THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this Prospectus (as defined herein) or as to the action to be taken, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

A copy of each of the Rights Issue Documents (as defined herein), having attached thereto the documents specified in the paragraph headed “Documents registered with the registrars of companies” in Appendix III to this Prospectus, have been registered with the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong and have been delivered to the Registrar of Companies in Bermuda for filing as required by the Companies Act 1981 of Bermuda. The Registrar of Companies in Hong Kong, the Registrar of Companies in Bermuda and the Securities and Futures Commission of Hong Kong take no responsibility for the contents of any of these documents.

Dealings in the Shares (as defined herein) and the Rights Shares (as defined herein) in their nil-paid and fully-paid forms may be settled through CCASS (as defined herein) operated by HKSCC (as defined herein) and you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser for details of those settlement arrangements and how such arrangements may affect your rights and interests. If you have sold or transferred all or part of your Shares, you should at once hand the Rights Issue Documents to the purchaser or bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser. Subject to the granting of listing of, and permission to deal in, the Rights Shares in their nil-paid and fully-paid forms on the Stock Exchange (as defined herein), as well as compliance with the stock admission requirements of HKSCC, the Rights Shares in their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the respective commencement date of dealings in the Rights Shares in their nil-paid and fully-paid forms or such other dates as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

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

==> picture [72 x 73] intentionally omitted <==

CITIC RESOURCES HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 1205)

RIGHTS ISSUE OF 788,682,657 RIGHTS SHARES AT HK$3.20 EACH ON THE BASIS OF THREE (3) RIGHTS SHARES FOR EVERY TWENTY (20) SHARES HELD ON THE RECORD DATE

Underwriters to the Rights Issue

Keentech Group Limited (subsidiary of CITIC Group)

Ellington Investments Pte. Ltd. (subsidiary of Temasek Holdings (Private) Limited)

Financial adviser to the Company

Morgan Stanley Asia Limited

The latest time for acceptance of and payment for the Rights Shares is 4:00 p.m. on Monday, 7 July 2008. The procedure for acceptance and transfer of the Rights Shares is set out on pages 12 and 13 of this Prospectus.

The Underwriting Agreement (as defined herein) in respect of the Rights Issue (as defined herein) contains provisions entitling the Underwriters (as defined herein) by giving notice to the Company (as defined herein) to terminate the obligations of the Underwriters thereunder on the occurrence of certain events including force majeure. These events are set out in the section headed “Termination of the Underwriting Agreement” on pages 6 and 7 of this Prospectus. If the Underwriting Agreement is terminated, the Rights Issue will not proceed.

It should be noted that the Shares have been dealt with on an ex-rights basis since Thursday, 12 June 2008 and that the Rights Shares are expected to be dealt with in their nil-paid form from Tuesday, 24 June 2008 to Wednesday, 2 July 2008 (both days inclusive). Any dealings in the Shares from now up to the date on which all conditions to which the Rights Issue is subject are required to be fulfilled (which is expected to be Wednesday, 16 July 2008), or any dealings in the Rights Shares in their nil-paid form between Tuesday, 24 June 2008 and Wednesday, 2 July 2008 (both days inclusive) are accordingly subject to the risk that the Rights Issue may not become unconditional or may not proceed. Shareholders (as defined herein) and potential investors in the Company should therefore exercise caution when dealing in the Shares or the Rights Shares in their nil-paid form, and if they are in any doubt about their position, they should consult their professional advisers.

20 June 2008

	Page
DEFINITIONS..............................................................................................................................	1
EXPECTED TIMETABLE .........................................................................................................	5
TERMINATION OF THE UNDERWRITING AGREEMENT.............................................	6
LETTER FROM THE BOARD..................................................................................................	8
APPENDIX I FINANCIAL INFORMATION ON THE GROUP ...................................	21
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
ON THE GROUP.......................................................................................	140
APPENDIX III GENERAL INFORMATION.......................................................................	143

– i –

DEFINITIONS

Unless the context otherwise requires, the following terms and expressions used in this Prospectus shall have the following meanings:

“Acceptance Date” 7 July 2008, being the last day for acceptance of and payment for the Rights Shares, or such other date as the Company and the Underwriters may agree in writing
“Announcement” the announcement of the Company dated 30 May 2008 in relation to the Rights Issue
“associates” shall have the meaning as ascribed to it under the Listing Rules “Board” the board of Directors “Business Day” a day (other than a Saturday or Sunday or public holiday or a day on which either a tropical cyclone warning signal number 8 or above or a “black” rainstorm warning signal is or remains hoisted between 9:00 a.m. and 4:00 p.m.) on which banks are open in Hong Kong for general commercial business
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“CITIC Group” CITIC Group, a state-owned enterprise incorporated in the PRC “Companies Ordinance” Companies Ordinance, Chapter 32 of the Laws of Hong Kong “Company” CITIC Resources Holdings Limited, a company incorporated in Bermuda and the shares of which are listed on the main board of the Stock Exchange
“Directors” the directors of the Company (other than Mr. Ngai Man) “Ellington” Ellington Investments Pte. Ltd., a company incorporated in Singapore, which holds directly 3.84% of the issued share capital of the Company
“Excluded Shareholder(s)” Overseas Shareholder(s) where the Board, after taking appropriate legal advice in the relevant jurisdiction, considers it necessary or expedient not to offer the Rights Shares to such Overseas Shareholder(s) on account either of legal restrictions under the laws of the relevant jurisdiction or the requirements of the relevant regulatory body or stock exchange in that jurisdiction

