheme are set out in note 35 to the financial statements. Up to the date of this report, no share option has been granted under the New Scheme.

37 CITIC Resources Holdings Limited

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Report of the Directors

The following table discloses movements in the Company’s outstanding share options, which were granted under the Old Scheme, during the year:

Category and name of eligible person Director Mr. Kwok Peter Viem	Number of share options at at Exercise 1 January 31 December Date of price 2016 2016(1) grant Exercise period per share HK$ 200,000,000 200,000,000 06-11-2013 06-11-2014 to 05-11-2018 1.77 200,000,000 200,000,000 06-11-2013 06-11-2015 to 05-11-2018 1.77
	400,000,000 400,000,000 (2)

Notes:

• (1) No share option was granted, exercised, lapsed or cancelled during the year.

• (2) The share options are subject to the following vesting conditions:

• (i) 50% of the share options vest and are exercisable with effect from the first anniversary of the date of grant; and

• (ii) the remaining 50% of the share options vest and are exercisable with effect from the second anniversary of the date of grant.

Save as disclosed herein, the Company has not entered into any equity-linked agreement during the year and no equity-linked agreement subsisted as at the end of the year.

Substantial Shareholders’ and Other Persons’ Interests in Shares and Underlying Shares

As at 31 December 2016, the interests and short positions of the substantial shareholders and other persons in the shares or underlying shares of the Company, as recorded in the register required to be kept under section 336 of the SFO, were as follows:

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----- Start of picture text -----

Number of
ordinary shares of Percentage of
HK$0.05 each the total issued
Nature of held as share capital of
Name of shareholder interest long positions the Company
----- End of picture text -----

中國中信集團有限公司	Corporate	4,675,605,697(1)	59.50
CITIC Limited	Corporate	4,675,605,697(2)	59.50
CITIC Corporation Limited	Corporate	4,675,605,697(3)	59.50
CITIC Projects Management (HK) Limited	Corporate	3,895,083,904(4)	49.57
Keentech Group Limited	Corporate	3,895,083,904(5)	49.57
CITIC Australia Pty Limited	Corporate	750,413,793(6)	9.55
Mr. Chan Kin	Corporate	786,558,488(7)	10.01
Argyle Street Management Holdings Limited	Corporate	786,558,488(8)	10.01
Argyle Street Management Limited	Corporate	786,558,488(9)	10.01
ASM Connaught House General Partner Limited	Corporate	786,558,488(10)	10.01
ASM Connaught House General Partner II Limited	Corporate	786,558,488(11)	10.01
ASM Connaught House Fund LP	Corporate	786,558,488(12)	10.01
ASM Connaught House Fund II LP	Corporate	786,558,488(13)	10.01
ASM Connaught House (Master) Fund II LP	Corporate	786,558,488(14)	10.01
Sea Cove Limited	Corporate	786,558,488(15)	10.01
TIHT Investment Holdings III Pte. Ltd.	Corporate	786,558,488(16)	10.01

Annual Report 2016 38

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Report of the Directors

Notes:

• (1) The figure represents an attributable interest of 中國中信集團有限公司 (CITIC Group Corporation) (“ CITIC Group ”) through its interest in CITIC Limited. CITIC Group is a company established in China.

• (2) The figure represents an attributable interest of CITIC Limited through its interest in CITIC Corporation Limited (“ CITIC Corporation ”). CITIC Limited, a company incorporated in Hong Kong and listed on the Main Board of the Stock Exchange (Stock Code: 267), is owned as to 32.53% by CITIC Polaris Limited (“ CITIC Polaris ”) and 25.6% by CITIC Glory Limited (“ CITIC Glory ”). CITIC Polaris and CITIC Glory, companies incorporated in the British Virgin Islands (the “ BVI ”), are direct wholly-owned subsidiaries of CITIC Group.

• (3) The figure represents an attributable interest of CITIC Corporation through its interest in CITIC Projects Management (HK) Limited (“ CITIC Projects ”), CITIC Australia Pty Limited (“ CA ”) and Extra Yield International Ltd. (“ Extra Yield ”). Extra Yield holds 30,108,000 shares representing 0.38% of the total issued share capital of the Company. CITIC Corporation, a company established in China, is a direct wholly-owned subsidiary of CITIC Limited. Extra Yield, a company incorporated in the BVI, is an indirect wholly-owned subsidiary of CITIC Corporation.

• (4) The figure represents an attributable interest of CITIC Projects through its interest in Keentech Group Limited (“ Keentech ”). CITIC Projects, a company incorporated in the BVI, is a direct wholly-owned subsidiary of CITIC Corporation. Mr. Suo Zhengang (“ Mr. Suo ”) is a director of CITIC Projects.

• (5) Keentech, a company incorporated in the BVI, is a direct wholly-owned subsidiary of CITIC Projects. Mr. Suo is a director of Keentech.

• (6) CA, a company incorporated in Australia, is a direct wholly-owned subsidiary of CITIC Corporation.

• (7) The figure represents an attributable interest of Mr. Chan Kin (“ Mr. Chan ”) through his interest in Argyle Street Management Holdings Limited (“ ASM Holdings ”). Mr. Chan is a significant shareholder of ASM Holdings.

• (8) The figure represents an attributable interest of ASM Holdings through its interest in Argyle Street Management Limited (“ ASM Limited ”), ASM Connaught House General Partner Limited (“ ASM General Partner ”) and ASM Connaught House General Partner II Limited (“ ASM General Partner II ”). ASM Holdings is a company incorporated in the BVI.

• (9) The figure represents an attributable interest of ASM Limited through its control of, by virtue of its position as investment manager of, ASM Connaught House Fund LP (“ ASM CH Fund LP ”), ASM Connaught House Fund II LP (“ ASM CH Fund II ”) and ASM Connaught House (Master) Fund II LP (“ ASM CH (Master) Fund II ”) and shareholding in ASM General Partner and ASM General Partner II. ASM Limited, a company incorporated in the BVI, is a direct wholly-owned subsidiary of ASM Holdings.

• (10) The figure represents an attributable interest of ASM General Partner through its role as general partner of ASM CH Fund LP. ASM General Partner, a company incorporated in the Cayman Islands, is a direct wholly-owned subsidiary of ASM Holdings.

• (11) The figure represents an attributable interest of ASM General Partner II through its role as general partner in ASM CH Fund II.

• (12) The figure represents an attributable interest of ASM CH Fund LP through its interest in Albany Road Limited (“ Albany ”). Albany, a company incorporated in the BVI, is a direct wholly-owned subsidiary of ASM CH Fund LP.

• (13) The figure represents an attributable interest of ASM CH Fund II through its interest in ASM CH (Master) Fund II.

• (14) The figure represents an attributable interest of ASM CH (Master) Fund II through its interest in Caroline Hill Limited (“ Caroline ”). Caroline, a company incorporated in the BVI, is a direct wholly-owned subsidiary of ASM CH (Master) Fund II. ASM CH (Master) Fund II, a limited partnership established in the Cayman Islands, is a direct wholly-owned subsidiary of ASM CH Fund II.

• (15) The figure represents an attributable interest of Sea Cove Limited (“ Sea Cove ”) through its interest in TIHT Investment Holdings III Pte. Ltd. (“ TIHT ”). Sea Cove, a company incorporated in the BVI, is owned as to more than one third of the total issued share capital by Caroline and more than one third of the total issued share capital by Albany.

• (16) TIHT, a company incorporated in Singapore, is a direct wholly-owned subsidiary of Sea Cove.

Save as disclosed herein and so far as is known to the directors, as at 31 December 2016, no person had an interest or a short position in the shares or underlying shares of the Company required to be recorded in the register to be kept under section 336 of the SFO.

39 CITIC Resources Holdings Limited

Report of the Directors

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Continuing Connected Transactions

On 11 October 2013, CITIC Australia Commodity Trading Pty Limited (“ CACT ”) entered into a cooperation agreement (the “ 2014 Cooperation Agreement ”) with 中信金屬有限公司 (CITIC Metal Company Limited) (“ CITIC Metal ”), a wholly-owned subsidiary of CITIC Limited, which provided a framework to enable CACT to continue with the sale of iron ore and coal, and to engage in the sale of alumina and other commodities, to CITIC Metal during the three years ended 31 December 2016, and in each case in accordance with the terms of the 2014 Cooperation Agreement subject to the annual caps. The prices payable by CITIC Metal in respect of its purchase of iron ore, coal, alumina and other commodities from CACT are determined on an arm’s length basis and with reference to applicable prevailing market prices.

CACT is an indirect wholly-owned subsidiary of the Company. CITIC Metal is a connected person of the Company. Transactions under the 2014 Cooperation Agreement constituted continuing connected transactions of the Company. Details of the 2014 Cooperation Agreement, transactions and annual caps for the three years ended 31 December 2016 are set out in the announcement of the Company dated 11 October 2013 and the circular of the Company dated 4 November 2013.

During the year, no transaction was entered into between CACT and CITIC Metal under the 2014 Cooperation Agreement. The 2014 Cooperation Agreement expired on 31 December 2016 and was not renewed.

The independent non-executive directors have reviewed and confirmed that no continuing connected transaction was entered into between CACT and CITIC Metal during the year.

The Board has received a letter from the external auditor of the Company confirming that no continuing connected transaction was entered into between CACT and CITIC Metal during the year.

The Company has complied with the applicable requirements under Chapter 14A of the Listing Rules in respect of continuing connected transactions engaged in by the Group.

The related party transactions are set out in note 40 to the financial statements. Apart from the continuing connected transactions disclosed above, the other related party transactions did not fall under the scope of “Connected Transactions” or “Continuing Connected Transactions” under Chapter 14A of the Listing Rules that are required to comply with any of the reporting, announcement or independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Specific Performance Obligations on Controlling Shareholder of the Company

The following disclosures are made in compliance with the disclosure requirements under rule 13.21 of the Listing Rules.

• (a) In September 2012, the Company entered into a facility agreement with a bank in respect of an unsecured 5-year term loan facility of US$40,000,000 (HK$312,000,000) (the “ A Loan ”).

In June 2015, the Company entered into a facility agreement with a syndicate of financial institutions in respect of an unsecured term loan facility of US$490,000,000 (HK$3,822,000,000) (the “ C Loan ”). The C Loan has two tranches, Tranche A and Tranche B, in the respective amounts of US$380,000,000 (HK$2,964,000,000) and US$110,000,000 (HK$858,000,000). Tranche A has a tenor of three years commencing from 29 June 2015, while Tranche B has a tenor of three years commencing from 31 December 2015.

Pursuant to the provisions of the above facility agreements, if CITIC Limited ceases to remain (directly or indirectly) the single largest shareholder of the Company or ceases to beneficially (directly or indirectly) own at least 35% of the entire issued share capital of the Company, then (i) in respect of the A Loan, the bank may require mandatory prepayment of the A Loan together with all other sums due; and (ii) in respect of the C Loan, the financial institutions holding 66-2/3% or more of the C Loan then outstanding may require mandatory prepayment of the C Loan together with all other sums due.

40

Annual Report 2016

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Report of the Directors

• (b) In December 2016, the Company entered into a facility agreement with a syndicate of financial institutions in respect of an unsecured term loan facility of US$310,000,000 (HK$2,418,000,000) (the “ D Loan ”). The D Loan has a tenor of three years commencing from 30 December 2016.

Pursuant to the provisions of the above facility agreement, if CITIC Limited ceases to remain (directly or indirectly) the single largest shareholder of the Company, then the financial institutions holding 66-2/3% or more of the D Loan then outstanding may require mandatory prepayment of the D Loan together with all other sums due.

Sufficiency of Public Float

Based on information that is publicly available to the Company and within the knowledge of the directors, at least 25% of the Company’s total issued share capital is held by the public as at the date of this report.

Audit Committee

The Company has an audit committee which was established in compliance with rule 3.21 of the Listing Rules with responsibility for reviewing and providing supervision over the Group’s financial reporting process. The audit committee comprises the three independent non-executive directors of the Company.

The audit committee has reviewed the financial statements with senior management and the external auditor of the Company. During the review of the financial statements, senior management and the external auditor reported upon the latest status of the Group’s inventories stored in bonded warehouses at Qingdao port, China. The audit committee is aware that the matter is one of the key audit matters and to be disclosed in an emphasis of matter paragraph in the independent auditor’s report. The audit committee did not express any disagreement with management’s position concerning the status of the inventories. The status of the matter has been monitored by the audit committee through their participation in regular board meetings.

Auditor

Ernst & Young shall retire, and a resolution for their re-appointment as auditor of the Company will be proposed, at the forthcoming AGM.

On behalf of the Board

Kwok Peter Viem Chairman

Hong Kong, 17 February 2017

41 CITIC Resources Holdings Limited

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Independent Auditor’s Report

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To shareholders of CITIC Resources Holdings Limited

(Incorporated in Bermuda with limited liability)

Opinion

We have audited the consolidated financial statements of CITIC Resources Holdings Limited (the “ Company ”) and its subsidiaries (the “ Group ”) set out on pages 47 to 139, which comprise the consolidated statement of financial position as at 31 December 2016, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2016, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Basis for Opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing (“ HKSAs ”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of this auditor’s report. We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (the “ Code ”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

Without qualifying our opinion, we draw attention to note 24 to the financial statements which describes the Group’s situation regarding its legal claim to recover certain of its inventories located at Qingdao port and the impairment provision made in the financial statements. In consideration of the above, there is material inherent uncertainty as to the carrying amount of the inventories. Should these matters be resolved, any adjustments found to be necessary may have a significant impact to the carrying amount of the respective inventories.

Annual Report 2016 42

Independent Auditor’s Report

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Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of this auditor’s report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Key audit matter	How our audit addressed the key audit matter
Inventories held at Qingdao port, China
As disclosed in note 24 to the financial statements, since 2014, the Group has been trying to recover certain alumina and copper stored in bonded warehouses at Qingdao port (the “Inventories”) by filing a claim in the Qingdao Maritime Court. Due to uncertainty over the outcome of the claim, there was a high level of uncertainty as to the Group recovering the Inventories in full. Management’s judgement was involved to determine whether a provision is required for the Inventories. Such a judgement is based on the updated facts and circumstances and their ongoing communications with the Group’s internal and external legal counsels. Management also considered the relevant market prices to determine if a provision for net realisable value against the Inventories was required. As at 31 December 2016, the net carrying value of the Inventories was HK$180,273,000, after making a cumulative full provision against the alumina, being HK$579,277,000, and a provision of HK$219,662,000 in respect of certain copper.	We evaluated management’s assessment of the possibility to recover the Inventories by reviewing the legal documents and considering the opinions from the Group’s internal and external legal counsels who are involved in the legal proceedings of the claim. We also obtained an independent confirmation from the Group’s external legal counsel to confirm the status of the claim. With respect to the provision to write down the carrying value of copper to net realisable value, we checked the current market price of copper to evaluate management’s assessment. We also evaluated the adequacy and appropriateness of the disclosures regarding this matter in the financial statements. There is material inherent uncertainty as to the carrying amount of the Inventories as the outcome of the claim is uncertain. Due to the significance of the Inventories to the Group’s financial statements, an emphasis of matter paragraph has been included in this auditor’s report. Related disclosures are included in note 24 to the financial statements.

43 CITIC Resources Holdings Limited

Independent Auditor’s Report

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Key Audit Matters (continued)

Key audit matter	How our audit addressed the key audit matter
Impairment of oil and gas properties
The recent low oil prices are considered an impairment indicator of oil and gas properties. Management of the Group has performed impairment tests on the oil and gas properties by using discounted cash flow models as at 31 December 2016. Based on the outcomes of the impairment tests, the Group has not recognised any additional impairment provision for the year. This area was important to our audit because the oil and gas properties are significant to the Group and significant judgement was involved in the assessment of the recoverable amount of the oil and gas properties. This assessment required management to make assumptions to be used in the discounted cash flow models. The most critical assumptions were the future oil prices, oil reserves and discount rates.	We evaluated and challenged the assumptions and methodologies used by management to estimate the recoverable amount of the assets. We compared management’s oil price assumptions with the latest market evidence available, including forward curves, broker’s estimates and other long-term price forecasts. We considered the independence, reputation and capabilities of management’s external experts who were responsible for oil reserves estimation. We discussed and ensured that any reserves revisions were consistent with our understanding. We also involved our valuation expert to assist us in critically assessing the applied discount rates. Related disclosures are included in notes 3 and 13 to the financial statements.
Impairment of plant, machinery and equipment of the Portland Aluminium Smelter
Due to the power outage in late 2016 at the Portland Aluminum Smelter (the “PAS”), which disrupted operations and caused a reduction in production capacity of the PAS in near term and higher production costs, management of the Group performed an impairment test on the plant, machinery and equipment of the PAS by using a discounted cash flow model as at 31 December 2016. Based on the outcome of the impairment test, the Group has recognised an impairment provision of HK$226,200,000 for the year. This area was important to our audit due to significant judgement involved in the assessment of the recoverable amount of the plant, machinery, and equipment of the PAS. This assessment required management to make assumptions to be used in the discounted cash flow model. The most critical assumptions were the future aluminum price, electricity price, production volume, future foreign exchange rate and discount rate.	We discussed and obtained understanding from management in relation to the impact of the power outage on the PAS’s current and future production. We evaluated and challenged the assumptions and methodology used by management to estimate the recoverable amount of the assets. We compared management’s aluminum price, electricity price and other assumptions with the latest market evidence available, including forward curves, broker’s estimates and other long-term price forecasts. We also involved our valuation expert to assist us in critically assessing the assumptions utilised in the model, including the applied discount rate. Related disclosures are included in notes 3 and 13 to the financial statements.

Annual Report 2016 44

Independent Auditor’s Report

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Other Information included in the Annual Report

The directors of the Company are responsible for the other information. The other information comprises the information included in this annual report, other than the consolidated financial statements and this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Consolidated Financial Statements

The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations or have no realistic alternative but to do so.

The directors are assisted by the audit committee of the Company (the “ Audit Committee ”) in discharging their responsibilities for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. This auditor’s report is made solely to you, as a body, in accordance with section 90 of the Bermuda Companies Act 1981, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this auditor’s report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

45 CITIC Resources Holdings Limited

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Independent Auditor’s Report

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements (continued)

• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control;

• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors of the Company;

• conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in this auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of this auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern;

• evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation; and

• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the year and are therefore the key audit matters. We describe these matters in this auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in this auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Ms. Lau Kin Yu.