– 1 –

	DEFINITIONS
“Group”	the Company and its subsidiaries
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Keentech”	Keentech Group Limited, a company incorporated in the British
	Virgin Islands, which holds directly 37.85% of the issued share
	capital of the Company
“Last Trading Day”	30 May 2008, being the last trading day of the Shares on the
	Stock Exchange prior to the Announcement
“Latest Practicable Date”	13 June 2008, being the latest practicable date prior to the
	printing of this Prospectus for the purpose of ascertaining certain
	information contained in this Prospectus
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Overseas Shareholders”	Shareholder(s) whose name(s) appears on the register of
	members of the Company as at the close of business on the
	Record Date and whose address(es) as shown on such register
	is/are outside Hong Kong
“Posting Date”	20 June 2008 or such other date as the Company and the
	Underwriters may agree in writing for the despatch of the Rights
	Issue Documents
“PRC”	the People’s Republic of China
“Prospectus”	this prospectus, issued by the Company in relation to the Rights
	Issue
“Qualifying Shareholder(s)”	Shareholder(s) whose name(s) appears on the register of
	members of the Company as at the close of business on the
	Record Date and who is/are not an Excluded Shareholder(s)
“Record Date”	19 June 2008, the record date to determine entitlements to the
	Rights Issue
“Registrar”	the branch share registrar and transfer office of the Company,
	Tricor Tengis Limited, at 26/F, Tesbury Centre, 28 Queen’s Road
	East, Wanchai, Hong Kong

– 2 –

DEFINITIONS

“Rights Issue”	the issue of 788,682,657 Rights Shares at the Subscription Price
	on the basis of three (3) Rights Shares for every twenty (20)
	existing Shares held as at the close of business on the Record
	Date payable in full on acceptance
“Rights Issue Documents”	this Prospectus, the provisional allotment letters relating to the
	Rights Issue and the forms of application for excess Rights
	Shares
“Rights Share(s)”	new Share(s) to be allotted and issued in respect of the Rights
	Issue
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws
	of Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.05 each in the share capital of the
	Company
“Share Option Scheme”	the share option scheme of the Company adopted by the
	Company on 30 June 2004
“Share Optionholders”	holders of outstanding Share Options
“Share Options”	options issued under the terms of the Share Option Scheme
	which entitle the holder thereof to subscribe for new Shares
“Shareholder(s)”	holder(s) of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Price”	HK$3.20 per Rights Share
“subsidiary”	has the meaning ascribed to it in the Listing Rules
“Temasek Holdings”	Temasek Holdings (Private) Limited, a company incorporated
	in Singapore
“Underwriters”	Keentech and Ellington
“Underwriting Agreement”	the underwriting agreement dated 30 May 2008 entered into
	between the Company and the Underwriters in relation to the
	Rights Issue
“Underwritten Shares”	all of the Rights Shares which are fully underwritten by the
	Underwriters on the terms and subject to the conditions set out
	in the Underwriting Agreement

– 3 –

DEFINITIONS

“A$”	Australian dollars, the lawful currency of Australia
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“Tenge”	Tenge, the lawful currency of Kazakhstan
“US$”	United States dollars, the lawful currency of the United States
	of America
“%”	per cent.

In this Prospectus, amounts in A$, RMB, Tenge and US$ have been converted into HK$ or vice versa at the rates of A$1 = HK$7.283, RMB1 = HK$1.1111, Tenge 1 = HK$0.0647313 and US$1 = HK$7.8 respectively for illustration purposes only. No representation is made that any amounts in A$, HK$, RMB, Tenge or US$ have been or could have been or can be converted at the above rates or at any other rates or at all.

– 4 –

EXPECTED TIMETABLE

First day of dealings in nil-paid Rights Shares ................................................ Tuesday, 24 June 2008

Latest time for splitting nil-paid Rights Shares ........................4:30 p.m. on Thursday, 26 June 2008

Last day of dealings in nil-paid Rights Shares .............................................. Wednesday, 2 July 2008

Latest time for acceptance of and payment for

the Rights Shares and

application for excess Rights Shares ......................................... 4:00 p.m. on Monday, 7 July 2008

Latest time for termination of

the Underwriting Agreement by the Underwriters ............... 5:00 p.m. on Thursday, 10 July 2008

Announcement of results of the Rights Issue

to be published on the respective websites of

the Stock Exchange and the Company .......................................................... Monday, 14 July 2008

Refund cheques in respect of wholly or partially

unsuccessful applications for excess Rights Shares

expected to be posted on or about ................................................................. Tuesday, 15 July 2008