Ernst & Young Certified Public Accountants

22/F, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

17 February 2017

Annual Report 2016 46

HK$’000

Year ended 31 December

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Consolidated Income Statement

==> picture [485 x 23] intentionally omitted <==

----- Start of picture text -----

Notes 2016 2015
----- End of picture text -----

REVENUE	5	2,956,732	3,713,127
Cost of sales		(3,056,734)	(4,031,442)
Gross loss		(100,002)	(318,315)
Other income and gains	5	1,327,438	245,298
Selling and distribution costs		(18,791)	(16,373)
General and administrative expenses		(338,596)	(373,101)
Other expenses, net		(79,182)	(1,434,865)
Finance costs	9	(276,240)	(323,724)
Share of profit/(loss) of:
An associate		(29,562)	(352,817)
A joint venture		210,922	(1,858,634)
		695,987	(4,432,531)
Provision for impairment of items of
property, plant and equipment	13	(226,200)	(940,038)
Provision for impairment of other assets	16	—	(411,060)
Provision for impairment of an associate	19	—	(330,040)
Provision for impairment of inventories	24	(125,763)	(389,704)
PROFIT/(LOSS) BEFORE TAX	6	344,024	(6,503,373)
Income tax credit	10	217	331,453
PROFIT/(LOSS) FOR THE YEAR		344,241	(6,171,920)
ATTRIBUTABLE TO:
Shareholders of the Company		362,985	(6,104,909)
Non-controlling interests		(18,744)	(67,011)
		344,241	(6,171,920)
EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS OF THE COMPANY	12	HK cents	HK cents
Basic		4.62	(77.63)
Diluted		4.62	(77.63)

47 CITIC Resources Holdings Limited

HK$’000

Year ended 31 December

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Consolidated Statement of Comprehensive Income

==> picture [484 x 23] intentionally omitted <==

----- Start of picture text -----

Notes 2016 2015
----- End of picture text -----

PROFIT/(LOSS) FOR THE YEAR		344,241	(6,171,920)
OTHER COMPREHENSIVE INCOME/(LOSS)
Other comprehensive income/(loss) to be reclassified to
profit or loss in subsequent periods:
Available-for-sale investment:
Changes in fair value		(490)	(460)
Income tax effect		147	138
		(343)	(322)
Cash flow hedges:
Effective portion of changes in fair value of
hedging instruments arising during the year	26	6,646	(224,064)
Reclassification adjustment for losses included in
the consolidated income statement	26	868,924	60,785
Income tax effect	26	(262,671)	59,040
		612,899	(104,239)
Exchange differences on translation of foreign operations		(371,011)	(508,445)
Net other comprehensive income/(loss) to be reclassified to
profit or loss in subsequent periods		241,545	(613,006)
Other comprehensive income not to be reclassified to
profit or loss in subsequent periods:
Re-measurement gain on defined benefit plan:
Changes in fair value	32	7,401	10,484
Income tax effect		(2,220)	(3,145)
Net other comprehensive income not to be reclassified to
profit or loss in subsequent periods		5,181	7,339
OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR,
NET OF TAX		246,726	(605,667)
TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR		590,967	(6,777,587)
ATTRIBUTABLE TO:
Shareholders of the Company		637,372	(6,688,269)
Non-controlling interests		(46,405)	(89,318)
		590,967	(6,777,587)

Annual Report 2016 48

HK$’000

31 December

Consolidated Statement of Financial Position

==> picture [483 x 23] intentionally omitted <==

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Notes 2016 2015
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NON-CURRENT ASSETS
Property, plant and equipment	13	4,674,326	5,988,583
Prepaid land lease payments	14	16,415	18,786
Goodwill	15	24,682	24,682
Other assets	16	289,988	270,149
Investment in an associate	19	905,841	994,020
Investment in a joint venture	20	173,942	—
Financial assets at fair value through profit or loss	21	2,880,665	1,835,713
Available-for-sale investment	22	784	1,274
Prepayments, deposits and other receivables	23	83,260	180,932
Deferred tax assets	33	319,466	580,885
Total non-current assets		9,369,369	9,895,024
CURRENT ASSETS
Inventories	24	577,698	648,616
Trade and notes receivables	25	643,767	482,950
Prepayments, deposits and other receivables	23	1,453,071	1,693,416
Financial assets at fair value through profit or loss	21	3,029	3,029
Derivative financial instruments	26	60,826	298
Other assets	16	—	42,996
Cash and cash equivalents	27	1,160,989	1,300,197
Total current assets		3,899,380	4,171,502
CURRENT LIABILITIES
Accounts payable	28	130,891	449,818
Tax payable		142	853
Accrued liabilities and other payables	29	565,039	417,061
Derivative financial instruments	26	10,387	40,814
Bank borrowings	30	1,371,809	1,356,249
Finance lease payables	31	13,102	12,473
Provisions	32	44,670	45,285
Total current liabilities		2,136,040	2,322,553
NET CURRENT ASSETS		1,763,340	1,848,949
TOTAL ASSETS LESS CURRENT LIABILITIES		11,132,709	11,743,973

49 CITIC Resources Holdings Limited

HK$’000

31 December

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Consolidated Statement of Financial Position

==> picture [484 x 23] intentionally omitted <==

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Notes 2016 2015
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TOTAL ASSETS LESS CURRENT LIABILITIES		11,132,709	11,743,973
NON-CURRENT LIABILITIES
Bank borrowings	30	6,155,518	6,449,658
Finance lease payables	31	12,371	25,719
Derivative financial instruments	26	—	868,924
Provisions	32	268,530	294,354
Total non-current liabilities		6,436,419	7,638,655
NET ASSETS		4,696,290	4,105,318
EQUITY
Equity attributable to shareholders of the Company
Issued capital	34	392,886	392,886
Reserves	36	4,411,872	3,774,495
		4,804,758	4,167,381
Non-controlling interests		(108,468)	(62,063)
TOTAL EQUITY		4,696,290	4,105,318

Suo Zhengang Director

Li So Mui Director

Annual Report 2016 50

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Consolidated Statement of Changes in Equity

==> picture [555 x 93] intentionally omitted <==

----- Start of picture text -----

Share
Issued premium Contributed Capital
Notes capital account surplus reserve
(note 36) (note 36)
----- End of picture text -----

At 1 January 2015		393,426	9,721,915	72,688	(38,579)
Loss for the year		—	—	—	—
Other comprehensive income/(loss) for the year:
Changes in fair value of available-for-sale investment, net of tax		—	—	—	—
Cash flow hedges, net of tax		—	—	—	—
Exchange differences on translation of foreign operations		—	—	—	—
Re-measurement gain on defined benefit plan, net of tax		—	—	—	—
Total comprehensive loss for the year		—	—	—	—
Shares repurchased	34	(540)	(15,063)	—	—
Equity-settled share option arrangements	35	—	—	—	—
Share of other reserve movements of an associate		—	—	56	—
Release upon deemed disposal of partial interest in an associate		—	—	(842)	—
At 31 December 2015		392,886	9,706,852 *	71,902 *	(38,579) *
At 1 January 2016		392,886	9,706,852	71,902	(38,579)
Profit for the year		—	—	—	—
Other comprehensive income/(loss) for the year:
Changes in fair value of available-for-sale investment, net of tax		—	—	—	—
Cash flow hedges, net of tax		—	—	—	—
Exchange differences on translation of foreign operations		—	—	—	—
Re-measurement gain on defined benefit plan, net of tax		—	—	—	—
Total comprehensive income/(loss) for the year		—	—	—	—
Share of other reserve movements of an associate		—	—	5	—
At 31 December 2016		392,886	**9,706,852 ***	**71,907 ***	**(38,579) ***

• These reserve accounts comprise the consolidated reserves of HK$4,411,872,000 (2015: HK$3,774,495,000) in the consolidated statement of financial position.

51 CITIC Resources Holdings Limited

HK$’000

==> picture [51 x 47] intentionally omitted <==

Attributable to	shareholders of the	Company
	Available-
	for-sale				Retained
Exchange	investment		Share		profits /		Non-
fluctuation	revaluation	Hedging	option	Reserve	(accumulated		controlling	Total
reserve	reserve	reserve	reserve	funds	losses)	Sub-total	interests	equity
				(note 36)
(361,958)	(1,832)	(493,132)	51,009	14,129	1,509,451	10,867,117	27,255	10,894,372
—	—	—	—	—	(6,104,909)	(6,104,909)	(67,011)	(6,171,920)
—	(322)	—	—	—	—	(322)	—	(322)
—	—	(104,239)	—	—	—	(104,239)	—	(104,239)
(486,138)	—	—	—	—	—	(486,138)	(22,307)	(508,445)
—	—	—	—	—	7,339	7,339	—	7,339
(486,138)	(322)	(104,239)	—	—	(6,097,570)	(6,688,269)	(89,318)	(6,777,587)
—	—	—	—	—	—	(15,603)	—	(15,603)
—	—	—	4,080	—	—	4,080	—	4,080
—	—	—	—	1,327	(1,327)	56	—	56
—	—	—	(5,074)	(2,006)	7,922	—	—	—
(848,096) *	(2,154) *	(597,371) *	50,015 *	13,450 *	(4,581,524) *	4,167,381	(62,063)	4,105,318
(848,096)	(2,154)	(597,371)	50,015	13,450	(4,581,524)	4,167,381	(62,063)	4,105,318
—	—	—	—	—	362,985	362,985	(18,744)	344,241
—	(343)	—	—	—	—	(343)	—	(343)
—	—	612,899	—	—	—	612,899	—	612,899
(343,350)	—	—	—	—	—	(343,350)	(27,661)	(371,011)
—	—	—	—	—	5,181	5,181	—	5,181
(343,350)	(343)	612,899	—	—	368,166	637,372	(46,405)	590,967
—	—	—	(19,452)	(251)	19,703	5	—	5
**(1,191,446) ***	**(2,497) ***	**15,528 ***	**30,563 ***	**13,199 ***	**(4,193,655) ***	4,804,758	(108,468)	4,696,290

Annual Report 2016 52

HK$’000

Year ended 31 December

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Consolidated Statement of Cash Flows

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Notes 2016 2015
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CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before tax		344,024	(6,503,373)
Adjustments for:
Interest income	5	(19,651)	(43,835)
Dividend income from a financial asset at
fair value through profit or loss	5	(102,245)	(127,831)
Depreciation	6	806,776	821,508
Amortisation of other assets	6	48,109	93,311
Amortisation of prepaid land lease payments	6	1,143	1,281
Equity-settled share option expense	6	—	4,080
Provision for/(reversal of) long term employee benefits	6	(7,290)	3,536
Loss on disposal/write-off of items of
property, plant and equipment, net	6	16,669	12,780
Gain on disposal of other assets	5	(49,688)	—
Write-down of inventories to net realisable value, net	6	31,569	20,420
Provision for impairment of items of
property, plant and equipment	6	226,200	940,038
Provision for impairment of other assets	6	—	411,060
Provision for impairment of an associate	6	—	330,040
Provision for impairment of inventories	6	125,763	389,704
Reversal of impairment of trade receivables	6	(1,168)	(5,721)
Impairment/(reversal of impairment) of
other receivables	6	(24,536)	130,200
Fair value gains on derivative financial instruments		(84,309)	(46,339)
Fair value loss on cash flow hedges
(transferred from equity)	6	868,924	60,785
Fair value loss/(gain) on a financial asset at
fair value through profit or loss	6	(1,044,952)	1,281,787
Gain on derecognition of a derivative financial liability	6	(868,924)	—
Finance costs	9	276,240	323,724
Share of loss of an associate		29,562	352,817
Share of loss/(profit) of a joint venture		(210,922)	1,858,634
Loss on deemed disposal of partial interest in
an associate	6	—	483
		361,294	309,089
Decrease/(increase) in inventories		(52,147)	215,648
Decrease/(increase) in trade and notes receivables		(159,649)	316,109
Decrease in prepayments, deposits and
other receivables		63,314	2,974
Decrease in accounts payable		(314,341)	(141,171)
Increase in accrued liabilities and other payables		357,415	53,838
Decrease in provisions		(22,322)	(42,327)
Cash generated from operations		233,564	714,160
Income tax paid		(917)	(228)
Net cash flows from operating activities		232,647	713,932

53 CITIC Resources Holdings Limited

HK$’000

Year ended 31 December

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Consolidated Statement of Cash Flows

==> picture [484 x 23] intentionally omitted <==

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Notes 2016 2015
----- End of picture text -----

Net cash flows from operating activities		232,647	713,932
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received		21,707	46,622
Dividend income from a financial asset at
fair value through profit or loss	5	102,245	127,831
Purchases of items of property, plant and equipment		(109,154)	(987,920)
Acquisition of a financial asset at fair value through
profit or loss		—	(409,299)
Additions to other assets		(3,640)	(9,204)
Proceeds from disposal of items of
property, plant and equipment		1,651	9,008
Proceeds from disposal of other assets		74,590	—
Net proceeds from disposal of partial investment in
the Codrilla project		(23,452)	(5,973)
Repayment of loans from a joint venture		135,447	312,412
Net cash flows from/(used in) investing activities		199,394	(916,523)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of shares	34	—	(15,603)
New bank borrowings		2,969,955	6,061,622
Repayment of bank borrowings		(3,257,419)	(7,440,349)
Capital element of finance lease payables		(12,707)	(21,486)
Interest paid		(209,032)	(293,836)
Finance charges paid		(45,202)	(25,585)
Net cash flows used in financing activities		(554,405)	(1,735,237)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(122,364)	(1,937,828)
Cash and cash equivalents at beginning of year		1,300,197	3,246,421
Effect of foreign exchange rate changes, net		(16,844)	(8,396)
CASH AND CASH EQUIVALENTS AT END OF YEAR		1,160,989	1,300,197
ANALYSIS OF BALANCES OF
CASH AND CASH EQUIVALENTS
Cash and bank balances	27	402,546	459,034
Time deposits	27	758,443	841,163
Cash and cash equivalents as stated in
the consolidated statement of financial position		1,160,989	1,300,197

Annual Report 2016 54

Year ended 31 December 2016

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Notes to Financial Statements

1. Corporate and Group Information

CITIC Resources Holdings Limited is a limited liability company incorporated in Bermuda. The head office and principal place of business of the Company is located at Suites 3001-3006, 30/F, One Pacific Place, 88 Queensway, Hong Kong.

The principal activity of the Company is investment holding.

During the year, the Company and its subsidiaries (the “ Group ”) were principally engaged in the following businesses:

• (a) the operation of the Portland Aluminium Smelter (the “ PAS ”) which sources alumina and produces aluminium ingots in Australia;

• (b) the operation of coal mines and the sale of coal in Australia;

• (c) the export of various commodity products such as aluminium ingots, coal, iron ore, alumina and copper; and the import of other commodity products and manufactured goods such as steel, and vehicle and industrial batteries and tyres into Australia;

• (d) the exploration, development, production and sale of oil from the Seram Island Non-Bula Block, Indonesia (the “ Seram Block ”); and

• (e) the exploration, development, production and sale of oil from the Hainan-Yuedong Block in the Bohai Bay Basin in Liaoning Province, China (the “ Hainan-Yuedong Block ”).

In the opinion of the directors, the ultimate holding company of the Company is 中國中信集團有限公司 (CITIC Group Corporation), a company established in China.

55 CITIC Resources Holdings Limited

31 December 2016

==> picture [51 x 47] intentionally omitted <==

Notes to Financial Statements

1. Corporate and Group Information (continued)

Information about subsidiaries

Particulars of the Company’s principal subsidiaries were as follows:

==> picture [460 x 60] intentionally omitted <==

----- Start of picture text -----

Percentage of
Place of Issued equity interest
incorporation / ordinary attributable to Principal
Name operation share capital the Company activities
----- End of picture text -----

Directly held
SEA Wood Investment Holdings	British Virgin Islands	US$10,000	100	Investment holding
Limited	(“BVI”) / Hong Kong
Starbest Venture Limited	BVI / Hong Kong	US$1	100	Investment holding
Star Elite Venture Limited	BVI / Hong Kong	US$1	100	Investment holding
CITIC Resources Finance (2007) Limited	BVI / Hong Kong	US$1	100	Dormant
Indirectly held
Feston Manufacturing Limited	BVI / Hong Kong	US$10,000	100	Dormant
Nusoil Manufacturing Limited	BVI / Hong Kong	US$100	100	Investment holding
Wing Lam (International) Timber Limited	Hong Kong	HK$60,000,000	100	Dormant
Global Enterprises (HK) Limited	Hong Kong	HK$2	100	Provision of
				management services
Maxpower Resources Limited	BVI / Hong Kong	US$1	100	Investment holding
CITIC New Highland Petroleum Limited	BVI / Hong Kong	US$1	100	Investment holding
Toplight Resources Limited	BVI / Hong Kong	US$1	100	Investment holding
CITIC Resources Australia Pty Limited	State of Victoria,	A$430,298,351	100	Investment holding
	Australia
CITIC Portland Holdings Pty Limited	State of Victoria,	A$196,791,454	100	Investment holding
	Australia
CITIC Australia (Portland) Pty Limited	State of Victoria,	A$45,675,119	100	Aluminium smelting
	Australia

Annual Report 2016 56

31 December 2016

Notes to Financial Statements

1. Corporate and Group Information (continued)

Information about subsidiaries (continued)

==> picture [460 x 60] intentionally omitted <==

----- Start of picture text -----

Percentage of
Place of Issued equity interest
incorporation / ordinary attributable to Principal
Name operation share capital the Company activities
----- End of picture text -----

Indirectly held (continued)
CITIC Portland Surety Pty Limited	State of Victoria,	A$1	100	Investment holding
	Australia
CITIC Nominees Pty Limited	State of Victoria,	A$2	100	Investment holding
	Australia
CITIC Portland Finance 1 Pty Limited	State of Victoria,	A$2	100	Financing
	Australia
CITIC (Portland) Nominees I Pty Limited*	State of Victoria,	A$2	100	Investment holding
	Australia
CITIC (Portland) Nominees II Pty Limited*	State of Victoria,	A$2	100	Investment holding
	Australia
CITIC Nominees Pty Limited Partnership	State of Victoria,	A$6,693,943	100	Investment holding
	Australia
CITIC Australia Coal Pty Limited	State of Victoria,	A$220,605,959	100	Investment holding
	Australia
CITIC Australia Coppabella Pty Limited	State of Victoria,	A$5,000,002	100	Mining and
	Australia			production of coal
CITIC Australia Coal Exploration	State of Victoria,	A$2,845,375	100	Exploration,
Pty Limited	Australia			development of
				coal mines and
				mining of coal
CITIC Bowen Basin Pty Limited	State of Victoria,	A$378,353	100	Exploration and
	Australia			development of
				coal mines
CITIC West Rolleston Pty Limited	State of Victoria,	A$196,390	100	Exploration and
	Australia			development of
				coal mines

57 CITIC Resources Holdings Limited

31 December 2016

==> picture [51 x 47] intentionally omitted <==

Notes to Financial Statements

1. Corporate and Group Information (continued)

Information about subsidiaries (continued)

==> picture [460 x 60] intentionally omitted <==

----- Start of picture text -----

Percentage of
Place of Issued equity interest
incorporation / ordinary attributable to Principal
Name operation share capital the Company activities
----- End of picture text -----

Indirectly held (continued)
CITIC Moorvale West Pty Limited	State of Victoria,	A$108,333	100	Exploration and
	Australia			development of
				coal mines
CITIC Olive Downs Pty Limited	State of Victoria,	A$99,958	100	Exploration and
	Australia			development of
				coal mines
CITIC West Walker Pty Limited	State of Victoria,	A$91,812	100	Exploration and
	Australia			development of
				coal mines
CITIC West / North Burton Pty Limited	State of Victoria,	A$34,238	100	Exploration and
	Australia			development of
				coal mines
CITIC Capricorn Pty Limited	State of Victoria,	A$9,549	100	Exploration and
	Australia			development of
				coal mines
CITIC Mining Equipment Pty Limited	State of Victoria,	A$1	100	Equipment
	Australia			lease holding
CITIC Australia Trading Pty Limited	State of Victoria,	A$4,710,647	100	Investment holding
(“CATL”)	Australia
CATL Sub-holdings Pty Limited	State of Victoria,	A$1	100	Investment holding
	Australia
CITIC Australia Commodity Trading	State of Victoria,	A$500,002	100	Import and export of
Pty Limited (“CACT”)	Australia			commodities and
				manufactured goods
CITIC Autoparts Pty Limited	State of Victoria,	A$100	100	Import of
	Australia			tyres and batteries
Tyre Choice Pty Limited	State of Victoria,	A$1	100	Dormant
	Australia

Annual Report 2016 58

31 December 2016

Notes to Financial Statements

1. Corporate and Group Information (continued)

Information about subsidiaries (continued)

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----- Start of picture text -----

Percentage of
Place of Issued equity interest
incorporation / ordinary attributable to Principal
Name operation share capital the Company activities
----- End of picture text -----

Indirectly held (continued)
CITIC Batteries Pty Limited	State of Victoria,	A$2	100	Dormant
	Australia
CITIC Nickel Pty Limited	State of Victoria,	A$2	100	Investment holding
	Australia
CITIC Australia Materials Pty Limited	State of Victoria,	A$2	100	Import of
	Australia			construction and
				building materials
CITIC Nickel International Pty Limited	State of Victoria,	A$2	100	Exploration and
	Australia			development of
				nickel mines
CITIC Australia Steels Products	State of Victoria,	A$2	100	Import of steel
Pty Limited	Australia
北京千泉投資顧問有限公司 #	China	RMB1,243,173	100	Consulting
(Beijing Springs Investment
Consultants Co. Limited)
北京怡信美城商務信息諮詢有限公司 #	China	RMB500,000	100	Consulting
(Beijing Yi Xin Mei Cheng
Commercial Information
Consulting Co. Ltd.)
Cogent Assets Limited	BVI / Hong Kong	US$2	100	Investment holding
CITIC Petrochemical Holdings Limited	BVI / Hong Kong	US$1	100	Investment holding
CITIC Petrochemical Investments Limited	BVI / Hong Kong	US$1	100	Investment holding
Group Smart Resources Limited	BVI / Hong Kong	US$1	100	Investment holding
Highkeen Resources Limited	BVI / Hong Kong	US$1	100	Investment holding
CITIC Indonesia Energy Limited	BVI / Hong Kong	US$1	100	Investment holding

59 CITIC Resources Holdings Limited

31 December 2016

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Notes to Financial Statements

1. Corporate and Group Information (continued)

Information about subsidiaries (continued)

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----- Start of picture text -----

Percentage of
Place of Issued equity interest
incorporation / ordinary attributable to Principal
Name operation share capital the Company activities
----- End of picture text -----

Indirectly held (continued)
CITIC Seram Energy Limited	BVI / Indonesia	US$1	100	Exploration,
(“CITIC Seram”)				development and
				operation of oilfields
CITIC Haiyue Energy Limited	BVI / Hong Kong	US$1	100	Investment holding
Tincy Group Energy Resources Limited	Hong Kong / China	HK$10,000,000	90	Exploration,
				development and
				operation of oilfields
CITIC Liaobin Investments Limited	BVI / Hong Kong	US$1	100	Investment holding
CITIC Liaobin Energy (HK) Limited	Hong Kong	HK$1	100	Investment holding
CITIC Oil & Gas Holdings Limited	BVI / Hong Kong	US$100	100	Investment holding
Renowned Nation Limited	BVI / Hong Kong	US$1	100	Investment holding
KBM Energy Limited	BVI / Hong Kong	US$1	100	Investment holding
CITIC Netherlands Energy	Netherlands /	EUR100	100	Investment holding
Coöperatief U.A.	Hong Kong
Perfect Vision Investments Limited	BVI / Hong Kong	US$1	100	Investment holding
KAZCITIC Investment LLP	Kazakhstan	KZT682,705,099	100	Property holding
Ample Idea Investments Limited	BVI / Hong Kong	US$1	100	Investment holding
中信石油技術開發(北京)有限公司 #	China	US$100,000	100	Oil technology
(CITIC Petroleum Technology				development
Development (Beijing) Limited)
CITIC PNG Investments Limited	BVI / Hong Kong	US$1	100	Investment holding
CITIC PNG Energy Limited	BVI / Hong Kong	US$1	100	Investment holding
Splendor Venture Limited	BVI / Hong Kong	US$1	100	Investment holding

• These two companies jointly own CITIC Nominees Pty Limited Partnership which owns the interest in the Portland Aluminium Smelter joint venture in Australia (the “ PAS JV ”).

The statutory financial statements of these companies were not audited by Ernst & Young, Hong Kong or another member firm of the Ernst & Young global network.

Annual Report 2016 60

Year ended 31 December 2016

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Notes to Financial Statements

2.1 Basis of Preparation

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“ HKASs ”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements have been prepared under the historical cost convention, except for derivative financial instruments and certain equity investments which have been measured at fair value. These financial statements are presented in Hong Kong dollar (“ HK$ ”) and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Group for the year ended 31 December 2016. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• (a) the contractual arrangement with the other vote holders of the investee;

• (b) rights arising from other contractual arrangements; and

• (c) the Group’s voting rights and potential voting rights.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Profit or loss and each component of other comprehensive income are attributed to shareholders of the Company and also to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises (a) the assets (including goodwill) and liabilities of the subsidiary; (b) the carrying amount of any non-controlling interests; and (c) the cumulative translation differences recorded in equity; and recognises (a) the fair value of the consideration received; (b) the fair value of any investment retained; and (c) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

61 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.2 Changes in Accounting Policies and Disclosures

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

Amendments to HKFRS 10, Investment Entities: Applying the Consolidation Exception HKFRS 12 and HKAS 28 (2011) Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations HKFRS 14 Regulatory Deferral Accounts Amendments to HKAS 1 Disclosure Initiative Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants Amendments to HKAS 27 (2011) Equity Method in Separate Financial Statements Annual Improvements 2012 – 2014 Cycle Amendments to a number of HKFRSs

Except for the amendments to HKFRS 10, HKFRS 12 and HKAS 28 (2011), HKFRS 14, amendments to HKAS 16 and HKAS 41, amendments to HKAS 27 (2011), and certain amendments included in the Annual Improvements 2012 – 2014 Cycle, which are not relevant to the preparation of the Group’s financial statements, the nature and the impact of the amendments are described below.

• (a) Amendments to HKFRS 11 require that an acquirer of an interest in a joint operation in which the activity of the joint operation constitutes a business must apply the relevant principles for business combinations in HKFRS 3. The amendments also clarify that a previously held interest in a joint operation is not re-measured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to HKFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation. The amendments are applied prospectively. The amendments have had no impact on the Group as there has been no interest acquired in a joint operation during the year.

• (b) Amendments to HKAS 1 include narrow-focus improvements in respect of the presentation and disclosure in financial statements. The amendments clarify:

• (i) the materiality requirements in HKAS 1;

• (ii) that specific line items in the statement of profit or loss and the statement of financial position may be disaggregated;

• (iii) that entities have flexibility as to the order in which they present the notes to financial statements; and

• (iv) that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of profit or loss. The amendments have had no significant impact on the Group’s financial statements.

• (c) Amendments to HKAS 16 and HKAS 38 clarify the principle in HKAS 16 and HKAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through the use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are applied prospectively. The amendments have had no impact on the financial position or performance of the Group as the Group has not used a revenue-based method for the calculation of depreciation of its non-current assets.

62

Annual Report 2016

Year ended 31 December 2016

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Notes to Financial Statements

2.2 Changes in Accounting Policies and Disclosures (continued)

• (d) Annual Improvements to HKFRSs 2012 – 2014 Cycle issued in October 2014 set out amendments to a number of HKFRSs. The amendment that is relevant to the Group is the amendment to HKAS 19 Employee Benefits. It clarifies that market depth of high quality corporate bonds used for discounting the post-employment benefit obligation for defined benefit plans is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. The amendment has had no significant financial impact on the Group.

2.3 Issued but not yet effective Hong Kong Financial Reporting Standards

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

Amendments to HKFRS 2	Classification and Measurement of Share-based Payment
	Transactions2
Amendments to HKFRS 4	Applying HKFRS 9 Financial Instruments with
	HKFRS 4 Insurance Contracts2
HKFRS 9	Financial Instruments2
Amendments to HKFRS 10 and	Sale or Contribution of Assets between an Investor and
HKAS 28 (2011)	its Associate or Joint Venture4
HKFRS 15	Revenue from Contracts with Customers2
Amendments to HKFRS 15	Clarifications to HKFRS 15 Revenue from Contracts with
	Customers2
HKFRS 16	Leases3
Amendments to HKAS 7	Disclosure Initiative1
Amendments to HKAS 12	Recognition of Deferred Tax Assets for Unrealised Losses1

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

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

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

• 4 No mandatory effective date yet determined but available for adoption

Further information about those HKFRSs that are expected to be applicable to the Group is as follows.

The HKICPA issued amendments to HKFRS 2 in August 2016 that address three main areas: (a) the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; (b) the classification of a share-based payment transaction with net settlement features for withholding a certain amount in order to meet the employee’s tax obligation associated with the share-based payment; and (c) accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled. The amendments clarify that the approach used to account for vesting conditions when measuring equity-settled share-based payments also applies to cash-settled share-based payments. The amendments introduce an exception so that a share-based payment transaction with net share settlement features for withholding a certain amount in order to meet the employee’s tax obligation is classified in its entirety as an equity-settled share-based payment transaction when certain conditions are met. Furthermore, the amendments clarify that if the terms and conditions of a cash-settled share-based payment transaction are modified, with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as an equity-settled transaction from the date of the modification. The Group expects to adopt the amendments from 1 January 2018. The amendments are not expected to have any significant impact on the Group’s financial statements.

63 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.3 Issued but not yet effective Hong Kong Financial Reporting Standards (continued)

In September 2014, the HKICPA issued the final version of HKFRS 9, bringing together all phases of the financial instruments project to replace HKAS 39 and all previous versions of HKFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group expects to adopt HKFRS 9 from 1 January 2018. During 2016, the Group performed a high-level assessment of the impact of the adoption of HKFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Group in the future. The expected impacts arising from the adoption of HKFRS 9 are summarised as follows:

(a) Classification and measurement

The Group does not expect that the adoption of HKFRS 9 will have a significant impact on the classification and measurement of its financial assets. It expects to continue measuring at fair value all financial assets currently held at fair value. Equity investments currently held as available for sale are measured at fair value through other comprehensive income as the investments are intended to be held for the foreseeable future and the Group expects to apply the option to present fair value changes in other comprehensive income. Gains and losses recorded in other comprehensive income for the equity investments cannot be recycled to profit or loss when the investments are derecognised.

(b) Impairment

HKFRS 9 requires an impairment on debt instruments recorded at amortised cost or at fair value through other comprehensive income. Lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under HKFRS 9 are recorded based on an expected credit loss model either on a 12-month basis or a lifetime basis. The Group expects to apply the simplified approach and record lifetime expected losses that are estimated based on the present value of all cash shortfalls over the remaining life of all of its trade and other receivables. The Group will perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements, for estimation of expected credit losses on its trade and other receivables upon the adoption of HKFRS 9.

(c) Hedge accounting

As HKFRS 9 does not change the general principles of how an entity accounts for effective hedges, the Group does not expect a significant impact as a result of applying HKFRS 9. The Group will assess possible changes related to the accounting for the time value of options, forward points or the currency basis spread in more detail in the future.

Amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to HKFRS 10 and HKAS 28 (2011) was removed by the HKICPA in January 2016 and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for application now.

64

Annual Report 2016

Year ended 31 December 2016

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Notes to Financial Statements

2.3 Issued but not yet effective Hong Kong Financial Reporting Standards (continued)

HKFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS 15 provide a more structured approach for measuring and recognising revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under HKFRSs. In June 2016, the HKICPA issued amendments to HKFRS 15 to address the implement issues on identifying performance obligations, application guidance on principal versus agent and licences of intellectual property, and the transition requirements of HKFRS 15. The amendments are also intended to help ensure a more consistent application when entities adopt HKFRS 15 and decrease the cost and complexity of applying the standard. The Group expects to adopt HKFRS 15 on 1 January 2018 and is currently assessing the impact of HKFRS15 upon adoption.

HKFRS 16 replaces HKAS 17 Leases, HK (IFRIC) – Int 4 Determining whether an Arrangement contains a Lease, HK(SIC) – Int 15 Operating Leases – Incentives and HK(SIC) – Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise assets and liabilities for most leases. The standard includes two recognition exemptions for lessees – leases of low-value assets and short-term leases. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). The right-of-use asset is subsequently measured at cost less accumulated depreciation and any impairment losses unless the right-of-use asset meets the definition of investment property in HKAS 40. The lease liability is subsequently increased to reflect the interest on the lease liability and reduced for the lease payments. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will also be required to re-measure the lease liability upon the occurrence of certain events, such as change in the lease term and change in future lease payments resulting from a change in an index or rate used to determine those payments. Lessees will generally recognise the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under HKFRS 16 is substantially unchanged from the accounting under HKAS 17. Lessors will continue to classify all leases using the same classification principle as in HKAS 17 and distinguish between operating leases and finance leases. The Group expects to adopt HKFRS 16 on 1 January 2019 and is currently assessing the impact of HKFRS 16 upon adoption.

Amendments to HKAS 7 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The amendments will result in additional disclosure to be provided in the financial statements. The Group expects to adopt the amendments from 1 January 2017.

Amendments to HKAS 12 were issued with the purpose of addressing the recognition of deferred tax assets for unrealised losses related to debt instruments measured at fair value, although they also have a broader application for other situations. The amendments clarify that an entity, when assessing whether taxable profits will be available against which it can utilise a deductible temporary difference, needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profits may include the recovery of some assets for more than their carrying amount. The Group expects to adopt the amendments from 1 January 2017.

65 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies

Investments in an associate and a joint venture

An associate is an entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group’s investments in an associate and a joint venture are stated in the consolidated statement of financial position at the Group’s share of net assets using the equity method, less any impairment losses.

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

The Group’s share of the post-acquisition results and other comprehensive income of an associate and a joint venture is included in the consolidated income statement and consolidated statement of comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of its associate or joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associate or joint venture are eliminated to the extent of its investment in the associate or joint venture, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of an associate or a joint venture is included as part of the Group’s investment in an associate or a joint venture.

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not re-measured. Instead, the investment continues to be accounted for using the equity method. In all other cases, upon loss of significant influence over its associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of its associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in the consolidated income statement.

Contractual arrangements that do not give rise to joint control or control

The Group has interests in certain contractual arrangements that do not give rise to joint control or control. Despite not having joint control or control, the Group has rights to, and obligations for, the underlying assets and obligations of these arrangements. Therefore, the Group accounts for its rights and obligations arising from these contracts by applying each HKFRSs as appropriate.

Annual Report 2016 66

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Interests in joint operations

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group recognises in relation to its interest in a joint operation:

• (a) its assets, including its share of any assets held jointly;

• (b) its liabilities, including its share of any liabilities incurred jointly;

• (c) its revenue from the sale of its share of the output arising from the joint operation;

• (d) its share of the revenue from the sale of the output by the joint operation; and

• (e) its expenses, including its share of any expenses incurred jointly.

The assets, liabilities, revenues and expenses relating to the Group’s interest in a joint operation are accounted for in accordance with the HKFRSs applicable to the particular assets, liabilities, revenues and expenses.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at fair value at the acquisition date, which is the sum of the fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree at the acquisition date. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is re-measured at fair value at its acquisition date and any resulting gain or loss is recognised in the consolidated income statement.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration that is classified as an asset or liability is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

67 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Business combinations and goodwill (continued)

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after assessment, recognised in the consolidated income statement as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in this circumstance is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

Fair value measurement

The Group measures its derivative financial instruments and financial assets at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure the fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

68

Annual Report 2016

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Fair value measurement (continued)

All assets and liabilities for which the fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole.

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly

• Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, financial assets and goodwill), the recoverable amount of the asset or cash-generating unit is estimated. The recoverable amount is the higher of its value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the consolidated income statement in the reporting period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the consolidated income statement in the reporting period in which it arises.

69 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Related parties

A party is considered to be related to the Group if:

• (a) the party is a person or a close member of that person’s family and that person,

• (i) has control or joint control over the Group;

• (ii) has significant influence over the Group; or

• (iii) is a member of the key management personnel of the Group or of a parent of the Group;

or

• (b) the party is an entity where any of the following conditions applies:

• (i) the entity and the Group are members of the same group;

• (ii) one entity is an associate or a joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

• (iii) the entity and the Group are joint ventures of the same third party;

• (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

• (v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;

• (vi) the entity is controlled or jointly controlled by a person identified in (a);

• (vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and

• (viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

Property, plant and equipment and depreciation

Property, plant and equipment, other than oil and gas properties, capital works and construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the consolidated income statement in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

70

Annual Report 2016

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Property, plant and equipment and depreciation (continued)

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. Plant and machinery used in the PAS, which include the furnace, water system, pot room and ingot mill, and buildings and structures, are estimated to have a useful life up to 2030.

Other property, plant and equipment are estimated to have the following useful lives:

Leasehold improvements 10 to 12 years or over the unexpired lease terms, whichever is shorter Motor vehicles, plant, machinery, tools and equipment 5 to 19 years Furniture and fixtures 4 to 5 years Buildings and structures 10 to 30 years

Freehold land is not depreciated.

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment, including any significant part initially recognised, is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss on disposal or retirement recognised in the consolidated income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents buildings and structures under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Oil and gas properties

For oil and gas properties, the successful effort method of accounting is adopted. The Group capitalises initial acquisition costs of oil and gas properties. Impairment of initial acquisition costs is recognised based on exploratory experience and management judgement. Upon discovery of commercial reserves, acquisition costs are transferred to proved properties. The costs of drilling and equipping successful exploratory wells are all classified as development costs, including those renewals and betterment which extend the economic lives of the assets. The costs of unsuccessful exploratory wells and all other exploration costs are expensed as incurred.

71 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Property, plant and equipment and depreciation (continued)

Oil and gas properties (continued)

Exploratory wells are evaluated for economic viability within one year of completion. Expenditure incurred in respect of the exploratory wells that discover potential economic reserves in areas where major capital expenditure will be required before production could begin and the major capital expenditure depends upon successful completion of further exploratory work remains capitalised, and are reviewed periodically for impairment.

Oil and gas properties are stated at cost less accumulated depreciation and depletion, and any impairment losses. The depreciation and depletion of oil and gas properties with a life longer than or equal to the licence life is estimated on a unit-of-production basis, in the proportion of actual production for the period to the total estimated remaining reserves of the oilfield. The remaining reserves figure is the amount estimated up to the licence expiration date plus the production for the period. Costs associated with significant development projects are not depleted until commercial production commences and the reserves related to those costs are excluded from the calculation of depletion.

Capitalised acquisition costs of proved properties are amortised by the unit-of-production method on a property-by-property basis computed based on the total estimated units of proved reserves.

The Group estimates future dismantlement costs for oil and gas properties with reference to the estimates provided by either internal or external engineers after taking into consideration the anticipated method of dismantlement required in accordance with the current legislation and industry practices. The associated cost is capitalised and the liability is discounted. An accretion expense is recognised using the credit-adjusted risk-free interest rate in effect when the liability is initially recognised. No market-risk premium has been included in the calculation of asset retirement obligation balances since no reliable estimate can be made.

Capital works

Capital works represent development expenditure in relation to the Group’s mining activities, which are carried forward to the extent that such costs are expected to be recouped through successful development and production of the areas or by their sale.

Other assets

Other assets represent the Group’s interest in the electricity supply agreement signed between the Group and the State Electricity Commission of Victoria, Australia (the “ ESA ”), exploration and evaluation assets, mining assets and stripping costs.

The ESA

The ESA provided steady electricity supply at a fixed tariff to the PAS for a period to 31 October 2016. The ESA was stated at cost less accumulated amortisation, provided on a straight-line basis over the term of the base power contract, and any impairment losses. The ESA expired in October 2016.

Annual Report 2016 72

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Other assets (continued)

Exploration and evaluation assets

Exploration and evaluation assets are stated at cost less any impairment losses. Exploration and evaluation assets include costs that are directly attributable to conducting topographical and geological surveys, exploratory drilling, sampling and trenching, and activities in relation to commercial and technical feasibility studies, and expenditure incurred to secure further mineralisation in existing ore bodies and to expand the capacity of a mine. Exploration expenditure incurred prior to acquiring legal rights to explore an area is written off as incurred. When the technical feasibility and commercial viability of extracting the ore are demonstrable, exploration and evaluation assets are amortised using the unit-of-production method.

If any project is abandoned during the evaluation stage, the total expenditures thereon are written off when the event occurs. If an indication of impairment arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount.

Mining assets

Mining assets represent mining rights, which are stated at cost less accumulated amortisation and any impairment losses. Mining assets are amortised over the estimated useful lives of the mines in accordance with the production plan of the entities concerned and the proven and probable reserves of the mines using the unit-of-production method.

Stripping costs

As part of its mining operations, the Group incurs stripping (waste removal) costs both during the development phase and production phase of its operations. Stripping costs incurred during the development phase of a mine are capitalised and subsequently amortised over its useful life using the unit-of-production method. The capitalisation of development stripping costs ceases when the mine/component is commissioned and ready for production as intended by management.

Stripping costs incurred during the production phase of a mine are generally considered to create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where the benefits are realised in the form of improved access to ore to be mined in the future, the costs are recognised as a non-current asset, referred to as a stripping activity asset, if the following criteria are met:

• (a) future economic benefits (being improved access to the ore body) are probable;

• (b) the component of the ore body to which access will be improved can be accurately identified; and

• (c) the costs associated with the improved access can be reliably measured.

If all of the criteria are not met, the production stripping costs are charged to the consolidated income statement as operating costs as incurred.

73 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial investments, or derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognised initially, they are measured at fair value plus attributable transaction costs on acquisition, except in the case of financial assets recorded at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognised on the trade date, being the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss.

Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by HKAS 39. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by HKAS 39.

Financial assets at fair value through profit or loss are carried in the consolidated statement of financial position at fair value with net changes in fair value recognised in the consolidated income statement. These net fair value changes do not include any dividends or interest earned on these financial assets, which are recognised in accordance with the policies set out for “Revenue recognition” below.

Financial assets designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in HKAS 39 are satisfied.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated as at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the consolidated income statement. Reassessment only occurs if there is either a change in the terms of the host contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

Annual Report 2016 74

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Investments and other financial assets (continued)

Subsequent measurement (continued)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income and gains in the consolidated income statement. The loss arising from impairment is charged to the consolidated income statement as finance costs for loans and as other expenses for receivables.

Available-for-sale financial investments

Available-for-sale financial investments are non-derivative financial assets in listed equity investments. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated as at fair value through profit or loss.

After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealised gains or losses recognised in the consolidated statement of comprehensive income as the available-for-sale investment revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the consolidated income statement as other income, or until the investment is determined to be impaired, at which time the cumulative gain or loss is reclassified from the available-for-sale investments revaluation reserve to the consolidated income statement in other gains or losses. Interest and dividends earned whilst holding the available-for-sale financial investments are reported as interest income and dividend income, respectively, and are recognised in the consolidated income statement as other income in accordance with the policies set out for “Revenue recognition” below.

The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over its remaining life using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the consolidated income statement.

75 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Investments and other financial assets (continued)

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the consolidated statement of financial position) when:

• (a) the rights to receive cash flows from the asset have expired; or

• (b) the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (i) the Group has transferred substantially all the risks and rewards of the asset; or (ii) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a “pass-through” arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognises the associated liability of the transferred asset. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether the asset is significant or not, it then includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

Annual Report 2016 76

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Impairment of financial assets (continued)

Financial assets carried at amortised cost (continued)

The amount of any impairment loss identified is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (without taking into account any future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the original effective interest rate in financing the financial asset (that is, the rate computed at initial recognition).

The carrying amount of the asset is reduced either directly or through the use of an allowance account and the loss is charged to the consolidated income statement. Interest income continues to be accrued on the reduced carrying amount using the rate of interest to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is subsequently recovered, the recovery is credited to other expenses in the consolidated income statement.

Available-for-sale financial investment

For available-for-sale financial investment, the Group assesses at the end of each reporting period whether there is any objective evidence that an investment or a group of investments is impaired.

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously charged to the consolidated income statement, is removed from the consolidated statement of comprehensive income and recognised in the consolidated income statement.

In the case of investments in equity instruments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously charged to the consolidated income statement – is removed from the consolidated statement of comprehensive income and recognised in the consolidated income statement. Impairment losses on equity instruments classified as available for sale are not reversed through the consolidated income statement. Increases in their fair value after impairment are recognised directly in the consolidated statement of comprehensive income.

The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.

77 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of repurchasing in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by HKAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by HKAS 39.

Gains or losses on liabilities held for trading are recognised in the consolidated income statement. The net fair value gain or loss recognised in the consolidated income statement does not include interest charged on these financial liabilities.

Financial liabilities designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in HKAS 39 are satisfied.

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the consolidated income statement.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another one from the same lender but on substantially different terms, or the terms of the existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amount is recognised in the consolidated income statement.