Certificates for the Rights Shares

expected to be despatched on or about .......................................................... Tuesday, 15 July 2008

Dealings in fully-paid Rights Shares commence ............................................ Thursday, 17 July 2008

Notes:

(i) All references to times and dates in this Prospectus refer to Hong Kong times and dates.
(ii) Dates or deadlines specified in this Prospectus for events in the timetable for (or otherwise in relation to) the Rights Issue are indicative only and may be extended or varied by agreement between the Company and the Underwriters. Any consequential changes to the expected timetable will be published by way of announcements or otherwise notified to Shareholders.
(iii) If there is a tropical cyclone warning signal number 8 or above or a “black” rainstorm warning signal:
(a) in force in Hong Kong at any time before 12:00 noon but no longer in force after 12:00 noon on the Acceptance Date, the latest time for acceptance of and payment for the Rights Issue will be extended to 5:00 p.m. on the same date; or
(b) in force in Hong Kong at any time between 12:00 noon and 4:00 p.m. on the Acceptance Date, the latest time for acceptance of and payment for the Rights Issue will be postponed to 4:00 p.m. on the next following Business Day.

If the latest time for acceptance of and payment for the Rights Issue is postponed in accordance with the above paragraphs, the dates mentioned in this section may be affected. In such event, an announcement will be made by the Company as soon as practicable.

– 5 –

TERMINATION OF THE UNDERWRITING AGREEMENT

Under the Underwriting Agreement, if at any time prior to 5:00 p.m. on the third Business Day after the Acceptance Date:

(a) there shall develop, occur, exist or come into effect:
(i) any new law or regulation or any change or prospective change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority in Hong Kong, Singapore, Bermuda or any other place in which any member of the Group conducts or carries on business; or
(ii) any change or prospective change in, or any event or series of events resulting or likely to result in any change in local, national or international financial, political, military, industrial, economic, currency or (whether or not sui generis with any of the foregoing) market conditions, for this purpose but without limiting the generality of the foregoing a change in the system under which the value of the Hong Kong currency is linked to the currency of the United States of America shall be an event resulting or likely to result in a change in currency conditions; or
(iii) any change or prospective change in the conditions of local, national or international securities markets (including but without limitation, the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange due to exceptional financial circumstances or otherwise); or
(iv) any material change in the business or in the financial or trading position or prospects of the Group; or
(v) any act of God, war, riot, public disorder, any outbreak or escalation of hostilities, declaration of emergency, calamity, crisis, epidemic, terrorism or any event or a series of events beyond the control of the Underwriters; or
(vi) any suspension in the trading of the Shares on the Stock Exchange; or
(vii) any litigation against any member of the Group by a third party; or
(viii) any moratorium on commercial banking activities having been declared by the PRC, Hong Kong or Singapore authorities,

which, in the reasonable opinion of the Underwriters:

(x) is likely to have a material adverse effect on the Company or the Group or the Rights Issue; or
(y) is likely to have a material adverse effect on the success of the Rights Issue or the level of Rights Shares taken up; or
(z) is so material as to make it inadvisable or inexpedient for the Company to proceed with the Rights Issue; or

– 6 –

TERMINATION OF THE UNDERWRITING AGREEMENT

(b) there comes to the notice of the Underwriters:

(i) any matter or event showing any of the representations and warranties or any undertakings of the Company under the Underwriting Agreement to be untrue or misleading or as having been breached in any respect; or
(ii) any change or development involving a prospective change in Hong Kong taxation or exchange control which will or may materially and adversely affect the Group or a material proportion of the existing Shareholders in their capacity as such,

then and in any such case the Underwriters may (but shall not be bound to), upon giving notice to the Company, terminate the Underwriting Agreement with immediate effect. If the Underwriting Agreement is terminated, the Rights Issue will not proceed.

In the event the Underwriters exercise their rights to terminate the Underwriting Agreement, the Underwriting Agreement shall, save in respect of certain provisions therein, terminate and the obligations of the Company and the Underwriters shall cease and be null and void and none of the Company and the Underwriters shall, save in respect of certain provisions and any right or liability accrued under the Underwriting Agreement before such termination, have any right against or liability towards the other arising out of or in connection with the Underwriting Agreement.

– 7 –

LETTER FROM THE BOARD

==> picture [72 x 73] intentionally omitted <==

CITIC RESOURCES HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 1205)

Executive Directors: Mr. KONG Dan (Chairman) Mr. MI Zengxin (Vice Chairman) Mr. SHOU Xuancheng (Vice Chairman) Mr. SUN Xinguo (President and Chief Executive Officer) Ms. LI So Mui Mr. QIU Yiyong Mr. ZENG Chen Mr. ZHANG Jijing

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Non-executive Directors: Mr. MA Ting Hung Mr. WONG Kim Yin Ms. YAP Chwee Mein (Alternate to Mr. WONG Kim Yin)

Independent Non-executive Directors: Mr. FAN Ren Da, Anthony Mr. NGAI Man Mr. TSANG Link Carl, Brian