Annual Report 2016 78

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement

The Group uses derivative financial instruments, such as forward currency contracts, forward commodity contracts, interest rate swap contracts, embedded derivatives and an electricity hedge agreement to manage its foreign currency risk, price risk, interest rate risk and inflation risk. These derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

The fair value of commodity purchase contracts that meet the definition of a derivative as defined by HKAS 39 is charged to the consolidated income statement as cost of sales. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group’s expected purchase, sale or usage requirements are held at cost.

Any gains or losses arising from changes in fair value of derivatives are taken directly to the consolidated income statement, except for the effective portion of cash flow hedges, which is recognised in the consolidated statement of comprehensive income and later reclassified to profit or loss when the hedged item affects profit or loss.

For the purpose of hedge accounting, hedges of the Group are classified as cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or foreign currency risk in an unrecognised firm commitment.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the reporting periods for which they are designated.

79 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Derivative financial instruments and hedge accounting (continued)

Initial recognition and subsequent measurement (continued)

Hedges which meet the strict criteria for cash flow hedges are accounted for as follows.

• (a) The effective portion of the gain or loss on the hedging instrument is recognised directly in the consolidated statement of comprehensive income as the hedging reserve, while any ineffective portion is recognised immediately in the consolidated income statement.

• (b) Amounts recognised in the consolidated statement of comprehensive income are transferred to the consolidated income statement when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognised in the consolidated statement of comprehensive income are transferred to the initial carrying amount of the non-financial asset or non-financial liability.

• (c) If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the criteria for hedge accounting, the amounts previously recognised in the consolidated statement of comprehensive income remain in other comprehensive income until the forecast transaction occurs or the foreign currency firm commitment is met.

Current versus non-current classification

Derivative instruments that are not designated as effective hedging instruments are separated into current and non-current portions based on an assessment of the facts and circumstances, including the underlying contracted cash flows.

• (a) Where the Group expects to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the end of the reporting period, the derivative is classified as non-current or separated into current and non-current portions consistently with the classification of the underlying hedged item.

• (b) Embedded derivatives that are not closely related to the host contract are classified consistently with the cash flows of the host contract.

Derivative instruments that are designated as effective hedging instruments are classified consistently with the classification of the underlying hedged item. The derivative instruments are separated into current and non-current portions only if a reliable allocation can be made.

Treasury shares

Own equity instruments which are reacquired and held by the Company or the Group (treasury shares) are recognised directly in equity at cost. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

Annual Report 2016 80

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Inventories

Inventories are stated at the lower of cost and net realisable value. Except for the costs of exported goods held for re-sale which are determined on the first-in first-out basis, costs are determined on the weighted average basis. In the case of work in progress and finished goods, costs comprise direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash subject to an insignificant risk of changes in value and having a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the consolidated income statement.

Provision for long term employee benefits represents the estimated future payments in respect of past services provided by employees. Consideration is given to expected future wages and salary levels, past record of employee departure and period of service. Expected future payments are discounted using market yields at the reporting date and currency that match, as closely as possible, the estimated future cash flows.

Provision for rehabilitation cost represents the estimated costs of rehabilitation relating to the areas disturbed during the operation of the PAS and the coal mines in Australia. The Group is required to return the sites to the Australian authorities in their original condition. The Group has estimated and provided for the expected costs of removal and clean-up on a periodical basis, based on the estimates provided by the environmental authorities when they reviewed the sites.

Provision for abandonment cost represents the estimated costs of abandoning oil and gas properties. The provision for abandonment cost has been classified as non-current liabilities. The associated cost is capitalised and the liability is discounted. An accretion expense is recognised using the credit-adjusted risk-free interest rate in effect when the liability is initially recognised.

81 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration the interpretations and practices prevailing in the countries in which the Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• (a) when the deferred tax liability arises from initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; and

• (b) in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except:

• (a) when the deferred tax asset relating to the deductible temporary differences arises from initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; and

• (b) in respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilised.

The carrying amount of the deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the assets are realised or the liabilities are settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Annual Report 2016 82

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Income tax (continued)

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority.

Dividend income derived from the Group’s subsidiaries in China is subject to withholding tax under the prevailing tax rules and regulations.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

• (a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• (b) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts over the expected life of the financial instruments or a shorter period, when appropriate, to the net carrying amount of the financial assets;

• (c) handling service fee, when the services have been rendered; and

• (d) dividend income, when the shareholders’ right to receive payment has been established.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases, including prepaid land lease payments under finance leases, are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the consolidated income statement so as to provide a constant periodic rate of charge over the lease terms.

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals payable under operating leases are charged to the consolidated income statement on the straight-line basis over the lease terms.

83 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Leases (continued)

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.

When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

Employee benefits

Share-based payments

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible persons who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (the “ equity-settled transactions ”).

The cost of equity-settled transactions with employees for grants after 7 November 2002 is measured by reference to the fair value at the date on which they are granted. The fair value is determined by using the binomial model.

The cost of equity-settled transactions is recognised in employee benefit expense, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the consolidated income statement for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.

For awards that do not ultimately vest because non-market performance and/or service conditions have not been met, no expense is recognised. Where awards include a market or non-vesting condition, the transactions are treated as vesting irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified if the original terms of the award are met. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payments, or is otherwise beneficial to the employee as measured at the date of modification.

Annual Report 2016 84

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Employee benefits (continued)

Share-based payments (continued)

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award substitutes a cancelled award and is designated as a replacement award on the date of grant, the cancelled and new awards are treated as if they were a modification of the original award as described in the previous paragraph.

When the share options lapsed after the vesting date or are still not exercised at the expiry date, the amount previously recognised in the share option reserve is transferred to the retained profits.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

Other employee benefits

Pension schemes

The Group operates a defined scheme under the Hong Kong Mandatory Provident Fund Schemes Ordinance (the “ MPF Scheme ”) for those employees in Hong Kong who are eligible to participate. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the consolidated income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiaries which operate in China are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute a certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the consolidated income statement as they become payable in accordance with the rules of the central pension scheme.

The Group provides employee benefits on retirement, disability or death to its employees in the PAS located in Australia. The benefit has a defined benefit plan and defined contribution plan. The defined benefit plan provides defined lump sum benefits based on years of service and final average salary. The defined contribution plan receives fixed contributions from the joint venture manager, and joint venture manager’s legal or constructive obligation is limited to these contributions. A liability in respect of defined benefit plan is recognised in the consolidated statement of financial position, and is measured as the present value of the superannuation fund’s assets at that date and any unrecognised past service cost. The present value of the defined benefit obligations is based on expected future payments which arise from membership of the fund to the reporting date, calculated annually by independent actuaries using the projected unit credit method. Contributions to defined contribution plan are recognised as an expense as they become payable.

85 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Other employee benefits (continued)

Pension schemes (continued)

In addition, the Group also operates a defined benefit plan for those employees in Indonesia who are eligible to participate. The Group uses an actuarial technique, the projected unit credit method, to determine the present value of its defined benefit obligations. The discount rate is determined by reference to market yields at the end of the reporting period based on local government bonds that have maturity dates approximating the terms of the Group’s defined benefit obligations. The calculation is performed by a qualified actuary.

Re-measurements arising from defined benefit plans, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on plan assets (excluding net interest), are recognised immediately in the consolidated statement of financial position with a corresponding debit or credit to retained profits through other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

Paid leave carried forward

The Group provides paid leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, any paid leave that remains untaken as at the end of the reporting period is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the end of the reporting period for the expected future cost of such paid leave earned during the year by the employees of the Group and carried forward.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets (being those that necessarily take a substantial period of time to get ready for their intended use or sale) are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Dividends

Dividends are recognised as liabilities when they are approved by shareholders in a general meeting.

Annual Report 2016 86

Year ended 31 December 2016

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Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Foreign currencies

The financial statements are presented in HK$ which is the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially translated using their respective functional currency rates of exchange prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated using the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in the consolidated income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item. In other words, the translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively.

The functional currencies of certain overseas subsidiaries, joint venture, joint operations and associate are currencies other than HK$. As at the end of the reporting period, the assets and liabilities of these entities are translated into HK$ at the exchange rates prevailing at the end of the reporting period and their income statements are translated into HK$ at the weighted average exchange rates for the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component in the consolidated statement of comprehensive income relating to that particular foreign operation is recognised in the consolidated income statement.

For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries and joint operations are translated into HK$ at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries and joint operations which arise throughout the year are translated into HK$ at the weighted average exchange rates for the year.

3. Significant Accounting Judgements and Estimates

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

87 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

3. Significant Accounting Judgements and Estimates (continued)

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements.

Tax

Determining income tax provisions requires the Group to make judgements on the future tax treatment of certain transactions. The Group carefully evaluates tax implications of transactions in accordance with prevailing tax regulations and makes tax provisions accordingly. In addition, deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences can be utilised. This requires significant judgement on the tax treatment of certain transactions and also assessment on the probability that adequate future taxable profits will be available to recover the deferred tax assets.

Employee benefits – share-based payments

The valuation of the fair value of share options granted requires judgement in determining the dividends expected on the shares, the expected volatility of the share price, the risk-free interest rate during the life of the options and the number of share options that are expected to become exercisable. Where the actual outcome of the number of exercisable options is different from the previously estimated number of exercisable options, such difference will have an impact on the consolidated income statement in the remaining vesting period of the relevant share options.

Fair value of financial instruments

Where fair value of financial assets and financial liabilities cannot be derived from active markets, they are determined using valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also a suitable discount rate to calculate the present value of those cash flows. Further details are set out in note 15 to the financial statements.

Annual Report 2016 88

Year ended 31 December 2016

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Notes to Financial Statements

3. Significant Accounting Judgements and Estimates (continued)

Estimation uncertainty (continued)

Oil and gas reserves and mining reserves

The most significant estimates in the oil and gas and mining operations pertain to the volumes of oil and gas reserves and mining reserves and the future development, purchase price allocation, provision for rehabilitation cost and abandonment cost, as well as estimates relating to certain oil and gas and mining revenues and expenses. Actual amounts could differ from those estimates and assumptions. Further details are set out in notes 13 and 32 to the financial statements.

Impairment of non-financial assets (other than goodwill)

The Group assesses at the end of each reporting period whether there are any indicators of impairment for all non-financial assets. The non-financial assets (other than goodwill) are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions at arm’s length of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management estimates the expected future cash flows from the asset or cash-generating unit and chooses a suitable discount rate to calculate the present values of those cash flows. Further details are set out in note 13 to the financial statements.

Impairment of loans and receivables

The Group assesses at the end of each reporting period whether there is any objective evidence that a loan/receivable is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on past experience in the assets with similar credit risk characteristics. Further details are set out in notes 23 and 25 to the financial statements.

Net realisable value of inventories

The Group performs regular review of the carrying amounts of its inventories with reference to aged analyses of the inventories and projections of expected future saleability of goods, and also based on management’s experience and judgement. Based on the review, write-down of inventories is made when the estimated net realisable values of inventories decline below their carrying amounts. Due to changes in the technological, market and economic environment and customers’ preference, actual saleability of goods may be different from estimation, and profit or loss could be affected accordingly. Further details are set out in note 24 to the financial statements.

89 CITIC Resources Holdings Limited

Year ended 31 December 2016

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Notes to Financial Statements

3. Significant Accounting Judgements and Estimates (continued)

Estimation uncertainty (continued)

Deferred tax assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profits will be available against which the losses can be utilised. Management’s judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details are set out in notes 10 and 33 to the financial statements.

4. Operating Segment Information

For management purposes, the Group is organised into business units based on their products and services and has four reportable operating segments as follows:

• (a) the aluminium smelting segment comprises the operation of the PAS which sources alumina and produces aluminium ingots in Australia;

• (b) the coal segment comprises the operation of coal mines and the sale of coal in Australia;

• (c) the import and export of commodities segment comprises the export of various commodity products such as aluminium ingots, coal, iron ore, alumina and copper; and the import of other commodity products and manufactured goods such as steel, and vehicle and industrial batteries and tyres into Australia; and

• (d) the crude oil segment comprises the operation of oilfields and the sale of oil in Indonesia and China.

Management monitors the results of the Group’s operating segments separately for the purposes of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/(loss), which is a measure of adjusted profit/(loss) before tax. The adjusted profit/(loss) before tax is measured consistently with the Group’s profit/(loss) before tax except that interest income, dividend income, finance costs, share of profit/(loss) of an associate and a joint venture, gain on disposal of other assets and impairment on assets as well as head office and corporate expenses are excluded from such measurement.

Segment assets exclude investment in an associate, investment in a joint venture, financial assets at fair value through profit or loss, available-for-sale investment, deferred tax assets, cash and cash equivalents, and other unallocated head office and corporate assets as these assets are managed on a group basis.

Segment liabilities exclude bank borrowings, finance lease payables, and other unallocated head office and corporate liabilities as these liabilities are managed on a group basis.

Annual Report 2016 90

HK$’000

Year ended 31 December

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Notes to Financial Statements

4. Operating Segment Information (continued)

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----- Start of picture text -----

2016 Import and
Aluminium export of
smelting Coal commodities Crude oil Total
----- End of picture text -----

Segment revenue: Sales to external customers 858,258 514,866 697,270 886,338 Other income 89,962 5,718 3,876 5,316	2,956,732 104,872
948,220 520,584 701,146 891,654	3,061,604
Segment results 3,791 29,107 6,937 (266,652) R ____ econciliation: Interest income and unallocated gains Dividend income Gain on disposal of other assets Provision for impairment of items of property, plant and equipment Provision for impairment of inventories Unallocated expenses Unallocated finance costs Share of profit/(loss) of: An associate A joint venture Profit before tax Segment assets 615,525 966,013 605,641 4,248,980 R ___ econciliation: Investment in an associate Investment in a joint venture Unallocated assets Total assets Segment liabilities 265,254 203,889 108,731 293,879 _R ______ econciliation: Unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation 88,980 47,204 585 714,844 Unallocated amounts Impairment losses reversed in the consolidated income statement — — (1,168) — Capital expenditure 2,136 9,960 351 34,986 Unallocated amounts	(226,817) 1,070,633 102,245 49,6881 (226,200)2 (125,763)3 (204,882) (276,240) (29,562) 210,922
	344,024
	6,436,159 905,841 173,942 5,752,807
	13,268,749
	871,753 7,700,706
	8,572,459
	851,613 4,415
	856,028
	(1,168)
	47,433 2,443
	49,8764

1 in respect of the coal segment

2 in respect of the aluminium smelting segment

3 in respect of the import and export of commodities segment and the crude oil segment

4 Capital expenditure consists of additions to property, plant and equipment and other assets.

91 CITIC Resources Holdings Limited

HK$’000

Year ended 31 December

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Notes to Financial Statements

4. Operating Segment Information (continued)

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----- Start of picture text -----

2015 Import and
Aluminium export of
smelting Coal commodities Crude oil Total
----- End of picture text -----

Segment revenue: Sales to external customers 1,030,526 584,128 1,136,754 961,719 Other income 47,499 — 4,825 9,604	3,713,127 61,928
1,078,025 584,128 1,141,579 971,323	3,775,055
Segment results (49,761) (157,750) 42,895 (313,445) R ____ econciliation: Interest income and unallocated gains Dividend income Provision for impairment of items of property, plant and equipment Provision for impairment of other assets Provision for impairment of an associate Provision for impairment of inventories Unallocated expenses Unallocated finance costs Share of loss of: An associate A joint venture Loss before tax Segment assets 958,011 1,000,907 717,522 5,203,866 R ___ econciliation: Investment in an associate Unallocated assets Total assets Segment liabilities 1,195,382 294,477 154,635 400,495 _R _____ econciliation: Unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation 97,758 90,569 713 719,969 Unallocated amounts Impairment losses reversed in the consolidated income statement — — (5,721) — Capital expenditure 2,851 18,327 234 497,393 Unallocated amounts	(478,061) 55,539 127,831 (940,038)1 (411,060)2 (330,040) (389,704)3 (1,602,665) (323,724) (352,817) (1,858,634)
	(6,503,373)
	7,880,306 994,020 5,192,200
	14,066,526
	2,044,989 7,916,219
	9,961,208
	909,009 7,091
	916,100
	(5,721)
	518,805 1,141
	519,9464

1 in respect of the crude oil segment

2 in respect of the coal segment

3 in respect of the import and export of commodities segment

4 Capital expenditure consists of additions to property, plant and equipment and other assets.

Annual Report 2016 92

HK$’000

Year ended 31 December

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Notes to Financial Statements

4. Operating Segment Information (continued)

Geographical information

(a) Revenue from external customers

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2016 2015
----- End of picture text -----

China	907,651	942,240
Australia	671,311	824,903
Europe	406,148	728,889
Other Asian countries	929,693	1,134,742
Others	41,929	82,353
	2,956,732	3,713,127

The revenue information above is based on the location of the customers.

(b) Non-current assets

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2016 2015
----- End of picture text -----

Hong Kong	3,577	2,860
China	4,739,340	5,715,779
Australia	3,716,645	3,046,956
Kazakhstan	177,991	5,779
Other Asian countries	121,578	271,342
	8,759,131	9,042,716

The non-current assets information above is based on the location of the assets which exclude other assets, available-for-sale investment and deferred tax assets.

Information about major customers

During the year, revenue of HK$705,989,000 was derived from sales to a customer of the crude oil segment and HK$666,108,000 was derived from sales to two customers of the aluminium smelting segment. Revenue from each of these three customers amounted to 10% or more of the Group’s revenue for the year.

In 2015, revenue of HK$796,441,000 was derived from sales to a customer of the crude oil segment and HK$644,293,000 was derived from sales to a customer of the aluminium smelting segment. Revenue from each of these two customers amounted to 10% or more of the Group’s revenue for 2015.

93 CITIC Resources Holdings Limited

HK$’000

Year ended 31 December

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Notes to Financial Statements

5. Revenue, Other Income and Gains

Revenue, which is also the Group’s turnover, represents the net invoiced value of goods sold during the year, after allowances for returns and trade discounts.

An analysis of the Group’s revenue, other income and gains is as follows:

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2016 2015
----- End of picture text -----

Revenue
Sale of goods:
Aluminium smelting	858,258	1,030,526
Coal	514,866	584,128
Import and export of commodities	697,270	1,136,754
Crude oil	886,338	961,719
	2,956,732	3,713,127
Other income and gains
Interest income	19,651	43,835
Dividend income from a financial asset at
fair value through profit or loss	102,245	127,831
Handling service fees	3,473	2,027
Fair value gains on:
Derivative financial instruments	84,309	48,561
A financial asset at fair value through profit or loss (note 21)	1,044,952	—
Sale of scrap	3,456	5,736
Gain on disposal of other assets	49,688	—
Others	19,664	17,308
	1,327,438	245,298
	4,284,170	3,958,425

Annual Report 2016 94

HK$’000

Year ended 31 December

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Notes to Financial Statements

6. Profit/(Loss) before Tax

The Group’s profit/(loss) before tax was arrived at after charging/(crediting):

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Notes 2016 2015
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Cost of inventories sold *		3,056,734	4,031,442
Depreciation		806,776	821,508
Amortisation of other assets		48,109	93,311
Amortisation of prepaid land lease payments		1,143	1,281
Minimum lease payments under
operating leases on land and buildings		27,840	29,222
Auditor’s remuneration		9,973	10,814
Employee benefit expenses
(including directors’ remuneration (note 7)):
Wages and salaries		411,137	421,857
Equity-settled share option expense	35	—	4,080
Pension scheme contributions		10,213	4,255
Provision for/(reversal of) long term
employee benefits	32	(7,290)	3,536
		414,060	433,728
Loss on disposal/write-off of items of
property, plant and equipment, net **		16,669	12,780
Exchange losses/(gains), net **		65,773	(81,351)
Write-down of inventories to net realisable value, net		31,569	20,420
Reversal of impairment of trade receivables	25	(1,168)	(5,721)
Impairment/(reversal of impairment) of
other receivables **	23	(24,536)	130,200
Fair value loss on cash flow hedges
(transferred from equity)	26	868,924	60,785 **
Gain on derecognition of a derivative financial liability	26	(868,924)	—
Fair value loss/(gain) on a financial asset at
fair value through profit or loss	21	(1,044,952)	1,281,787 **
Provision for impairment of items of
property, plant and equipment	13	226,200	940,038
Provision for impairment of other assets	16	—	411,060
Provision for impairment of an associate	19	—	330,040
Provision for impairment of inventories	24	125,763	389,704
Loss on deemed disposal of partial interest in
an associate **		—	483

• Cost of inventories sold for the year included an aggregate amount of HK$1,031,816,000 (2015: HK$1,094,009,000) which comprised an employee benefit expense, provision for inventories, depreciation, and amortisation of the ESA. This amount was also included in the respective expense items disclosed above.

• ** These amounts were included in “Other expenses, net” in the consolidated income statement.

95 CITIC Resources Holdings Limited

HK$’000

Year ended 31 December

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Notes to Financial Statements

7. Directors’ Remuneration

Directors’ and chief executive’s remuneration for the year, disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”), section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, was as follows:

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2016 2015
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Fees:
Executive directors and non-executive directors	325	455
Independent non-executive directors	1,541	1,587
	1,866	2,042
Other emoluments of executive directors:
Salaries, allowances and benefits in kind	14,434	16,578
Bonuses	19,600	13,290
Equity-settled share option expense	—	4,080
Pension scheme contributions	240	444
	34,274	34,392
	36,140	36,434

In 2013, in respect of his service to the Group, a director was granted share options under the share option scheme adopted by the Company on 30 June 2004 (the “ Old Scheme ”). The Old Scheme expired on 29 June 2014 and a new share option scheme was adopted by the Company on 27 June 2014 (the “ New Scheme ”). Further details of the New Scheme are set out in note 35 to the financial statements. The fair value of the share options granted under the Old Scheme, which has been charged to the consolidated income statement over the vesting period, was determined as at the date of grant, and the amount taken into account in the current year’s financial statements was included in the above disclosure.

(a) Independent non-executive directors

The fees paid to the independent non-executive directors during the year were as follows:

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2016 2015
----- End of picture text -----

Fan Ren Da, Anthony	546	495
Gao Pei Ji	516	465
Hu Weiping1	—	158
Look Andrew2	479	113
Shou Xuancheng 3	—	356
	1,541	1,587

1 retired on 26 June 2015

2 appointed on 1 September 2015

3 resigned on 4 December 2015

There were no other emoluments payable to the independent non-executive directors during the year (2015: Nil).

96

Annual Report 2016

HK$’000

Year ended 31 December

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Notes to Financial Statements

7. Directors’ Remuneration (continued)

(b) Executive directors and non-executive directors

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Salaries,
allowances Equity-settled Pension
and benefits share option scheme Total
Fees in kind Bonuses expense contributions remuneration
----- End of picture text -----

2016
Executive directors:
Kwok Peter Viem	—	1,332	2,000	—	55	3,387
Suo Zhengang	—	5,390	6,600	—	60	12,050
Sun Yang	—	4,640	8,000	—	60	12,700
Li So Mui	—	3,072	3,000	—	60	6,132
	—	14,434	19,600	—	235	34,269
Non-executive directors:
Ma Ting Hung	260	—	—	—	—	260
Qiu Yiyong 6	65	—	—	—	5	70
	325	—	—	—	5	330
	325	14,434	19,600	—	240	34,599
2015
Executive directors:
Kwok Peter Viem	—	1,322	1,000	4,080	55	6,457
Suo Zhengang5	—	405	2,500	—	5	2,910
Sun Yang	—	4,630	4,400	—	60	9,090
Guo Tinghu3	—	2,210	1,000	—	204	3,414
Li So Mui	—	3,022	1,760	—	60	4,842
	—	11,589	10,660	4,080	384	26,713
Non-executive directors:
Ma Ting Hung2	84	—	—	—	—	84
Qiu Yiyong4	18	4,989	2,630	—	60	7,697
Wong Kim Yin3	232	—	—	—	—	232
ZengChen1	121	—	—	—	—	121
	455	4,989	2,630	—	60	8,134
	455	16,578	13,290	4,080	444	34,847

1 retired on 26 June 2015

2 appointed on 1 September 2015

3 resigned on 4 December 2015

4 re-designated as a non-executive director on 4 December 2015

5 appointed on 4 December 2015

6 resigned on 1 April 2016

There was no arrangement under which a director waived or agreed to waive any remuneration in 2015 and 2016.

97 CITIC Resources Holdings Limited

HK$’000

Year ended 31 December

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Notes to Financial Statements

8. Five Highest Paid Employees

The five highest paid employees during the year included three (2015: four) directors and two (2015: one) members of senior management personnel. Details of the remuneration of these directors are set out in note 7 to the financial statements and details of the remuneration of these senior management personnel are as follows:

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2016 2015
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Salaries, allowances and benefits in kind	5,293	2,493
Bonuses	5,278	2,504
Pension scheme contributions	290	100
	10,861	5,097

9. Finance Costs

An analysis of finance costs is as follows:

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2016 2015
----- End of picture text -----

Interest expense on bank borrowings	260,711	291,663
Interest expense on finance lease	2,268	3,152
Total interest expense on financial liabilities not at
fair value through profit or loss	262,979	294,815
Other finance charges:
Increase in discounted amounts of provisions arising from
the passage of time (note 32)	4,329	3,324
Others	8,932	25,585
	276,240	323,724

Annual Report 2016 98

HK$’000

Year ended 31 December

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Notes to Financial Statements

10. Income Tax

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2016 2015
----- End of picture text -----

Current – Hong Kong	—	—
Current – Elsewhere
Charge for the year	139	1,458
Underprovision/(overprovision) in prior years	66	(132)
Deferred (note 33)	(422)	(332,779)
Total tax credit for the year	(217)	(331,453)

The statutory rate of Hong Kong profits tax was 16.5% (2015: 16.5%) on the estimated assessable profits arising in Hong Kong. No provision for Hong Kong profits tax was made as the Group had no assessable profits arising in Hong Kong during the year (2015: Nil).

Taxes on profits assessable elsewhere were calculated at the rates of tax prevailing in the jurisdictions in which the Group operates.

Australia: The Group’s subsidiaries incorporated in Australia were subject to Australian income tax at a rate of 30% (2015: 30%).

Indonesia: The corporate tax rate applicable to the subsidiary which is operating in Indonesia was 30% (2015: 30%). The Group’s subsidiary owning a participating interest in the oil and gas properties in Indonesia was subject to branch tax at the effective tax rate of 14% (2015: 14%).

China: The Group’s subsidiaries registered in China were subject to corporate income tax at a rate of 25% (2015: 25%).

According to HKAS 12 Income Taxes, deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled.

A reconciliation of the tax expense/(credit) applicable to profit/(loss) before tax at the Hong Kong statutory tax rate to the tax credit at the Group’s effective tax rate is as follows:

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2016 2015
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Profit/(loss) before tax	344,024	(6,503,373)
Tax at the Hong Kong statutory tax rate of 16.5% (2015: 16.5%)	56,764	(1,073,057)
Higher tax rates on profits arising elsewhere	90,531	(524,110)
Adjustments in respect of current tax of previous periods	66	(132)
Provision for impairment of deferred tax assets	—	94,139
Profits and losses attributable to an associate and a joint venture	(29,924)	364,889
Income not subject to tax	(295,215)	(47,518)
Expenses not deductible for tax	72,585	205,582
Tax losses not recognised	106,770	113,435
Temporary differences not recognised	(1,794)	535,319
Tax credit at the Group’s effective rate	(217)	(331,453)

99 CITIC Resources Holdings Limited

HK$’000

Year ended 31 December

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Notes to Financial Statements

10. Income Tax (continued)

The share of tax expense attributable to an associate and a joint venture, totalling HK$6,442,000 (2015: share of tax credit of HK$262,741,000), was included in “Share of profit/(loss) of an associate and a joint venture” in the consolidated income statement.

The Group has unrecognised deferred tax assets from tax losses arising in Hong Kong, Australia, Indonesia and China in an aggregate amount of HK$389,893,000 (2015: HK$316,125,000) that are available for offsetting against future taxable profits of the companies in which the losses arose. The Group has unrecognised deferred tax assets from deductible temporary differences in an aggregate amount of HK$190,105,000 (2015: HK$532,028,000). In respect of tax losses arising in China, the losses are available for offsetting against future taxable profits for a maximum period of five years. Deferred tax assets have not been recognised in respect of these tax losses and deductible temporary differences because they have arisen in companies that have been loss-making for some years and it is considered improbable that taxable profits will be available against which the tax losses can be utilised.

11. Dividend

	2016	2015
Proposed final dividend of HK1.50 cents (2015: Nil)
per ordinary share	117,866	—

The proposed final dividend for the year is subject to the approval of shareholders at the forthcoming annual general meeting of the Company.

12. Earnings/(Loss) per Share attributable to Ordinary Shareholders of the Company

The calculation of the basic earnings per share amount was based on the profit for the year attributable to ordinary shareholders of the Company of HK$362,985,000 (2015: a loss of HK$6,104,909,000) and the weighted average number of ordinary shares in issue during the year, which was 7,857,727,149 (2015: 7,864,073,861) shares.

The calculation of the diluted earnings per share amount was based on the profit for the year attributable to ordinary shareholders of the Company. The weighted average number of ordinary shares used in the calculation was the number of ordinary shares in issue during the year, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

No adjustment was made to the basic earnings per share amount presented for the year in respect of a dilution as there were no dilutive potential ordinary shares arising from share options as the average share price of the Company during the year did not exceed the exercise price of the then outstanding share options.

No adjustment was made to the basic loss per share amount presented for 2015 in respect of a dilution as the share options outstanding during 2015 had an anti-dilutive effect on the basic loss per share amount presented.

100

Annual Report 2016

HK$’000

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Notes to Financial Statements

13. Property, Plant and Equipment

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2016 Motor vehicles,
plant,
machinery, Furniture Buildings
Oil and gas Freehold Leasehold tools and and and Capital Construction
Notes properties land improvements equipment fixtures structures works in progress Total
----- End of picture text -----

Cost :
At 1 January		9,450,400	42,893	4,420	1,854,149	19,495	742,083	137,702	164,653	12,415,795
Change in provision for
abandonment cost	32	988	—	—	—	—	—	—	—	988
Change in provision for
rehabilitation cost	32	—	—	—	707	—	4,550	—	—	5,257
Additions		12,476	—	—	2,957	1,852	4,468	2,345	21,146	45,244
Disposals/write-off		—	—	—	(41,974)	(17)	(1,403)	—	(4,823)	(48,217)
Transfers		20,326	—	—	5,087	—	5,098	(9,784)	(20,727)	—
Exchange realignment		(391,116)	—	(83)	(1,238)	—	(100)	5	(10,428)	(402,960)
At 31 December		9,093,074	42,893	4,337	1,819,688	21,330	754,696	130,268	149,821	12,016,107
Accumulated depreciation
and impairment :
At 1 January		4,589,684	—	4,331	1,232,434	18,068	473,568	11,700	97,427	6,427,212
Depreciation provided
during the year		749,463	—	58	63,178	1,236	31,799	—	—	845,734
Disposals/write-off		—	—	—	(28,397)	(17)	(1,363)	—	—	(29,777)
Provision for impairment	6	—	—	—	226,200	—	—	—	—	226,200
Exchange realignment		(120,242)	—	(83)	(943)	—	(33)	—	(6,287)	(127,588)
At 31 December		5,218,905	—	4,306	1,492,472	19,287	503,971	11,700	91,140	7,341,781
Net carrying amount :
At 31 December		3,874,169	42,893	31	327,216	2,043	250,725	118,568	58,681	4,674,326

101 CITIC Resources Holdings Limited

HK$’000

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Notes to Financial Statements

13. Property, Plant and Equipment (continued)

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2015 Motor vehicles,
plant,
machinery, Furniture Buildings
Oil and gas Freehold Leasehold tools and and and Capital Construction
Note properties land improvements equipment fixtures structures works in progress Total
----- End of picture text -----

Cost :
At 1 January		7,988,636	58,180	4,518	1,857,969	19,097	742,599	132,660	1,418,548	12,222,207
Change in provision for
rehabilitation cost		—	—	—	928	—	11,736	—	—	12,664
Additions		180,519	—	49	2,638	398	5,511	5,044	316,583	510,742
Disposals/write-off		—	(15,284)	(44)	(12,178)	—	(2,629)	—	—	(30,135)
Transfers		1,542,332	—	—	5,069	—	—	—	(1,547,401)	—
Exchange realignment		(261,087)	(3)	(103)	(277)	—	(15,134)	(2)	(23,077)	(299,683)
At 31 December		9,450,400	42,893	4,420	1,854,149	19,495	742,083	137,702	164,653	12,415,795
Accumulated depreciation
and impairment :
At 1 January		3,089,490	—	4,304	1,163,410	16,808	454,525	11,700	—	4,740,237
Depreciation provided
during the year		716,584	—	181	72,254	1,260	31,229	—	—	821,508
Disposals/write-off		—	—	(43)	(6,094)	—	(2,210)	—	—	(8,347)
Provision for impairment	6	839,304	—	—	—	—	—	—	100,734	940,038
Transfers		(2,990)	—	—	2,990	—	—	—	—	—
Exchange realignment		(52,704)	—	(111)	(126)	—	(9,976)	—	(3,307)	(66,224)
At 31 December		4,589,684	—	4,331	1,232,434	18,068	473,568	11,700	97,427	6,427,212
Net carrying amount :
At 31 December		4,860,716	42,893	89	621,715	1,427	268,515	126,002	67,226	5,988,583

As at 31 December 2016, the net carrying amount of the Group’s property, plant and equipment included plant and machinery of HK$51,217,000 (2015: HK$61,948,000) held under a finance lease.

Freehold land of the Group is located in Australia.

During the year, an impairment of HK$226,200,000 to plant, machinery and equipment of the PAS was recognised to reduce their carrying amount to their recoverable amount. The impairment arose primarily due to the power outage in late 2016 at the PAS, which disrupted operations and caused a reduction in production capacity of the PAS in the near term and higher production costs.

Provision for impairment for 2015 included impairment of (a) HK$395,730,000 to oil and gas properties in the Seram Block; and (b) HK$544,308,000 to oil and gas properties and construction in progress in the Hainan-Yuedong Block, to reduce their carrying amount to their recoverable amount. The impairment arose primarily due to the continuing depressed oil prices and lack of prospects for recovery in the near term.

The estimate of the recoverable amount of these assets was determined based on a value in use calculation, using a discounted cash flow model. Future cash flows were adjusted for risks specific to these assets and discounted using a pre-tax discount rate of 11.90% in respect of the PAS for the year, and 10.00% in respect of the Seram Block and the Hainan-Yuedong Block for 2015.

Annual Report 2016 102

HK$’000

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Notes to Financial Statements

13. Property, Plant and Equipment (continued)

In assessing whether an impairment is required for the carrying value of a potentially impaired asset, its carrying value is compared with its recoverable amount. Assets are tested for impairment either individually or as part of a cash-generating unit. The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Given the nature of the Group’s activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers are taking place. Consequently, unless indicated otherwise, the recoverable amount used in assessing the impairment charges described above is value in use.

14. Prepaid Land Lease Payments

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2016 2015
----- End of picture text -----

Carrying amount at 1 January	20,025	22,259
Amortisation provided during the year	(1,213)	(1,281)
Exchange realignment	(1,238)	(953)
Carrying amount at 31 December	17,574	20,025
Current portion included in prepayments, deposits and
other receivables (note 23)	(1,159)	(1,239)
Non-current portion	16,415	18,786

15. Goodwill

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2016 2015
----- End of picture text -----

Cost:
At 1 January and 31 December	341,512	341,512
Accumulated impairment:
At 1 January and 31 December	316,830	316,830
Net carrying amount:
At 31 December	24,682	24,682

Impairment testing of goodwill

As at 31 December 2016 and 2015, the net carrying amount of the Group’s goodwill related to its import and export of commodities cash-generating unit which is a reportable segment.

The recoverable amount of the Group’s import and export of commodities cash-generating unit was determined based on a value in use calculation, using cash flow projection based on financial budgets covering a 5-year period approved by management. The cash flows beyond the 5-year period were extrapolated using a growth rate of 2% which was determined with reference to the long term Customer Price Index of Australia and the nature of the business. The pre-tax discount rate applied to the cash flow projection was 17.18% (2015: 15.57%).

103 CITIC Resources Holdings Limited

HK$’000

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Notes to Financial Statements

16. Other Assets

Non-current assets

	ESA	Mining assets and stripping costs	Exploration and evaluation assets	Total
2016
Cost:
At 1 January	1,039,777	792,822	219,738	2,052,337
Additions	—	49,080	774	49,854
Disposals	—	—	(24,902)	(24,902)
At 31 December	1,039,777	841,902	195,610	2,077,289
Accumulated amortisation and impairment:
At 1 January	996,781	702,909	39,502	1,739,192
Amortisationprovided duringtheyear	42,996	5,113	—	48,109
At 31 December	1,039,777	708,022	39,502	1,787,301
Net carrying amount:
At 31 December	—	133,880	156,108	289,988
	ESA	Mining assets	Exploration and evaluation assets	Total
2015
Cost:
At 1 January	1,039,777	790,451	212,905	2,043,133
Additions	—	2,371	6,833	9,204
At 31 December	1,039,777	792,822	219,738	2,052,337
Accumulated amortisation and impairment:
At 1 January	944,989	265,423	24,409	1,234,821
Amortisation provided during the year	51,792	41,519	—	93,311
Impairment duringtheyear (note 6)	—	395,967	15,093	411,060
At 31 December	996,781	702,909	39,502	1,739,192
Net carrying amount:
At 31 December	42,996	89,913	180,236	313,145
Portion classified as current assets	(42,996)	—	—	(42,996)
Non-current portion	—	89,913	180,236	270,149

In prior years, coal prices had been decreasing due to the challenging economic environment, the persistent weak global demand for steel and an oversupply of metallurgical coal. As such, in 2015 impairment assessment was carried out to determine the recoverable amount of the Group’s coal cash-generating unit. The recoverable amount was determined based on a value in use calculation, using a discounted cash flow model. Future cash flows were adjusted for risks specific to the Group‘s coal cash-generating unit and discounted using a pre-tax discount rate of 15.79%. An impairment of HK$411,060,000 was identified, allocated to the mining assets and exploration and evaluation assets, and recorded in the consolidated income statement in 2015.

104

Annual Report 2016

HK$’000

31 December

Notes to Financial Statements

17. Investments in Joint Operations

As at 31 December 2016, the Group had interests in the following joint operations:

• (a) 51% participating interest in the production sharing contract which grants the right to explore, develop and produce petroleum from the Seram Block until 2019 (the “ PSC ”); and

• (b) the petroleum contract (as supplemented) for the exploration, development and production of petroleum from the Hainan-Yuedong Block.

18. Interests in Other Contractual Arrangements

As at 31 December 2016, the Group had interests in the following contractual arrangements:

• (a) 22.5% participating interest in the PAS operations, the principal activity of which is aluminium smelting;

• (b) 14% participating interest in the Coppabella and Moorvale coal mines joint venture operations, the principal activities of which are the mining and sale of coal;

• (c) 50% participating interest in the CB Exploration operations;

• (d) 15% participating interest in the Bowen Basin Coal operations;

• (e) 10% participating interest in the West Rolleston operations;

• (f) 10% participating interest in the Moorvale West operations;

• (g) 10% participating interest in the Olive Downs operations;

• (h) 15% participating interest in the West Walker operations;

• (i) 13.335% participating interest in the West / North Burton operations; and

• (j) 15% participating interest in the Capricorn operations.

The principal activity of each of the contractual arrangements stated in (c) to (j) is the exploration of coal.

The contractual arrangements stated in (a) and (c) above were not audited by Ernst & Young, Hong Kong or another member firm of the Ernst & Young global network.

The Group’s interest in the assets and liabilities employed in the PAS JV was included in the consolidated statement of financial position under the classification shown below:

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2016 2015
----- End of picture text -----

Non-current assets	474,881	962,227
Current assets	86,878	113,758
Current liabilities	(94,817)	(139,846)
Non-current liabilities	(138,789)	(161,304)

105 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

18. Interests in Other Contractual Arrangements (continued)

The Group’s interests in the combined net assets employed in the remaining contractual arrangements were included in the consolidated statement of financial position under the classification shown below:

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2016 2015
----- End of picture text -----

Non-current assets	776,449	836,293
Current assets	292,495	229,293
Current liabilities	(238,916)	(190,375)
Non-current liabilities	(72,512)	(71,791)
Proportionate share of combined net assets employed in
the remaining contractual arrangements	757,516	803,420

19. Investment in an Associate

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2016 2015
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Share of net assets	1,648,073	1,736,252
Goodwill on acquisition	1,089,808	1,089,808
	2,737,881	2,826,060
Impairment *	(1,832,040)	(1,832,040)
	905,841	994,020

• As a result of the persistent weak prices of manganese and manganese products, the recoverable amount of the Group’s investment in CITIC Dameng Holdings Limited (“ CDH ”), determined with reference to the cash flows expected to be generated by CDH, dropped further during 2015. Based on the Group’s cash flow projection of CDH, an additional impairment of HK$330,040,000 was provided in 2015 (note 6). The pre-tax discount rate applied to the cash flow projection was 13.37%.

Particulars of the Group’s associate as at 31 December 2016 were as follows:

Name	Place of incorporation / operation	Issued ordinary share capital	Percentage of equity interest attributable to the Group	Principal activity
CDH	Bermuda /	HK$342,845,900	34.39	Investment holding
	Hong Kong

Between June and August 2015, CDH completed a placement of 406,780,000 shares and the repurchase and cancellation of 3,116,000 shares. The Group’s shareholding in CDH was diluted from 38.98% to 34.39% accordingly.

Annual Report 2016 106

HK$’000

31 December

Notes to Financial Statements

19. Investment in an Associate (continued)

CDH is an investment holding company and its subsidiaries are engaged in (a) manganese mining, ore processing and downstream processing operations in China; (b) manganese mining and ore processing operations in Gabon, West Africa; and (c) trading of manganese ore. CDH is considered a material associate of the Group and is accounted for using the equity method.