Head Office and Principal Place of Business: Suites 3001-3006 30/F, One Pacific Place 88 Queensway Hong Kong

20 June 2008

To the Qualifying Shareholders (and, for information only, to the Excluded Shareholders)

Dear Sir or Madam,

RIGHTS ISSUE OF 788,682,657 RIGHTS SHARES AT HK$3.20 EACH ON THE BASIS OF THREE (3) RIGHTS SHARES FOR EVERY TWENTY (20) SHARES HELD ON THE RECORD DATE

INTRODUCTION

Reference is made to the Announcement in respect of the Rights Issue. The purpose of this Prospectus is to provide you with further details regarding the Rights Issue, including information on dealing in, transfer and acceptance of the Rights Shares, and certain financial and other information in respect of the Group.

– 8 –

LETTER FROM THE BOARD

RIGHTS ISSUE

Issue statistics

Basis of the Rights Issue : Three (3) Rights Shares for every twenty (20) existing Shares held as at the close of business on the Record Date
Subscription Price : HK$3.20 per Rights Share Number of existing Shares in issue : 5,257,884,381 Shares as at the Latest Practicable Date Number of Rights Shares : 788,682,657 Rights Shares Underwriters : Keentech and Ellington

The Rights Shares will be fully underwritten by the Underwriters on the terms and subject to the conditions set out in the Underwriting Agreement, details of which are described in the section headed “Underwriting Arrangement” below.

The number of Rights Shares which may be issued pursuant to the Rights Issue will be increased in proportion to any additional Shares which may be allotted and issued on or before the Record Date pursuant to the exercise of the Share Options. As at the Latest Practicable Date, the Company has 57,000,000 outstanding vested Share Options entitling the Share Optionholders to subscribe for 57,000,000 Shares. Each of the Share Optionholders has irrevocably undertaken to the Company and each of the Underwriters that he or she will not exercise such Share Options up to and including the Record Date. Save for the outstanding Share Options, there are no other convertible securities, options or warrants in issue which would otherwise confer any right to subscribe for, convert or exchange into the new Shares as at the Latest Practicable Date.

Qualifying Shareholders

To qualify for the Rights Issue, a Qualifying Shareholder must be registered as a member of the Company as at the close of business on the Record Date.

The Company will send the Rights Issue Documents to the Qualifying Shareholders on the Posting Date. The Company will send only this Prospectus to the Excluded Shareholders (if any) for information purposes.

– 9 –

LETTER FROM THE BOARD

TERMS OF THE RIGHTS ISSUE

Subscription Price

HK$3.20 per Rights Share, payable in full by a Qualifying Shareholder upon acceptance of the provisional allotment of the Rights Shares under the Rights Issue or application for excess Rights Shares or when a renouncee of any provisional allotment of the Rights Shares or a transferee of nilpaid Rights Shares applies for the Rights Shares.

The Subscription Price represents:

(i) a discount of 9.09% to the closing price of HK$3.520 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a discount of 27.77% to the closing price of HK$4.430 per Share as quoted on the Stock Exchange on the Last Trading Day;
(iii) a discount of 25.51% to the average closing price of HK$4.296 per Share as quoted on the Stock Exchange for the 5 consecutive trading days up to and including the Last Trading Day;
(iv) a discount of 25.60% to the average closing price of HK$4.301 per Share as quoted on the Stock Exchange for the 10 consecutive trading days up to and including the Last Trading Day;
(v) a discount of 17.97% to the average closing price of HK$3.901 per Share as quoted on the Stock Exchange for the 30 consecutive trading days up to and including the Last Trading Day; and
(vi) a discount of 25.06% to the theoretical ex-rights price of HK$4.270 based on the closing price of HK$4.430 per Share as quoted on the Stock Exchange on the Last Trading Day.

The Subscription Price was arrived at after arm’s length negotiation between the Company and the Underwriters with reference to the prevailing market price of the Shares and current market conditions.

The Directors consider the terms of the Rights Issue and the Subscription Price to be fair and reasonable and the Rights Issue to be in the best interests of the Company and Shareholders as a whole.

Basis of provisional allotments

Three (3) Rights Shares (in nil-paid form) for every twenty (20) existing Shares held by Qualifying Shareholders as at the close of business on the Record Date.

– 10 –

LETTER FROM THE BOARD

Status of the Rights Shares

The Rights Shares (when allotted, issued and fully paid) will rank pari passu in all respects with all existing issued Shares. Holders of fully-paid Rights Shares will be entitled to receive all future dividends and distributions which may be declared, made or paid after the date of allotment and issue of the Rights Shares.

Certificates and refund cheques for the Rights Shares

Subject to the fulfilment of the conditions to the Rights Issue as contained in the Underwriting Agreement, certificates for fully-paid Rights Shares are expected to be posted by ordinary mail on or about Tuesday, 15 July 2008 to those Qualifying Shareholders or their transferees who have paid for and have accepted the Rights Shares, at such persons’ own risk. Refund cheques in respect of wholly or partially unsuccessful applications for excess Rights Shares (if any) are also expected to be posted by ordinary mail on or about Tuesday, 15 July 2008 at such applicants’ own risk.