The following table summarises the financial information of CDH and its subsidiaries and also illustrates the reconciliation to the carrying amount of the Group’s investment in CDH in the consolidated financial statements:

	2016	2015
Current assets	3,757,878	3,809,453
Non-current assets	5,168,425	5,527,883
Current liabilities	(4,681,008)	(4,512,937)
Non-current financial liabilities, excluding
accounts payable, other payables and provisions	(1,251,054)	(1,504,989)
Other non-current liabilities	(291,555)	(319,766)
Net assets	2,702,686	2,999,644
Non-controlling interests	(68,663)	(109,212)
	2,634,023	2,890,432
Reconciliation to the Group’s investment in an associate:
Proportion of ownership	34.39%	34.39%
Proportionate share of net assets and carrying amount	905,841	994,020
Fair value of the Group’s investment	601,290	624,870
	Year ended 31 December 2016 2015
Revenue	3,248,108	2,517,000
Loss for the year attributable to:
Shareholders of CDH	(85,960)	(984,463)
Non-controlling interests of CDH	(40,508)	(19,970)
Other comprehensive income/(loss) attributable to:
Shareholders of CDH	(170,464)	(138,782)
Non-controlling interests of CDH	(41)	57

107 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

20. Investment in a Joint Venture

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2016 2015
----- End of picture text -----

Share of net assets	1,573,877	1,399,935
Impairment	(1,399,935)	(1,399,935)
	173,942	—

Particulars of the Group’s joint venture as at 31 December 2016 were as follows:

Name	Place of incorporation and operation	Percentage of Issued equity interest ordinary attributable to share capital the Group	Principal activity
CITIC Canada Energy Limited	Canada	US$1 50	Investment holding
(“CCEL”)

CCEL is an investment holding company and its operating subsidiaries are principally engaged in the exploration, development, production and sale of oil and provision of oilfield related services in Kazakhstan.

The following table summarises the financial information of CCEL and its subsidiaries and also illustrates the reconciliation to the carrying amount of the Group’s investment in CCEL in the consolidated financial statements:

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2016 2015
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Cash and cash equivalents	902,182	566,400
Other current assets	955,540	920,762
Current assets	1,857,722	1,487,162
Non-current assets	6,069,828	6,409,720
Financial liabilities, excluding accounts payable and
other payables	(5,170,614)	(2,899,590)
Other current liabilities	(739,167)	(730,354)
Current liabilities	(5,909,781)	(3,629,944)
Non-current financial liabilities, excluding
accounts payable, other payables and provisions	—	(2,384,295)
Other non-current liabilities	(1,493,991)	(1,711,251)
Non-current liabilities	(1,493,991)	(4,095,546)
Net assets	523,778	171,392
Non-controllinginterests	(175,894)	(171,392)
	347,884	—
Reconciliation to the Group’s investment in a joint venture:
Proportion of ownership	50%	50%
Proportionate share of net assets and carrying amount	173,942	—

Annual Report 2016 108

HK$’000

31 December

Notes to Financial Statements

20. Investment in a Joint Venture (continued)

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Year ended 31 December
2016 2015
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Revenue	4,387,219	4,583,296
Interest income	18,832	19,128
Depreciation and amortisation	(524,015)	(885,820)
Interest expense	(104,870)	(101,177)
Income tax credit/(expense)	(15,582)	540,196
Profit/(loss) for the year attributable to:
Shareholders of CCEL	421,844	(3,717,268)
Non-controlling interests of CCEL	20,291	(190,061)
Other comprehensive income/(loss) attributable to:
Shareholders of CCEL	(73,960)	(431,184)
Non-controlling interests of CCEL	488	(36,397)

21. Financial Assets at Fair Value through Profit or Loss

Designated as such upon initial recognition

	2016	2015
Non-current investment:
Listed equity investment in Australia, at fair value	2,880,665	1,835,713

The fair value of the above investment was based on the quoted market price of the equity investment’s shares on the Australian Securities Exchange (the “ ASX ”).

As at 31 December 2016, the Group held a 9.685% (2015: 9.685%) equity interest in Alumina Limited (“ AWC ”). AWC, an Australian company listed on the ASX, has significant global interests in bauxite mining, alumina refining and selected aluminium smelting operations.

During the year, the Group has recorded a fair value gain of HK$1,044,952,000 (2015: a fair value loss of HK$1,281,787,000) in respect of its interest in AWC (notes 5 and 6).

Held for trading

	2016	2015
Current investments:
Unlisted investments in Australia and China, at fair value	3,029	3,029

109 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

22. Available-for-sale Investment

	2016	2015
Non-current investment:
Listed equity investment in Australia, at fair value	784	1,274

The fair value of the above investment was based on the quoted market price of the equity investment’s shares on the ASX.

23. Prepayments, Deposits and Other Receivables

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2016 2015
----- End of picture text -----

Prepayments	13,591	99,536
Current portion of prepaid land lease payments (note 14)	1,159	1,239
Deposits and other receivables	1,521,581	1,773,573
	1,536,331	1,874,348
Portion classified as current assets	(1,453,071)	(1,693,416)
Non-current portion	83,260	180,932

Included in the Group’s other receivables was an amount due from CCEL, a joint venture through which the Group owns, manages and operates the Karazhanbas oilfield (as defined on page 14) in Kazakhstan, of HK$1,339,921,000 (2015: HK$1,449,795,000), which was interest free and repayable on demand. In 2015, an impairment of HK$24,536,000 was provided in respect of the amount due from CCEL. However, such amount was reversed during the year (note 6).

With effect from the first half of 2015, a new tax regulation in Indonesia limits value added tax reimbursements to equity oil distributed to the government under the PSC. As it was uncertain whether any equity oil would be available for distribution to the government prior to the expiry of the PSC, a provision of HK$105,664,000 (note 6) was made in 2015 in respect of the potentially unrecoverable value added tax reimbursement. In October 2016, an amendment was made to such regulation. CITIC Seram is awaiting further implementation guidance on whether such amendment can be applied on a retrospective basis.

At 31 December 2016, none of the above assets was either past due or impaired. The financial assets included in the above balances related to receivables for which there was no recent history of default.

24. Inventories

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2016 2015
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Raw materials	116,761	131,024
Work in progress	10,824	17,309
Finishedgoods	450,113	500,283
	577,698	648,616

In 2014, the Chinese authorities commenced an investigation into the allegedly fraudulent multiple use of warehouse receipts in respect of certain aluminium and copper products stored at Qingdao port, China (the “ Investigation ”). The Group is not involved in the Investigation and up to the date of this report, the Group is not aware of the status or result of the Investigation.

Annual Report 2016 110

HK$’000

31 December

Notes to Financial Statements

24. Inventories (continued)

The Group has certain alumina and copper stored in bonded warehouses at Qingdao port (the “ Inventories ”) with a gross carrying value of HK$979,212,000. In light of the Investigation, the Group applied to the Qingdao Maritime Court (the “ Qingdao Court ”) in June 2014 for asset protection orders in respect of the Inventories. The Qingdao Court, however, did not grant an asset protection order in respect of certain alumina amongst the Inventories (the “ Non-protected Alumina ”). The Group also claimed against the operator of the bonded warehouses at Qingdao port and related parties (collectively, the “ Operator ”) requiring the Operator to confirm the Group’s ownership of the Inventories and to release and deliver all of the Inventories to the Group or, failing which, to compensate the Group (the “ Claim ”).

In prior years, the Group recorded a full provision against all the alumina of HK$579,277,000 and has made an impairment provision of HK$130,227,000 on certain copper.

Pursuant to the decisions of the Qingdao Court in September 2016 (the “ Qingdao Court Decisions ”), the Claim was transferred to the Southern Branch of the Qingdao Public Security Bureau (the “ Public Security Bureau ”) pursuant to Article 12 of “ 最高人民法院關於在審理經濟糾紛案件中涉及 經濟犯罪嫌疑若干問題的規定” (The Provisions of the Supreme People’s Court on Several Issues Concerning Suspected Economic Crimes in the Trials of Economic Dispute Cases) (“ Article 12 ”) for determination in accordance with China’s criminal procedures. As a result of the Qingdao Court Decisions, the Claim has terminated. The asset protection orders obtained by the Group from the Qingdao Court in June 2014 over the Inventories (excluding the Non-protected Alumina), however, remain in force.

As the transfer of the Claim to the Public Security Bureau has introduced greater uncertainty as to the recoverability of certain amount of the copper, the Group made a further provision of HK$89,435,000 for the year, leaving copper inventory with a net carrying value of HK$180,273,000 as at 31 December 2016. The Group remains confident in being able to recover the remaining copper having considered the evidence in hand and the advice from its legal counsel, hence, no further adjustment is considered necessary.

In addition, as at 31 December 2016, an impairment of HK$36,328,000 (2015: Nil) was provided in respect of the obsolete and slow-moving raw materials in the Seram Block.

Other than the above impairment provisions (totalling HK$125,763,000) made during the year, an impairment of HK$33,928,000 (2015: HK$22,207,000) was provided to write down the carrying amount of the inventories in the Hainan-Yuedong Block to their estimated net realisable value. Such amount was charged to “Cost of sales” in the consolidated income statement.

25. Trade and Notes Receivables

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2016 2015
----- End of picture text -----

Trade receivables	621,733	486,640
Notes receivables	24,556	—
Impairment	(2,522)	(3,690)
	643,767	482,950

The Group normally offers credit terms of 30 to 120 days to its established customers.

111 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

25. Trade and Notes Receivables (continued)

An aged analysis of the trade and notes receivables, based on the invoice date and net of provisions, was as follows:

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2016 2015
----- End of picture text -----

Within one month	442,976	298,782
One to two months	37,390	50,984
Two to three months	80,326	61,671
Over three months	83,075	71,513
	643,767	482,950

The movements in the provision for impairment of trade and notes receivables were as follows:

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2016 2015
----- End of picture text -----

At 1 January	3,690	9,411
Reversal of impairment (note 6)	(1,168)	(5,721)
At 31 December	2,522	3,690

Included in the above provision for impairment of trade and notes receivables was a provision for individually impaired trade receivables of HK$2,522,000 (2015: HK$3,690,000) with an aggregate carrying amount (before provision) of HK$2,522,000 (2015: HK$3,690,000). The individually impaired trade receivables related to customers that were in financial difficulties and the receivables were not expected to be recovered.

An aged analysis of the trade and notes receivables that were not considered to be impaired was as follows:

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2016 2015
----- End of picture text -----

Neither past due nor impaired	599,553	469,098
Less than one month past due	42,058	12,909
One to three months past due	2,156	598
Over three months past due	—	345
	643,767	482,950

Receivables that were neither past due nor impaired related to customers for whom there was no recent history of default.

Receivables that were past due but not impaired related to independent customers that have a good track record with the Group. Based on past experience, no provision for impairment is considered necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.

Annual Report 2016 112

HK$’000

31 December

Notes to Financial Statements

26. Derivative Financial Instruments

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2016 2015
Assets Liabilities Assets Liabilities
----- End of picture text -----

Forward currency contracts	5,786	902	124	1,885
Forward commodity contracts	882	9,485	174	3,829
Derivative financial instrument –
embedded derivative – ESA	—	—	—	35,100
EHA (as defined below)	54,158	—	—	868,924
	60,826	10,387	298	909,738
Portion classified as non-current portion:
EHA (as defined below)	—	—	—	(868,924)
Non-current portion	—	—	—	(868,924)
Current portion	60,826	10,387	298	40,814

Certain members of the Group enter into derivative financial instruments in the normal course of business in order to hedge their exposure to fluctuations in foreign exchange rates, commodity prices and inflation.

Forward currency contracts – cash flow hedges

The Group has transactional currency exposures. Such exposures primarily arise from sales or purchases by the Group’s import and export of commodities segment in currencies other than the functional currencies of the related entities in that segment. Therefore, to enable the Group to manage such business operations, forward currency contracts are entered into to hedge current and anticipated future sales and purchases.

Forward currency contracts described above are considered to be cash flow hedges and are accounted for in accordance with the accounting policies set out in note 2.4 to the financial statements.

The terms of the outstanding forward currency contracts held by the Group were as follows:

		2016 Weighted average exchange rate	Contractual amount	2015 Weighted average exchange rate	Contractual amount
Forward currency contracts:
(a)	Sell A$ / Buy US$
	Within three months	0.7549	136,302	0.7173	111,820
(b)	Buy A$ / Sell US$
	Within three months	0.7345	51,565	—	—
(c)	Sell A$ / Buy Euro
	Within three months	0.6690	1,490	0.6856	1,710

The terms of the forward currency contracts were negotiated to match the terms of related purchases and sales commitments. The amounts disclosed above were measured at the contracted rates.

113 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

26. Derivative Financial Instruments (continued)

Forward currency contracts – cash flow hedges (continued)

The portion of gain or loss on the hedging instruments that is determined to be an effective hedge is recognised directly in the consolidated statement of changes in equity. When a cash flow occurs, the Group adjusts the initial measurement of the component recognised in the consolidated statement of financial position by the related amount in the consolidated statement of changes in equity.

Forward commodity contracts – cash flow hedges

The Group commits to the forward contracts in order to protect itself from adverse movements in aluminium prices.

Forward commodity contracts are normally settled other than by physical delivery of the underlying commodities and hence are classified as financial instruments. On maturity, the forward price is compared to the spot price and the difference is applied to the contracted quantity in calculating the gain or loss of the Group under such contract.

Aluminium forward contracts are entered into for the purpose of hedging the volatility of future aluminium prices. The contracts are considered to be cash flow hedges and are accounted for in accordance with the accounting policies set out in note 2.4 to the financial statements.

The terms of the outstanding forward commodity contracts held by the Group were as follows:

	Quantity hedged tonnes	2016 Average price per tonne HK$	Contractual amount	Quantity hedged tonnes	2015 Average price per tonne HK$	Contractual amount
Aluminium
forward contracts (sold):
Within three months	4,000	13,428	53,712	2,000	12,012	24,024

The terms of the forward commodity contracts were negotiated to match those of the underlying commitments.

Electricity hedge agreement – cash flow hedges

In March 2010, a base load electricity contract was signed between the Group and an independent electricity supplier (the “ EHA ”). The EHA effectively allowed the PAS to hedge the spot price for electricity for a specific load from November 2016 to December 2036.

Due to the decrease of market prices of electricity during recent years, the Group viewed the EHA in its current form to be unviable. In August 2016, the Group served a notice to terminate the EHA effective August 2017. Consequently, the EHA no longer qualified for hedge accounting as at the date notice of termination was served. The accumulated hedging reserve on the date notice of termination was served reclassified from the consolidated statement of comprehensive income and recognised in the consolidated income statement. The original derivative financial liability arising from the EHA was derecognised accordingly.

Annual Report 2016 114

HK$’000

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Notes to Financial Statements

26. Derivative Financial Instruments (continued)

Electricity hedge agreement – cash flow hedges (continued)

In January 2017, the Group entered into a new hedging agreement with several subsidiaries of AGL Energy Limited (“ AGL ”), an integrated renewable energy company listed on the ASX (Stock Code: AGL), in relation to the supply of electricity from August 2017 to July 2021.

The cash flow hedges of (a) the expected future sales and purchases; and (b) the EHA (prior to service of notice of termination) were assessed to be highly effective and a net gain of HK$612,899,000 (2015: a net loss of HK$104,239,000), net of deferred tax, was included in the hedging reserve as follows:

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Year ended
31 December 2016
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Total fair value gain included in the hedging reserve	6,646
Reclassified from the consolidated statement of comprehensive income and
recognised in the consolidated income statement	868,924
Deferred tax	(262,671)
Net gain on cash flow hedges	612,899

Forward commodity contracts – provisional pricing arrangements

The Group enters into pricing arrangements in relation to its aluminium sales. The aluminium sale agreements provide for provisional pricing of sales at the time of or after shipment, with final pricing based on the monthly average aluminium price of the London Metal Exchange (the “ LME ”) for specified future periods. This normally ranges from one month to five months after shipment.

The mark to market gains or losses of open sales are recognised through adjustments in the consolidated income statement and to trade receivables or payables in the consolidated statement of financial position. The Group determines the mark to market prices using forward prices at the end of each reporting period. As at 31 December 2016, there were 9,096 tonnes (2015: 11,634 tonnes) of aluminium which had been shipped and remained open as to price. The embedded derivative arising from these open sales was recognised as a derivative financial instrument as at 31 December 2016.

The Group also enters into aluminium forward contracts to swap a floating selling price of its aluminium sold under the provisional pricing arrangements (described above) to a fixed selling price. For aluminium forward contracts that are entered into prior to the physical shipments of the aluminium, they are treated as cash flow hedges from the dates of entering into these contracts until the respective shipment dates. Thereafter, any gains or losses from these contracts (if not settled in the month of each shipment) are recognised in the consolidated income statement. For aluminium forward contracts that are entered into after the physical shipments of the aluminium, any gains or losses from these contracts are recognised directly in the consolidated income statement.

Derivative financial instrument – embedded derivative

The pricing mechanism used in the ESA included a component that was subject to the price of aluminium. Hence, it was determined that an embedded derivative existed and that the derivative component was separated from its host agreement. The embedded derivative was revalued at the end of each reporting period during its term and on its expiry, based on future aluminium prices with its fair value gain or loss recognised in the consolidated income statement. The ESA expired during the year.

115 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

27. Cash and Cash Equivalents

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2016 2015
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Cash and bank balances	402,546	459,034
Time deposits	758,443	841,163
Cash and cash equivalents *	1,160,989	1,300,197

• As at 31 December 2016, the Group had a balance of HK$2,405,000 (2015: HK$731,000) at China CITIC Bank International Limited (“ CITIC Bank Int’l ”) and HK$682,000 (2015: HK$1,316,000) at China CITIC Bank Corporation Limited.

Cash at banks earns interest at the rates quoted by banks. Time deposits are placed for periods ranging from one day to three months depending on the cash requirements of the Group, and earn interest at rates prevailing from time to time. The bank balances and time deposits are placed with creditworthy banks with no recent history of default.

At the end of the reporting period, the cash and bank balances and time deposits of the Group denominated in Renminbi (“ RMB ”) and Kazakhstan Tenge (“ KZT ”) were equivalent to HK$82,133,000 and HK$405,000 (2015: HK$630,629,000 and HK$85,000), respectively. Although RMB and KZT are not freely convertible into other currencies, the Group is permitted to exchange RMB and KZT for other currencies through banks which are authorised to conduct foreign exchange business under the foreign exchange control regulations of China and Kazakhstan, respectively.

28. Accounts Payable

An aged analysis of the accounts payable, based on the invoice date, was as follows:

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2016 2015
----- End of picture text -----

Within one month	130,891	365,881
One to three months	—	6,428
Over three months	—	77,509
	130,891	449,818

The accounts payable are non-interest-bearing and are normally settled on terms of 30 to 90 days.

29. Accrued Liabilities and Other Payables

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2016 2015
----- End of picture text -----

Other payables	206,060	188,453
Accruals	358,979	228,608
	565,039	417,061

Other payables are non-interest-bearing and have an average term of three months.

Annual Report 2016 116

HK$’000

31 December

Notes to Financial Statements

30. Bank Borrowings

	2016	2015
Bank borrowings – unsecured	7,527,327	7,805,907

As at 31 December 2016, the bank borrowings included:

• (a) trade finance totalling A$35,837,000 (HK$202,266,000), which was interest-bearing at the Bank Bill Swap Bid Rate (or cost of funds) plus margin; and

• (b) loans totalling US$939,110,000 (HK$7,325,061,000), which were interest-bearing at the London interbank offered rates plus margin and included US$24,706,000 (HK$192,708,000) from CITIC Bank Int’l.

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2016 2015
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Bank borrowings repayable:
Within one year or on demand	1,371,809	1,356,249
In the second year	3,773,788	2,704,586
In the third to fifth years, inclusive	2,381,730	3,745,072
	7,527,327	7,805,907
Portion classified as current liabilities	(1,371,809)	(1,356,249)
Non-current portion	6,155,518	6,449,658

31. Finance Lease Payables

The Group leases certain plant and machinery for its coal mine operations. The lease is classified as a finance lease and expires in April 2021.

The total future minimum lease payments under the finance lease and their present values were as follows:

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Minimum Present values of
lease payments minimum lease payments
2016 2015 2016 2015
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Amounts payable: Within one year 14,454 14,703 In the second year 9,965 14,594 In the third to fifth years, inclusive 3,053 12,989 Beyond five years — 155	13,102 12,473 9,425 13,229 2,946 12,339 — 151
Total minimum finance lease payments 27,472 42,441 Future finance charges (1,999) (4,249)	25,473 38,192
Total net finance lease payables 25,473 38,192 Portion classified as current liabilities (13,102) (12,473)
Non-current portion 12,371 25,719

117 CITIC Resources Holdings Limited

HK$’000

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Notes to Financial Statements

32. Provisions

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Provision for
long term Provision for Provision for
employee rehabilitation abandonment
Notes benefits cost cost Total
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At 1 January 2016		93,898	213,907	31,834	339,639
Provisions/(reversals)	6, 13	(7,290)	5,257	988	(1,045)
Amounts utilised during the year		(1,011)	(19,082)	—	(20,093)
Re-measurement gain on
defined benefit plan		(7,401)	—	—	(7,401)
Increase in discounted amounts
arising from the passage of time	9	—	3,022	1,307	4,329
Exchange realignment		(548)	(1,681)	—	(2,229)
At 31 December 2016		77,648	201,423	34,129	313,200
Portion classified as current liabilities		(41,582)	(3,088)	—	(44,670)
Non-current portion		36,066	198,335	34,129	268,530

The provisions were based on estimates of future payments by management and discounted at a rate of 2.77%. Changes in assumptions could significantly affect these estimates.