Fractions of the Rights Shares and Rights Shares which would have been allotted to Excluded Shareholders had they been Qualifying Shareholders

The Company will not provisionally allot and issue and will not accept applications for any fractions of the Rights Shares. The Company may sell in the market any nil-paid Rights Shares created by adding fractions of the Rights Shares, if any, and if the Company does so, it will keep the net proceeds for its own benefit. Any unsold fractions of Rights Shares will be available for excess Rights Shares applications.

In the case of Rights Shares (excluding fractional entitlements) which would have been allotted to Excluded Shareholders had they been Qualifying Shareholders, the Company shall use its reasonable endeavours to procure that all or as many as possible of such Rights Shares are sold on the Stock Exchange nil paid at such a premium in excess of the expenses of sale as may reasonably be obtained as soon as reasonably practicable after the commencement of dealings in the nil-paid Rights Shares but before the latest time for dealings in nil-paid Rights Shares. The Company will distribute to the Excluded Shareholders the net proceeds of such sale of the Rights Shares (pro rata to their entitlement to Rights Shares had they been Qualifying Shareholders) except that a sum due to any Excluded Shareholder of less than HK$100 will not be distributed but will be retained, along with the proceeds of the sale of nil-paid Rights Shares created by adding fractions of the Rights Shares, by the Company for its own benefit. In the event that such Rights Shares are not sold on the Stock Exchange, they will become part of the excess Rights Shares available for application by the Qualifying Shareholders.

– 11 –

LETTER FROM THE BOARD

Excluded Shareholders

Any Overseas Shareholder to whom the Board, based on advice provided by legal advisers, considers it necessary or expedient not to offer the Rights Shares on account either of legal restrictions under the laws of the relevant jurisdiction or the requirements of the relevant regulatory body or stock exchange in that jurisdiction will not be regarded as a Qualifying Shareholder. The Company reserves the right, however, in its discretion to vary the requirements set out above to avoid any offer of Rights Shares to Shareholders (without compliance with registration or other legal and regulatory requirements) outside Hong Kong.

The Rights Issue Documents have not been registered under any securities or equivalent legislation of any jurisdictions other than the applicable laws in Hong Kong. Accordingly, no action has been taken to permit the Rights Issue in any jurisdiction other than Hong Kong. No person receiving a provisional allotment letter or form of application for excess Rights Shares in any jurisdiction other than Hong Kong may treat it as an offer or invitation to apply for the Rights Shares or excess Rights Shares, unless in the relevant jurisdiction such an offer or invitation to apply for the Rights Shares or excess Rights Shares could lawfully be made without compliance with any registration or other legal and regulatory requirements thereof. It is the responsibility of anyone outside Hong Kong wishing to make an application for the Rights Shares or excess Rights Shares to satisfy himself/herself/itself, before exercising any rights to subscribe for the provisionally allotted Rights Shares or excess Rights Shares, as to the observance of the laws and regulations of all relevant jurisdictions, including the obtaining of any governmental or other consents and to pay any taxes and duties required to be paid in such jurisdiction in connection therewith. The Company reserves the right to refuse to accept any application for the Rights Shares or excess Rights Shares where it believes that doing so would violate the applicable securities legislation or other laws or regulations of any jurisdiction.

Based on the register of members of the Company as at the Latest Practicable Date, there was no Shareholder with a registered address outside Hong Kong.

Procedures for acceptance and payment or transfer

A provisional allotment letter is enclosed with this Prospectus which entitles the Qualifying Shareholder to whom it is addressed to subscribe for the number of Rights Shares shown therein. If a Qualifying Shareholder wishes to accept all Rights Shares provisionally allotted to him/her/it as specified in the provisional allotment letter, he/she/it must lodge the provisional allotment letter in accordance with the instructions printed thereon, together with a remittance for the full amount payable on acceptance, with the Registrar, Tricor Tengis Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong by not later than 4:00 p.m. on Monday, 7 July 2008. All remittances must be made in Hong Kong dollars and cheques must be drawn on a bank account with, and cashier’s orders must be issued by, a licensed bank in Hong Kong and made payable to “CITIC Resources Holdings Limited - Provisional Allotment Account” and crossed “Account Payee Only” .

It should be noted that unless the provisional allotment letter, together with the appropriate remittance, has been lodged with the Registrar by 4:00 p.m. on Monday, 7 July 2008, whether by the original allottee or any person in whose favour the rights have been validly transferred, that provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.

– 12 –

LETTER FROM THE BOARD

If a Qualifying Shareholder wishes to accept only part of his/her/its provisional allotment or transfer a part of his/her/its rights to subscribe for the Rights Shares provisionally allotted to him/her/it under the provisional allotment letter or to transfer all or part of his/her/its rights to more than one person, the original provisional allotment letter must be surrendered and lodged for cancellation by no later than 4:30 p.m. on Thursday, 26 June 2008 with the Registrar, who will cancel the original provisional allotment letter and issue new provisional allotment letter(s) in the denomination(s) required which will be available for collection from the Registrar after 9:00 a.m. on the second Business Day after the surrender of the original provisional allotment letter.

All cheques or cashier’s orders for the Rights Shares will be presented for payment immediately upon receipt and all interest earned on such monies will be retained for the benefit of the Company. Any provisional allotment letter in respect of which the cheque or cashier’s order is dishonoured on first presentation is liable to be rejected, and in that event the provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.

If the Underwriters exercise their rights to terminate the Underwriting Agreement or if any of the conditions of the Rights Issue are not fulfilled on or before the time and date as specified in the Underwriting Agreement, the monies received in respect of acceptances of the Rights Shares will be refunded to the applicants without interest by means of cheque(s) to be despatched by ordinary mail at the risk of such applicants on or about Tuesday, 15 July 2008.

Application for excess Rights Shares

A Qualifying Shareholder shall be entitled to apply for (a) any unsold entitlement of the Excluded Shareholders (if any) and any unsold Rights Shares created by adding together fractions of the Right Shares; and (b) any Rights Shares provisionally allotted but not accepted by other Qualifying Shareholders.

Application may be made by completing the form of application for excess Rights Shares and lodging the same with a separate remittance for the excess Rights Shares being applied for. The Board will allocate the excess Rights Shares at its discretion on a fair and reasonable basis on the following principles:

(1) preference will be given to applications for less than a board lot of Rights Shares where they appear to the Directors that such applications are made to round up odd-lot holdings to wholelot holdings and that such applications are not made with the intention to abuse this mechanism; and
(2) subject to availability of excess Rights Shares after allocation under principle (1) above, the excess Rights Shares will be allocated to Qualifying Shareholders based on a sliding scale with reference to the number of the excess Rights Shares applied for by them (i.e. Qualifying Shareholders applying for smaller number of Rights Shares are allocated with a higher percentage of successful application but will receive less number of Rights Shares; whereas Qualifying Shareholders applying for larger number of Rights Shares are allocated with a smaller percentage of successful application but will receive higher number of Rights Shares).

– 13 –

LETTER FROM THE BOARD

The Qualifying Shareholders whose Shares are held by a nominee company should note that for the purposes of the principles above, the Board will regard the nominee company as a single Shareholder according to the register of members of the Company. Accordingly, the Qualifying Shareholders whose Shares are registered in the name of the nominee companies should note that the aforesaid arrangement in relation to the allocation of the excess Rights Shares will not be extended to beneficial owners individually.

If a Qualifying Shareholder wishes to apply for any Rights Shares in addition to his/her/its provisional allotment, he/she/it must complete and sign the form of application for excess Rights Shares and lodge it, together with a separate remittance for the full amount payable on application in respect of the excess Rights Shares being applied for, with the Registrar, Tricor Tengis Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong by 4:00 p.m. on Monday, 7 July 2008, or such later time and/or date as may be agreed between the Company and the Underwriters. All remittances must be made in Hong Kong dollars and cheques must be drawn on a bank account with, and cashier’s orders must be issued by, a licensed bank in Hong Kong and made payable to “CITIC Resources Holdings Limited - Excess Application Account” and crossed “Account Payee Only” .

If the Underwriters exercise their rights to terminate the Underwriting Agreement or if any of the conditions of the Rights Issue are not fulfilled on or before the time and date as specified in the Underwriting Agreement, the monies received in respect of application for excess Rights Shares will be refunded to the applicants without interest by means of cheque(s) to be despatched by ordinary mail at the risk of such applicants on or about Tuesday, 15 July 2008.

Application for listing

The Company has applied to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Rights Shares in both nil-paid and fully-paid forms. No part of the share capital of the Company is listed or dealt in on any other stock exchange, nor is listing of or permission to deal in the share capital or any part of the share capital of the Company being or is proposed to be sought on any other stock exchange.

Subject to the granting of listing of, and permission to deal in, the Rights Shares in their nil-paid and fully-paid forms on the Stock Exchange as well as compliance with the stock admission requirements of HKSCC, the Rights Shares in their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the respective commencement date of dealings in the Rights Shares in their nil-paid and fully-paid forms or such other dates as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Nil-paid Rights Shares are expected to be traded in board lots of 2,000 (as the Shares are currently traded on the Stock Exchange in board lots of 2,000). Dealing in the Rights Shares (in both nil-paid and fully-paid forms) will be subject to the payment of stamp duty, Stock Exchange trading fee, transaction levy and any other applicable fees and charges in Hong Kong.