The provision for long term employee benefits represents the estimated future payments in respect of past services provided by employees. Consideration was given to expected future wages and salary levels, past record of employee departures and period of service. Expected future payments were discounted using market yields at the reporting date and currency that matched, as closely as possible, the estimated future cash flows.

The provision for rehabilitation cost represents the estimated costs of rehabilitation relating to the areas disturbed during the operation of the PAS and the coal mines in Australia at the end of their useful lives up to 2030. The Group has estimated and provided for the expected costs of removal and clean-up on a periodical basis, based on the estimates provided by the environmental authorities when they reviewed the sites.

The provision for abandonment cost represents the estimated costs of abandoning oil and gas properties. These costs are expected to be incurred upon abandoning wells and removal of equipment and facilities, as the case may be.

Annual Report 2016 118

HK$’000

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Notes to Financial Statements

33. Deferred Tax Assets

The movements in the Group’s deferred tax assets during the year were as follows:

	Provision for impairment, depreciation allowance in excess of related depreciation and losses available for offsetting against future taxable profits	Change in fair value of financial instruments and defined benefit plan	Total
2016
At 1 January	321,374	259,511	580,885
Deferred tax credited/(charged) to
the consolidated income statement
during the year (note 10)	78,922	(78,500)	422
Deferred tax charged to equity during the year	—	(264,744)	(264,744)
Exchange realignment	2,903	—	2,903
At 31 December	403,199	(83,733)	319,466
2015
At 1 January	(11,115)	203,478	192,363
Deferred tax credited to
the consolidated income statement
during the year (note 10)	332,779	—	332,779
Deferred tax credited to equity during the year	—	56,033	56,033
Exchange realignment	(290)	—	(290)
At 31 December	321,374	259,511	580,885

Pursuant to China Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors by foreign investment enterprises established in China. The requirement, effective 1 January 2008, is applied to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is an applicable tax treaty between China and the jurisdiction of the foreign investors. The Group is therefore liable for withholding tax on dividends declared by its subsidiaries established in China in respect of earnings generated from 1 January 2008 onwards.

There are no income tax consequences attaching to the payment of dividends of the Company to its shareholders.

119 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

34. Share Capital

Shares

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2016 2015
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Authorised:
10,000,000,000 (2015: 10,000,000,000)
ordinary shares of HK$0.05 each	500,000	500,000
Issued and fully paid:
7,857,727,149 (2015: 7,857,727,149)
ordinary shares of HK$0.05 each	392,886	392,886

In August 2015, the Company repurchased a total of 10,800,000 of its shares on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) at a total consideration of HK$15,603,000 (including expenses). All of the repurchased shares have been cancelled during 2015 and the issued share capital of the Company was accordingly reduced by the par value of the cancelled shares. The premium paid on the repurchase of the shares of HK$15,063,000 was charged to the share premium account.

Share options

Details of the new share option scheme of the Company and the share options that have been granted under the Old Scheme and remained outstanding as at the end of the reporting period are set out in note 35 to the financial statements.

35. Share Option Scheme

Pursuant to the New Scheme, the Company may grant options to eligible persons to subscribe for shares of the Company subject to the terms and conditions stipulated therein. A summary of some of the principal terms of the New Scheme is as follows.

• (a) Purpose: To allow the Company (i) to be competitive and to be able to attract, retain and motivate appropriate personnel to assist the Group attain its strategic objectives by offering share options to enhance general remuneration packages; (ii) to align the interests of the directors and employees of the Group with the performance of the Company and the value of the shares; and (iii) to align the commercial interests of business associates, customers and suppliers of the Group with the interests and success of the Group.

• (b) Eligible persons: The eligible persons include employees and directors of the Company and any of its subsidiaries (including their respective executive and non-executive directors), business associates and advisers who will provide or have provided services to the Group.

Annual Report 2016 120

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Notes to Financial Statements

35. Share Option Scheme (continued)

• (c) Total number of shares available for issue: The total number of shares which may be issued upon the exercise of all outstanding options granted under the New Scheme and any other schemes of the Company shall not exceed 10% of the total number of shares of the Company in issue as at the date of adoption of the New Scheme.

• (d) Maximum entitlement of each eligible person: The total number of shares issued and to be issued upon the exercise of the options granted to an eligible person (including any exercised, cancelled and outstanding options) in any 12-month period up to and including the date of grant shall not exceed 1% of the total number of shares of the Company in issue at the date of grant.

• (e) Exercise period: The period during which an option may be exercised is determined by the Board at its absolute discretion, except that no option may be exercised after 10 years from the date of grant.

• (f) Vesting period: The minimum period for which an option must be held before it can be exercised is one year.

• (g) Exercise price: The exercise price payable in respect of each share of the Company shall be not less than the greater of (i) the closing price of the shares of the Company on the Stock Exchange as stated in the Stock Exchange’s daily quotations sheet on the date of grant (which must be a business day); (ii) the average closing price of the shares of the Company on the Stock Exchange as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of the shares of the Company.

• (h) Remaining life: The New Scheme remains in force until 26 June 2024 unless otherwise terminated in accordance with the terms stipulated therein.

Share options do not confer rights on the holders to dividends or to vote at general meetings.

The movement of the share options, which were granted under the Old Scheme, was as follows:

	2016 Weighted average exercise price Number of per share share options HK$	2016 Weighted average exercise price Number of per share share options HK$	2015 Weighted average exercise price Number of per share share options HK$	2015 Weighted average exercise price Number of per share share options HK$
At 1 January and
31 December	1.77	400,000,000	1.77	400,000,000

121 CITIC Resources Holdings Limited

31 December

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Notes to Financial Statements

35. Share Option Scheme (continued)

The particulars of the share options, which were granted under the Old Scheme and remained outstanding as at the end of the reporting period, were as follows:

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----- Start of picture text -----

Number of Exercise price
share options per share * Vesting period Exercise period
HK$
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2016	200,000,000	1.77	06-11-2013	to	05-11-2014	06-11-2014	to	05-11-2018
	200,000,000	1.77	06-11-2013	to	05-11-2015	06-11-2015	to	05-11-2018
	400,000,000
2015	200,000,000	1.77	06-11-2013	to	05-11-2014	06-11-2014	to	05-11-2018
	200,000,000	1.77	06-11-2013	to	05-11-2015	06-11-2015	to	05-11-2018
	400,000,000

• The exercise price of the share options is subject to adjustment in case of a rights issue or bonus issue, or other similar changes in the share capital of the Company.

The above share options were granted on 6 November 2013 under the Old Scheme. Their fair values were HK$2,400,000 (HK$0.012 each) and HK$9,600,000 (HK$0.048 each), respectively, based on different vesting periods. The Group recognised an equity-settled share option expense of HK$4,080,000 in 2015 (note 6).

The fair values were estimated as at the date of grant, using a binomial model, taking into account the terms and conditions upon which the share options were granted. The following table lists the inputs to the model used:

Dividend yield (%)	—
Expected volatility (%)	29.84
Historical volatility (%)	29.84
Risk-free interest rate (%)	2.10 – 2.63
Expected life of share options (year)	1 – 2
Weighted average share price (HK$ per share)	1.07

The expected life of the share options is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the share options was incorporated into the measurement of fair value.

At the end of the reporting period, the Company had 400,000,000 share options outstanding. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 400,000,000 additional ordinary shares of the Company, additional share capital of HK$20,000,000 and share premium of HK$688,000,000 (before expenses).

At the date of approval of the financial statements, the Company had 400,000,000 share options outstanding under the Old Scheme, which represented 5.09% of the Company’s shares in issue as at that date. No share options were issued under the New Scheme.

122

Annual Report 2016

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Notes to Financial Statements

36. Reserves

Movements in the Group’s reserves for the current and prior years are presented in the consolidated statement of changes in equity on pages 51 and 52 of the financial statements.

The contributed surplus of the Group represents the excess of the nominal value of the share capital of the former holding company of the Group acquired by the Company pursuant to the Group reorganisation prior to the listing of the Company’s shares over the nominal value of the share capital of the Company issued in exchange therefor.

The capital reserve arose from the acquisition of shares from non-controlling shareholders of CATL.

Reserve funds represented the Group’s share of the statutory reserve and safety fund of the subsidiaries of CDH which are registered in China.

37. Litigation and Contingent Liabilities

• (a) In 2014, the Kazakhstan tax authorities (the “ Tax Authorities ”) completed a tax inspection on JSC Karazhanbasmunai (“ KBM ”), a subsidiary of CCEL, in respect of transfer pricing for the five years from 2008 to 2012. As a result, the Tax Authorities issued a tax assessment for KZT12,263,596,000 (HK$284,981,000) on KBM.

After several appeals to the courts in 2015, KBM was held liable for part of the tax assessment and, in respect of which, KBM lodged a final appeal to the Supervisory Board of the Supreme Court of Kazakhstan (the “ Supreme Court ”) in December 2015. In 2015, the Group made a full provision for its share of the tax assessment, being HK$132,070,000.

The final appeal was concluded during the year and the tax assessment on KBM was cancelled. Accordingly, the Group wrote back the provision made previously of HK$167,347,000.

• (b) In 2014, the Tax Authorities completed an integrated tax inspection on KBM for the four years from 2009 to 2012. As a result, the Tax Authorities issued a tax assessment for KZT4,492,047,000 (HK$104,386,000) on KBM and the Group’s share was HK$49,390,000. KBM made a provision for the amount of the tax assessment it had agreed with the Tax Authorities, being KZT633,851,000 (HK$14,729,000), of which the Group’s share was HK$6,970,000. Meanwhile, KBM applied to the State Revenue Committee of the Ministry of Finance of Kazakhstan requesting a reconsideration of the remaining amount under the tax assessment (the “ Remaining Amount ”).

In 2015, KBM made a further provision of KZT2,069,789,000 (HK$48,098,000), of which the Group’s share was HK$22,758,000.

During the year, in respect of the Remaining Amount, the Tax Authorities issued a revised tax assessment for KZT2,146,970,000 (HK$48,891,000). Based on the advice from KBM’s legal counsel, KBM has justifiable arguments for its tax position. Therefore, following the receipt of the revised tax assessment, KBM made an appeal to the Specialized Court Board of the Court of Astana City but the appeal was concluded with an unfavourable decision. KBM made a further appeal to the Specialized Court Board of the Supreme Court of Kazakhstan but the decision was made against KBM. KBM lodged a final appeal to the Supreme Court but the court declined to review the appeal. KBM is considering making an appeal to the General Prosecutor’s Office of Kazakhstan to protest the decision of the Supreme Court.

123 CITIC Resources Holdings Limited

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Notes to Financial Statements

37. Litigation and Contingent Liabilities (continued)

• (c) In August 2014, 山煤煤炭進出口有限公司 (Shanxi Coal Import & Export Co., Ltd.) (“ Shanxi Coal I/E ”), a wholly-owned subsidiary of 山煤國際能源集團股份有限公司 (Shanxi Coal International Energy Group Co., Ltd.), commenced a claim in 山西省高級人民法院 (the Shanxi High People’s Court) (the “ Shanxi Court ”) against, amongst others, CACT, an indirect wholly-owned subsidiary of the Company (“ Shanxi Claim A ”). Shanxi Coal I/E claimed from CACT (i) the sum of US$89,755,000 (HK$700,089,000) plus interest for breach of contract resulting from the alleged non-delivery of certain aluminium ingots by CACT to Shanxi Coal I/E; and (ii) costs in respect of Shanxi Claim A.

In connection with Shanxi Claim A, Shanxi Coal I/E obtained an asset protection order from the Shanxi Court over a certain quantity of the Inventories. Service of Shanxi Claim A was effected on CACT in September 2015 by way of a public notice issued by the Shanxi Court. Court hearings were held subsequently.

In January 2017, pursuant to a civil ruling of the Shanxi Court, Shanxi Claim A was transferred to the Public Security Bureau pursuant to Article 12. Any remedy Shanxi Coal I/E may have in respect of the aluminium ingots that are the subject of Shanxi Claim A will be determined in accordance with China’s criminal procedures. Following its transfer to the Public Security Bureau, Shanxi Claim A has terminated and Shanxi Coal I/E has no further recourse or rights against CACT in respect of Shanxi Claim A.

• (d) In the second half of 2015, CACT received an arbitration request notice from the International Court of Arbitration of the International Chamber of Commerce in respect of an arbitration application by Shanxi Coal I/E pursuant to which, Shanxi Coal I/E is (i) alleging that CACT has entered into two contracts for the supply of, and has failed to deliver, copper cathodes to Shanxi Coal I/E (the “ Contracts ”); and (ii) claiming the amount of US$27,890,000 (HK$217,542,000) as the aggregate purchase price Shanxi Coal I/E alleges it has paid to CACT under the Contracts, plus interest (“ Shanxi Claim B ”).

CACT has not entered into the Contracts as alleged by Shanxi Coal I/E and considers Shanxi Claim B to be baseless. Accordingly, no provision was made in respect of Shanxi Claim B.

In November 2016, a hearing was held in Singapore to determine the jurisdiction of Shanxi Claim B. However, up to the date of this report, the determination is still pending.

• (e) In August 2014, the Group noted from an announcement issued by Qingdao Port International Co., Ltd. (the “ Qingdao Port Int’l ”) that a legal complaint dated 14 July 2014 (“ ABN Claim ”) had been issued by ABN AMRO Bank N.V., Singapore Branch (“ ABN AMRO ”) against CACT. According to the announcement, among other things, ABN AMRO had issued ABN Claim alleging that CACT had taken wrongful preservative measures in respect of cargo over which ABN AMRO claimed it had been granted a pledge (the “ Subject Cargo ”) and was seeking an order that (i) CACT compensate ABN AMRO for loss of RMB1,000,000 (HK$1,167,000); (ii) CACT withdraw its asset protection order over the Subject Cargo; and (iii) CACT bear all fees and legal costs of ABN Claim.

In October 2016, the Group noted from an announcement issued by Qingdao Port Int’l that ABN AMRO had withdrawn ABN Claim.

Annual Report 2016 124

HK$’000

31 December

Notes to Financial Statements

38. Operating Lease Commitments

The Group had total future minimum lease payments under non-cancellable operating leases in respect of plant and machinery, and land and buildings falling due as follows:

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----- Start of picture text -----

2016 2015
----- End of picture text -----

Within one year	72,582	155,468
In the second to fifth years, inclusive	106,409	314,113
Beyond five years	47,481	58,105
	226,472	527,686

39. Commitments

In addition to the operating lease commitments detailed in note 38 above, the Group’s capital expenditure commitments was as follows:

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2016 2015
----- End of picture text -----

Contracted, but not provided for:
Capital expenditure in respect of infrastructure and
acquisition of items of property, plant and equipment	35,496	163,029

In addition, the Group’s share of a joint venture’s capital expenditure commitments was as follows:

	2016	2015
Contracted, but not provided for:
Capital expenditure in respect of infrastructure and
acquisition of items of property, plant and equipment	13,483	15,060

40. Related Party Transactions and Connected Transactions

In addition to the transactions and balances disclosed elsewhere in the consolidated financial statements, the Group had the following material transactions with its related parties:

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(a) Year ended 31 December
Notes 2016 2015
----- End of picture text -----

	Ultimate holding company: Rental expense (i) 2,239 2,365 Subsidiaries of the ultimate holding company: Rental expense (i) 3,060 3,291 Sale of products (ii) — 74,682 A joint venture: Rental income (i) 3,462 4,606 Service fees income (i) 780 780

125 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

40. Related Party Transactions and Connected Transactions (continued)

• (a) (continued)

Notes:

• (i) based on mutually agreed terms

• (ii) made on normal commercial terms and conditions offered to independent customers of the Group

• (b) Details of directors’ remuneration are set out in note 7 to the financial statements.

Compensation paid to senior management personnel of the Group was as follows:

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----- Start of picture text -----

Year ended 31 December
2016 2015
----- End of picture text -----

Salaries, allowances and benefits in kind	9,026	10,096
Bonuses	7,428	5,224
Pension scheme contributions	433	340
	16,887	15,660
Number of executives by remuneration bands:
Below HK$2,000,000	1	1
HK$2,000,001 – HK$4,000,000	2	3
HK$4,000,001 – HK$6,000,000	2	1
	5	5

• (c) In October 2016, the Group entered into a 7-year lease agreement with CITIC House Pty Limited, a subsidiary of the Company’s ultimate holding company, for the leasing of office premises.

The Group had total future minimum lease payments under non-cancellable operating leases with related parties falling due as follows:

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----- Start of picture text -----

2016 2015
----- End of picture text -----

Within one year	2,197	4,668
In the second to fifth years, inclusive	9,892	—
Beyond five years	4,924	—
	17,013	4,668

In January 2017, the Group entered into two 1-year lease agreements with its ultimate holding company for the leasing of office premises, totalling HK$2,204,000.

Except for the rental income and service fee income from a joint venture of the Group, the related party transactions disclosed above also constituted connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. Other than the sale of products to a subsidiary of the Company’s ultimate holding company, the other transactions were fully exempt connected transactions or fully exempt continuing connected transactions.

Annual Report 2016 126

HK$’000

31 December

Notes to Financial Statements

41. Financial Instruments by Category

The carrying amount of each of the categories of financial instruments was as follows:

2016 Financial assets Financial assets at fair value through profit or loss Available-for-sale investment Financial assets included in prepayments, deposits and other receivables Derivative financial instruments Trade and notes receivables Cash and cash equivalents	Financial assets at fair value through profit or loss designated Available- as such for-sale upon initial held for Loans and financial recognition trading receivables assets Total 2,880,665 3,029 — — 2,883,694 — — — 784 784 — — 1,384,912 — 1,384,912 — 60,826 — — 60,826 — — 643,767 — 643,767 — — 1,160,989 — 1,160,989
	2,880,665 63,855 3,189,668 784 6,134,972

2016 Financial liabilities	Financial liabilities at fair value through profit or loss – held for trading	Financial liabilities at amortised cost	Total
Accounts payable	—	130,891	130,891
Financial liabilities included in
accrued liabilities and
other payables	—	309,703	309,703
Derivative financial instruments	10,387	—	10,387
Bank borrowings	—	7,527,327	7,527,327
Finance leasepayables	—	25,473	25,473
	10,387	7,993,394	8,003,781

2015 Financial assets	Financial assets at fair value through profit or loss	Financial assets at fair value through profit or loss
	designated as such upon initial recognition	held for trading	Loans and receivables	Available- for-sale financial assets	Total
Financial assets at fair value
through profit or loss	1,835,713	3,029	—	—	1,838,742
Available-for-sale investment	—	—	—	1,274	1,274
Financial assets included in
prepayments, deposits and
other receivables	—	—	1,580,632	—	1,580,632
Derivative financial instruments	—	298	—	—	298
Trade receivables	—	—	482,950	—	482,950
Cash and cash equivalents	—	—	1,300,197	—	1,300,197
	1,835,713	3,327	3,363,779	1,274	5,204,093

127 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

41. Financial Instruments By Category (continued)

2015 Financial liabilities	Financial liabilities at fair value through profit or loss – held for trading	Financial liabilities at amortised cost	Total
Accounts payable	—	449,818	449,818
Financial liabilities included in
accrued liabilities and
other payables	—	386,488	386,488
Derivative financial instruments	909,738	—	909,738
Bank borrowings	—	7,805,907	7,805,907
Finance leasepayables	—	38,192	38,192
	909,738	8,680,405	9,590,143

42. Fair Value and Fair Value Hierarchy of Financial Instruments

The carrying amounts and fair values of the Group’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, were as follows:

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Carrying amounts Fair values
2016 2015 2016 2015
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Financial assets
Financial assets at fair value through
profit or loss	2,883,694	1,838,742	2,883,694	1,838,742
Available-for-sale investment	784	1,274	784	1,274
Derivative financial instruments	60,826	298	60,826	298
	2,945,304	1,840,314	2,945,304	1,840,314
Financial liabilities
Derivative financial instruments	10,387	909,738	10,387	909,738
Bank borrowings	7,527,327	7,805,907	7,578,058	7,808,583
Finance lease payables	25,473	38,192	25,473	36,386
	7,563,187	8,753,837	7,613,918	8,754,707

The fair values of trade and notes receivables, financial assets included in prepayments, deposits and other receivables, cash and cash equivalents, accounts payable, and financial liabilities included in accrued liabilities and other payables approximate to their carrying amounts largely due to the short term maturities of these instruments.

Each principal subsidiary of the Company is responsible for its own fair value measurement of financial instruments. The finance team of the Company is responsible for the review and calibration of the parameters of the valuation processes. The valuation processes and results are discussed with the chief financial officer twice a year for interim and annual financial reporting purposes.

Annual Report 2016 128

31 December

Notes to Financial Statements

42. Fair Value and Fair Value Hierarchy of Financial Instruments (continued)

The fair values of the financial assets and liabilities are stated in the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values.

• (a) The fair values of listed equity investments were determined based on quoted prices in active markets as at the end of the reporting period without any deduction of transaction costs.