– 14 –

LETTER FROM THE BOARD

Conditions of the Rights Issue

The Rights Issue is conditional upon the following:

(a) all necessary approvals, permits, waivers, consents and authorisations having been obtained for the Rights Issue, the provisional allotment and allotment of the Rights Shares;
(b) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) listing of, and permission to deal in, all the Rights Shares, in their nil-paid and fully-paid forms, by not later than Monday, 23 June 2008 and Wednesday, 16 July 2008 respectively and such listing not being revoked prior to 4:00 p.m. on Thursday, 10 July 2008 which is the third Business Day following the Acceptance Date;
(c) the delivery on or before the Posting Date of one signed copy of each of the Rights Issue Documents to the Underwriters and the Stock Exchange;
(d) the registration on or prior to the Posting Date of one signed copy of each of the Rights Issue Documents (and all other documents required to be attached) with the Registrar of Companies in Hong Kong, complying with the requirements of the Companies Ordinance;
(e) the filing on or prior to the Posting Date of one signed copy of each of the Rights Issue Documents with the Registrar of Companies in Bermuda, complying with the requirements of the Companies Act 1981 of Bermuda;
(f) the posting of the Rights Issue Documents to the Qualifying Shareholders on or before the Posting Date (or such later date as the Underwriters may agree with the Company); and
(g) the Underwriting Agreement becoming unconditional and not being terminated by the Underwriters.

In the event that any of the above conditions has not been satisfied on or before the time and dates specified in the Underwriting Agreement, the Underwriting Agreement shall, save in respect of certain provisions therein, terminate and the obligations of the Company and the Underwriters shall cease and be null and void upon such termination and none of the Company and the Underwriters shall, save in respect of certain provisions and any right or liability accrued under the Underwriting Agreement before such termination, have any right against or liability towards the other arising out of or in connection with the Underwriting Agreement.

– 15 –

LETTER FROM THE BOARD

UNDERWRITING ARRANGEMENT

Underwriting Agreement

Date

: 30 May 2008

Underwriters : Keentech and Ellington

Number of Underwritten Shares : All of the Rights Shares

Underwriting Commitments

: Keentech and Ellington shall underwrite, on a several only basis, 649,468,279 Underwritten Shares and 139,214,378 Underwritten Shares respectively

Commission

: Nil

As at the Latest Practicable Date, Keentech is directly interested in 1,990,180,588 Shares representing 37.85% of the issued share capital of the Company and Ellington is directly interested in 202,000,000 Shares representing 3.84% of the issued share capital of the Company. The ordinary course of business of each of Keentech and Ellington does not include underwriting.

Termination of the Underwriting Agreement

If, at any time prior to 5:00 p.m. on the third Business Day after the Acceptance Date:

(a) there shall develop, occur, exist or come into effect:
(i) any new law or regulation or any change or prospective change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority in Hong Kong, Singapore, Bermuda or any other place in which any member of the Group conducts or carries on business; or
(ii) any change or prospective change in, or any event or series of events resulting or likely to result in any change in local, national or international financial, political, military, industrial, economic, currency or (whether or not sui generis with any of the foregoing) market conditions, for this purpose but without limiting the generality of the foregoing a change in the system under which the value of the Hong Kong currency is linked to the currency of the United States of America shall be an event resulting or likely to result in a change in currency conditions; or
(iii) any change or prospective change in the conditions of local, national or international securities markets (including but without limitation, the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange due to exceptional financial circumstances or otherwise); or
(iv) any material change in the business or in the financial or trading position or prospects of the Group; or

– 16 –

LETTER FROM THE BOARD

(v) any act of God, war, riot, public disorder, any outbreak or escalation of hostilities, declaration of emergency, calamity, crisis, epidemic, terrorism or any event or a series of events beyond the control of the Underwriters; or
(vi) any suspension in the trading of the Shares on the Stock Exchange; or
(vii) any litigation against any member of the Group by a third party; or
(viii) any moratorium on commercial banking activities having been declared by the PRC, Hong Kong or Singapore authorities,

which, in the reasonable opinion of the Underwriters:

(x) is likely to have a material adverse effect on the Company or the Group or the Rights Issue; or
(y) is likely to have a material adverse effect on the success of the Rights Issue or the level of Rights Shares taken up; or
(z) is so material as to make it inadvisable or inexpedient for the Company to proceed with the Rights Issue; or
(b) there comes to the notice of the Underwriters:
(i) any matter or event showing any of the representations and warranties or any undertakings of the Company under the Underwriting Agreement to be untrue or misleading or as having been breached in any respect; or
(ii) any change or development involving a prospective change in Hong Kong taxation or exchange control which will or may materially and adversely affect the Group or a material proportion of the existing Shareholders in their capacity as such,

Pursuant to Rule 14A.31(3)(c) of the Listing Rules, the entering into of the Underwriting Agreement by the Company with the Underwriters constitutes an exempt connected transaction for the Company and is therefore exempt from the reporting, announcement and independent shareholders’ approval requirements of the Listing Rules.