• (b) The fair values of bank borrowings as well as finance lease payables were calculated by discounting the expected future cash flows using rates currently available for instruments which had similar terms, credit risk and remaining maturities. The Group’s own non-performance risk for bank borrowings as well as finance lease payables as at the end of the reporting period was assessed to be insignificant.

• (c) The Group enters into derivative financial instruments with various counterparties, principally financial institutions with high credit quality. Derivative financial instruments, including forward currency contracts, forward commodity contracts, interest rate swap contracts, embedded derivatives in provisional pricing arrangements and the ESA, and the EHA, were measured using valuation techniques similar to forward pricing and discounted cash flow models, which means using present value calculations. These valuation techniques used both observable and unobservable market inputs. The fair values of forward currency contracts, forward commodity contracts, embedded derivatives in provisional pricing arrangements and the ESA, and the EHA were the same as their carrying amounts.

• (i) The fair values of forward currency contracts, forward commodity contracts, embedded derivative in provisional pricing arrangements, and the EHA (upon service of notice of termination) were based on valuation techniques using significant observable market inputs and insignificant unobservable market inputs.

• (ii) The fair values of embedded derivative in the ESA, the EHA (prior to service of notice of termination) and other investments that did not have an active market were based on valuation techniques using significant unobservable market inputs.

Below is a summary of significant unobservable inputs to the valuation of financial instruments together with a quantitative sensitivity analysis:

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----- Start of picture text -----

Derivative financial Instruments
Significant
Range
unobservable
Valuation techniques inputs 2016 2015 Sensitivity of fair value to the changes in input
----- End of picture text -----

Embedded derivative – ESA
Discounted cash flow method	Weighted average	not	2.15%	2015: 1% increase (decrease) in WACC would
	cost of capital	applicable	to	result in a decrease (an increase) in fair value by
	(“WACC”)		4.15%	HK$253,000 (HK$257,000)
EHA (prior to service of
notice of termination)
Discounted cash flow method	WACC	not	5.64%	2015: 1% increase (decrease) in WACC would
		applicable	to	result in a decrease (an increase) in fair value by
			7.64%	HK$28,235,000 (HK$31,662,000)
	Inflation rate	not	1.50%	2015: 1% increase (decrease) in inflation rate would
		applicable	to	result in an increase (a decrease) in fair value by
			3.50%	HK$262,111,000 (HK$$211,934,000)

129 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

42. Fair Value and Fair Value Hierarchy of Financial Instruments (continued)

Fair value hierarchy

The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments.

Assets measured at fair value:

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----- Start of picture text -----

Fair value measurement using
quoted prices significant significant
in active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) Total
----- End of picture text -----

2016
Financial assets at fair value through
profit or loss	2,883,694	—	—	2,883,694
Available-for-sale investment:
Listed equity investment	784	—	—	784
Derivative financial instruments	—	60,826	—	60,826
	2,884,478	60,826	—	2,945,304
2015
Financial assets at fair value through
profit or loss	1,838,742	—	—	1,838,742
Available-for-sale investment:
Listed equity investment	1,274	—	—	1,274
Derivative financial instruments	—	298	—	298
	1,840,016	298	—	1,840,314

Liabilities measured at fair value:

2016 Derivative financial instruments	Fair value measurement using quoted prices significant significant
	in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total — 10,387 — 10,387
2015 Derivative financial instruments	— 5,714 904,024 909,738

Annual Report 2016 130

HK$’000

31 December

Notes to Financial Statements

42. Fair Value and Fair Value Hierarchy of Financial Instruments (continued)

Fair value hierarchy (continued)

Liabilities measured at fair value: (continued)

The movements in fair value measurements within Level 3 during the year were as follows:

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----- Start of picture text -----

Derivative financial instruments 2016 2015
----- End of picture text -----

At 1 January	904,024	727,390
Total gains recognised in the consolidated income statement	(35,100)	(46,339)
Total losses/(gains) recognised in
the consolidated statement of comprehensive income	(868,924)	222,973
At 31 December	—	904,024

During the year, the Group did not have any transfer of fair value measurements between Level 1 and Level 2 nor any transfers into or out of Level 3 for both financial assets and financial liabilities (2015: Nil).

Liabilities for which fair values are disclosed:

2016 Bank borrowings Finance lease payables	Fair value measurement using quoted prices significant significant in active observable unobservable
	markets inputs inputs (Level 1) (Level 2) (Level 3) Total — 7,578,058 — 7,578,058 — 25,473 — 25,473
	— 7,603,531 — 7,603,531
2015 Bank borrowings Finance lease payables	— 7,808,583 — 7,808,583 — 36,386 — 36,386
	— 7,844,969 — 7,844,969

131 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

43. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments, other than derivatives, comprise bank borrowings, finance lease payables, and cash and cash equivalents. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various other financial assets and liabilities, such as trade and notes receivables and accounts payable, which arise directly from its operations.

The Group also enters into derivative transactions, including principally forward currency contracts, forward commodity contracts, interest rate swap contracts, embedded derivatives and an electricity hedge agreement. Their purpose is to manage the foreign currency risk, price risk, interest rate risk and inflation risk arising from the Group’s operations and sources of finance. Details of the derivative financial instruments are set out in note 26 to the financial statements.

It is, and has been throughout the year, the Group’s policy that trading in financial instruments shall be undertaken with due care.

The main risks arising from the Group’s financial instruments are foreign currency risk, price risk, interest rate risk, inflation risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Foreign currency risk

The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currencies. The Group assesses the respective exposures of each of its operating units and enters into forward currency contracts of appropriate amounts to hedge those exposures. The forward currency contracts must be in the same currency as that of the hedged item. It is the Group’s policy not to enter into forward contracts until a firm commitment is in place.

It is the Group’s policy to negotiate the terms of hedge derivatives to match the terms of the hedged item to maximise the effectiveness of the hedge.

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity in response to changes in exchange rates to which the Group had significant exposure (with all other variables held constant).

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----- Start of picture text -----

2016 Increase / Increase / Increase /
(decrease) in (decrease) in (decrease) in
US$ rate profit before tax equity
%
If US$ weakens against A$ (10) 149,136 142,280
If US$ strengthens against A$ 10 (149,136) (141,843)
2015 Increase / Decrease / Increase /
(decrease) in (increase) in (decrease) in
US$ rate loss before tax equity
%
If US$ weakens against A$ (10) 177,715 103,007
If US$ strengthens against A$ 10 (177,715) (101,806)
----- End of picture text -----

132

Annual Report 2016

HK$’000

31 December

Notes to Financial Statements

43. Financial Risk Management Objectives and Policies (continued)

Price risk

The Group is exposed to share price risk and commodity price risk.

Listed investments

As at 31 December 2016, the Group had equity interests in Toro Energy Limited and AWC, both listed on the ASX. At the end of each reporting period, these listed investments are required to be marked to fair value.

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity in response to changes in share prices of the Group’s listed investments (with all other variables held constant).

2016	Increase / (decrease) in listed share prices %	Increase / (decrease) in profit before tax	Increase / (decrease) in equity
Available-for-sale investment	(10)	—	(78)
Available-for-sale investment	10	—	78
Financial asset at fair value through
profit or loss	(10)	(288,067)	(288,067)
Financial asset at fair value through
profit or loss	10	288,067	288,067
2015	Increase / (decrease) in listed share prices %	Decrease / (increase) in loss before tax	Increase / (decrease) in equity
Available-for-sale investment	(10)	—	(127)
Available-for-sale investment	10	—	127
Financial asset at fair value through
profit or loss	(10)	(183,571)	(183,571)
Financial asset at fair value through
profit or loss	10	183,571	183,571

Aluminium

Aluminium is a globally traded base metal. The Group enters into sale and supply contracts with its customers where the prices are negotiated by referencing and linking to the aluminium prices traded on the LME. Aluminium prices quoted on the LME are determined by market forces. The Group is therefore exposed to price risk influenced by changing market conditions. The Group mitigates such risk by entering into commodity derivatives to hedge against future adverse price changes. These financial instruments are considered to be cash flow hedges.

Besides, the Group also enters into aluminium sales agreements with provisional pricing arrangements from which arise embedded derivatives that are required to be separated from the host contracts. The host contract is the sale of aluminium at the provisional invoice price and the embedded derivative is the forward contract for which the provisional invoice price is subsequently adjusted.

133 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

43. Financial Risk Management Objectives and Policies (continued)

Price risk (continued)

Aluminium (continued)

Management actively reviews the market sentiment and trend with references to expert views and forecasts. At management’s discretion and judgement, derivatives are entered into to lock in favourable prices to hedge portions of the Group’s future sales and thus to mitigate adverse price risks.

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity in response to changes in market prices of aluminium (with all other variables held constant).

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----- Start of picture text -----

2016 Increase / Increase / Increase /
(decrease) in (decrease) in (decrease) in
LME aluminium price profit before tax equity
%
Forward commodity contracts (10) (11,443) (11,443)
Forward commodity contracts 10 10,780 10,780
2015 Increase / Decrease / Increase /
(decrease) in (increase) in (decrease) in
LME aluminium price loss before tax equity
%
Forward commodity contracts (10) (10,234) (10,234)
Forward commodity contracts 10 10,241 10,241
----- End of picture text -----

Embedded derivative – ESA

The pricing mechanism used in the ESA included a component that was subject to the price of aluminium. The component was considered to be an embedded derivative. The embedded derivative was revalued at the end of each reporting period during its term and on its expiry, based on future aluminium prices. The ESA expired during the year.

The following table demonstrates the sensitivity of the Group’s loss before tax and equity in response to changes in market prices of aluminium (with all other variables held constant) in 2015.

2015	Increase / (decrease) in LME aluminium price %	Decrease / (increase) in loss before tax	Increase / (decrease) in equity
Embedded derivative	(10)	27,573	27,573
Embedded derivative	10	(27,557)	(27,557)

Annual Report 2016 134

HK$’000

31 December

Notes to Financial Statements

43. Financial Risk Management Objectives and Policies (continued)

Interest rate risk

The Group’s exposure to the risk of changes in interest rates relates primarily to the Group’s floating rate United States dollar (“ US$ ”) debts.

The Group’s policy is to manage its interest expenses using a mix of fixed and floating rate debts with respect to the prevailing interest rate environment. To manage this mix in a cost-effective manner, the Group may enter into interest rate swap contracts in which it agrees to exchange, at specified intervals, the difference between fixed and floating rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swap contracts are designated to hedge against the interest rate exposure of the underlying debt obligations.

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity in response to changes in interest rates of the Group’s floating rate US$ debts (with all other variables held constant).

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----- Start of picture text -----

2016 Increase / Increase / Increase /
(decrease) in (decrease) in (decrease) in
interest rate profit before tax equity
basis points
US$ debts (100) 74,100 74,100
US$ debts 100 (74,100) (74,100)
2015 Increase / Decrease / Increase /
(decrease) in (increase) in (decrease) in
interest rate loss before tax equity
basis points
US$ debts (100) 77,220 77,220
US$ debts 100 (77,220) (77,220)
----- End of picture text -----

Inflation risk

In March 2010, the Group entered into the EHA to hedge the spot price for electricity for a specific load from November 2016 to December 2036. The pricing mechanism used in the EHA included a component that was subject to certain escalation factors which, in turn, were affected by the consumer price index, producer price index and labour costs. Therefore, the Group was exposed to inflation risk in 2015.

In August 2016, the Group served a notice to terminate the EHA effective August 2017. Consequently, the EHA no longer qualified for hedge accounting as at the date notice of termination was served. Therefore, the Group was not exposed to inflation risk in 2016.

The following table demonstrates the sensitivity of the Group’s loss before tax and equity in response to changes in inflation rate (with all other variables held constant) in 2015.

2015	Increase / (decrease) in inflation rate %	Decrease / (increase) in loss before tax	Increase / (decrease) in equity
EHA	(1)	—	211,934
EHA	1	—	(262,111)

135 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

43. Financial Risk Management Objectives and Policies (continued)

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without the specific approval of the head of credit control.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, available-for-sale investment, certain other receivables and derivative financial instruments, arises from default of the counterparties with a maximum exposure equal to the carrying amount of these instruments.

Since the Group trades only with recognised and creditworthy third parties, collateral is usually not required. Concentrations of credit risk are managed by customer/counterparty, geographical region and industry sector. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s trade and notes receivables are dispersed in different sectors and industries.

Quantitative data in respect of the Group’s exposure to credit risk arising from trade and notes receivables is set out in note 25 to the financial statements.

Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g. trade and notes receivables) and projected cash flows from operations.

The Group’s objectives are to maintain an optimal balance of cash holding and funding through the use of bank borrowings, to preserve liquidity and to maximise return to shareholders. As at 31 December 2016, 18.3% (2015: 17.4%) of the Group’s debts would mature within one year based on the carrying value of the debts reflected in the financial statements.

The maturity profile of the Group’s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, was as follows:

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On Less than 3 to 12 Over
demand 3 months months 1 year Total
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2016
Accounts payable	—	130,891	—	—	130,891
Financial liabilities included in
accrued liabilities and other payables	21	—	309,134	—	309,155
Derivative financial instruments	—	10,387	—	—	10,387
Bank borrowings	—	—	1,602,784	6,471,383	8,074,167
Finance lease payables	—	3,546	10,908	13,018	27,472
	21	144,824	1,922,826	6,484,401	8,552,072

Annual Report 2016 136

HK$’000

31 December

Notes to Financial Statements

43. Financial Risk Management Objectives and Policies (continued)

Liquidity risk (continued)

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On Less than 3 to 12 Over
demand 3 months months 1 year Total
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2015
Accounts payable	77,509	372,309	—	—	449,818
Financial liabilities included in
accrued liabilities and other payables	21	—	386,467	—	386,488
Derivative financial instruments	—	16,244	24,570	868,924	909,738
Bank borrowings	—	—	1,591,330	6,832,869	8,424,199
Finance lease payables	—	—	14,703	27,738	42,441
	77,530	388,553	2,017,070	7,729,531	10,212,684

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its businesses and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

The Group monitors capital with the inclusion of the parameter of liquidity by using the ratio of net debt to net total capital. Net debt is total debt less cash and cash equivalents while net total capital is equity attributable to shareholders of the Company plus net debt. The Group’s current objective is to maintain this ratio at a reasonable level.

The ratio of net debt to net total capital as at the end of the reporting period was as follows:

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2016 2015
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Bank borrowings	7,527,327	7,805,907
Finance lease payables	25,473	38,192
Less: Cash and cash equivalents	(1,160,989)	(1,300,197)
Net debt	6,391,811	6,543,902
Equity attributable to shareholders of the Company	4,804,758	4,167,381
Add: Net debt	6,391,811	6,543,902
Net total capital	11,196,569	10,711,283
Net debt to net total capital	57.1%	61.1%

137 CITIC Resources Holdings Limited

HK$’000

31 December

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Notes to Financial Statements

44. Events after the Reporting Period

• (a) In January 2017, pursuant to a civil ruling of the Shanxi Court, Shanxi Claim A was transferred to the Public Security Bureau pursuant to Article 12. Any remedy Shanxi Coal I/E may have in respect of the aluminium ingots that are the subject of Shanxi Claim A will be determined in accordance with China’s criminal procedures. Following its transfer to the Public Security Bureau, Shanxi Claim A has terminated and Shanxi Coal I/E has no further recourse or rights against CACT in respect of Shanxi Claim A.

• (b) In January 2017, the Group secured financial support from the State Government of Victoria and the Commonwealth Government of Australia to assist in funding the restart of the PAS’s production capacity and ongoing operations under four year agreements. In addition, the Group entered into a new hedging agreement with several subsidiaries of AGL in relation to the supply of electricity from August 2017 to July 2021.

45. Statement of Financial Position of the Company

The financial position of the Company as at the end of the reporting period is as follows:

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2016 2015
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NON-CURRENT ASSETS
Property, plant and equipment	568	845
Investments in subsidiaries	7,137,938	7,691,949
Total non-current assets	7,138,506	7,692,794
CURRENT ASSETS
Prepayments, deposits and other receivables	873,603	699,421
Cash and cash equivalents	432,747	629,610
Total current assets	1,306,350	1,329,031
CURRENT LIABILITIES
Accrued liabilities and other payables	1,836	1,415
Bank borrowings	1,169,543	1,170,000
Total current liabilities	1,171,379	1,171,415
NET CURRENT ASSETS	134,971	157,616
TOTAL ASSETS LESS CURRENT LIABILITIES	7,273,477	7,850,410
NON-CURRENT LIABILITIES
Bank borrowings	6,155,518	6,449,658
NET ASSETS	1,117,959	1,400,752
EQUITY
Issued capital	392,886	392,886
Reserves	725,073	1,007,866
TOTAL EQUITY	1,117,959	1,400,752

Annual Report 2016 138

HK$’000

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Notes to Financial Statements

45. Statement of Financial Position of the Company (continued)

Note:

A summary of the Company’s reserves is as follows:

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Share Exchange Share
premium Contributed fluctuation Hedging option Accumulated
Notes account surplus reserve reserve reserve losses Total
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At 1 January 2015		9,721,915	172,934	1,590	(22,902)	7,920	(2,506,946)	7,374,511
Loss for the year		—	—	—	—	—	(6,378,164)	(6,378,164)
Other comprehensive income/(loss)
for the year :
Cash flow hedges, net of tax		—	—	—	22,902	—	—	22,902
Exchange differences on
translation of
foreign operations		—	—	(400)	—	—	—	(400)
Total comprehensive income/(loss)
for the year		—	—	(400)	22,902	—	(6,378,164)	(6,355,662)
Shares repurchased	34	(15,063)	—	—	—	—	—	(15,063)
Equity-settled share option
arrangements	35	—	—	—	—	4,080	—	4,080
At 31 December 2015		9,706,852	172,934	1,190	—	12,000	(8,885,110)	1,007,866
At 1 January 2016		9,706,852	172,934	1,190	—	12,000	(8,885,110)	1,007,866
Loss for the year		—	—	—	—	—	(282,245)	(282,245)
Other comprehensive loss
for the year :
Exchange differences on
translation of
foreign operations		—	—	(548)	—	—	—	(548)
Total comprehensive loss
for theyear		—	—	(548)	—	—	(282,245)	(282,793)
At 31 December 2016		9,706,852	172,934	642	—	12,000	(9,167,355)	725,073

46. Approval of the Financial Statements

The financial statements were approved and authorised for issue by the Board on 17 February 2017.

139 CITIC Resources Holdings Limited

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Five Year Financial Summary

A summary of the results and of the assets, liabilities and non-controlling interests of the Group for the past five financial years, as extracted from the published audited financial statements and restated/reclassified as appropriate, is set out below. This summary does not form part of the audited financial statements.

Results					HK$’000
	2016	Year 2015	ended 31 December 2014 2013		2012 Restated
Revenue	2,956,732	3,713,127	17,805,124	39,319,183	42,747,432
Profit/(loss) before tax	344,024	(6,503,373)	384,149	(2,130,724)	(1,095,686)
Income tax credit/(expense)	217	331,453	(113,734)	527,870	(205,263)
Profit/(loss)for theyear	344,241	(6,171,920)	270,415	(1,602,854)	(1,300,949)
Attributable to:
Shareholders of the Company	362,985	(6,104,909)	223,830	(1,465,436)	(1,283,923)
Non-controllinginterests	(18,744)	(67,011)	46,585	(137,418)	(17,026)
	344,241	(6,171,920)	270,415	(1,602,854)	(1,300,949)

Assets, Liabilities and Non-controlling Interests

HK$’000

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31 December
2016 2015 2014 2013 2012
Restated
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Non-current assets	9,369,369	9,895,024	15,400,648	14,682,606	11,661,540
Current assets	3,899,380	4,171,502	7,379,527	13,203,375	14,645,972
Total assets	13,268,749	14,066,526	22,780,175	27,885,981	26,307,512
Current liabilities	2,136,040	2,322,553	4,908,958	8,947,341	2,652,164
Non-current liabilities	6,436,419	7,638,655	6,976,845	7,277,258	10,308,634
Total liabilities	8,572,459	9,961,208	11,885,803	16,224,599	12,960,798
Non-controllinginterests	(108,468)	(62,063)	27,255	(6,310)	118,544
Equity attributable to
shareholders of the Company	4,804,758	4,167,381	10,867,117	11,667,692	13,228,170

Reserve Quantities Information

Proved Oil Reserves Estimates (unaudited)

million barrels

2016	Indonesia (51%)	China (100%)	Kazakhstan (50%)	Total
At 1 January	2.5	22.2	116.7	141.4
Revision	(0.3)	(0.8)	11.1	10.0
Production	(0.7)	(2.2)	(7.1)	(10.0)
At 31 December	1.5	19.2	120.7	141.4

Annual Report 2016 140

Investor Relations Contact

Suites 3001-3006, 30/F, One Pacific Place, 88 Queensway, Hong Kong Attention : Investor Relations Department Telephone : (852) 2899 8200 Facsimile : (852) 2815 9723 E-mail : ir@citicresources.com

投資者關係聯絡

香港金鐘道 88 號太古廣場一座 30 樓 3001-3006 室 聯絡 : 投資者關係部 電話 : (852) 2899 8200 傳真 : (852) 2815 9723 電郵 : ir@citicresources.com

http://resources.citic

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http://irasia.com/listco/hk/citicresources