– 17 –

LETTER FROM THE BOARD

CHANGES IN THE SHAREHOLDING STRUCTURE OF THE COMPANY ARISING FROM THE RIGHTS ISSUE

Set out below is the shareholding structure of the Company as at the Latest Practicable Date and immediately after completion of the Rights Issue:

Name of Shareholder Keentech CITIC Australia Pty Limited Baytree Investments (Mauritius) Pte. Ltd. Ellington Public Total	Existing shareholding Shares % 1,990,180,588 37.85 750,413,793 14.27 385,450,000 7.33 202,000,000 3.84 1,929,840,000 36.71 5,257,884,381 100.00	After completion of the Rights Issue (assuming all Rights Shares are taken up by the Qualifying Shareholders) Shares % 2,288,707,675 37.85 862,975,860 14.27 443,267,500 7.33 232,300,000 3.84 2,219,316,003 36.71 6,046,567,038 100.00	After completion of the Rights Issue (assuming no Rights Shares are taken up by the Qualifying Shareholders other than associates of Keentech and Ellington, and Keentech and Ellington have fully underwritten the Underwritten Shares) Shares % 2,527,086,800 41.79 862,975,860 14.27 443,267,500 7.33 283,396,878 4.69 1,929,840,000 31.92 6,046,567,038 100.00	After completion of the Rights Issue (assuming no Rights Shares are taken up by the Qualifying Shareholders other than associates of Keentech and Ellington, and Keentech and Ellington have fully underwritten the Underwritten Shares) Shares % 2,527,086,800 41.79 862,975,860 14.27 443,267,500 7.33 283,396,878 4.69 1,929,840,000 31.92 6,046,567,038 100.00
				100.00

Note: Keentech and CITIC Australia Pty Limited are wholly-owned subsidiaries of CITIC Group.

Baytree Investments (Mauritius) Pte. Ltd. and Ellington are wholly-owned subsidiaries of Temasek Holdings.

– 18 –

LETTER FROM THE BOARD

WARNING OF THE RISKS OF DEALING IN THE SHARES AND THE NIL-PAID RIGHTS SHARES

The Shares have been dealt with on an ex-rights basis since Thursday, 12 June 2008. The Rights Shares will be dealt with in their nil-paid form from Tuesday, 24 June 2008 to Wednesday, 2 July 2008 (both days inclusive). If prior to 5:00 p.m. on the third Business Day after the Acceptance Date, the Underwriters terminate the Underwriting Agreement (see sub-section headed “Termination of the Underwriting Agreement” above) or the conditions of the Rights Issue (see sub-section headed “Conditions of the Rights Issue” above) cannot be fulfilled, the Rights Issue will not proceed. Any dealings in the Shares from now up to the date on which all conditions to which the Rights Issue is subject are required to be fulfilled (which is expected to be Wednesday, 16 July 2008), and any dealings in the Rights Shares in their nil-paid form between Tuesday, 24 June 2008 and Wednesday, 2 July 2008 (both days inclusive) are accordingly subject to the risk that the Rights Issue may not become unconditional or may not proceed. If the Rights Issue fails to proceed, the application monies received will be refunded to the applicants without interest by means of cheque(s) to be despatched by ordinary mail at the risk of such applicants on or about Tuesday, 15 July 2008. Shareholders and potential investors in the Company should therefore exercise caution when dealing in the Shares or the Rights Shares in their nil-paid form, and if they are in any doubt about their position, they should consult their professional advisers.

REASONS FOR THE RIGHTS ISSUE AND USE OF PROCEEDS

The estimated net proceeds of the Rights Issue of HK$2,505.7 million will enhance the financial condition of the Company by improving its gearing ratio. In addition, the net proceeds of the Rights Issue will also be applied by the Group towards funding its future investments, working capital requirements and for general corporate purposes.

ADJUSTMENT TO SHARE OPTIONS

In accordance with the terms of the Share Option Scheme, the Rights Issue may lead to adjustments to the number of Shares to be issued on the exercise of the Share Options and/or the exercise price payable by each Share Optionholder in respect of each Share to be issued on the exercise of the Share Options. The Company will engage Ernst & Young, the auditors of the Company, pursuant to the terms of the Share Option Scheme to determine if any adjustment is required to be made to the number of Shares to be issued on the exercise of the Share Options and/or the exercise price payable by each Share Optionholder in respect of each Share to be issued on the exercise of the Share Options as a result of the Rights Issue.

– 19 –

LETTER FROM THE BOARD

INFORMATION ON THE COMPANY

The Company is a diversified energy and natural resources investment holding company and through its subsidiaries has interests in aluminium smelting, coal, import and export of commodities, manganese mining and processing and oil exploration, development and production.

For the financial year ended 31 December 2007, the consolidated profits before and after taxation of the Group amounted to HK$731.0 million and HK$521.4 million respectively and the consolidated net assets of the Group as at 31 December 2007 were HK$7,159.6 million.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board CITIC Resources Holdings Limited Sun Xinguo Chief Executive Officer

– 20 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(A) SUMMARY OF AUDITED CONSOLIDATED FINANCIAL INFORMATION ON THE GROUP FOR THE THREE YEARS ENDED 31 DECEMBER 2007

The following was extracted from the published audited financial statements of the Group for the three years ended 31 December 2007 and restated/reclassified as appropriate.

Results

HK$’000

Revenue
Profit before tax
Tax
Profit for the year
Attributable to:
Shareholders of the Company
Minority interests
Assets, liabilities and minority interests
HK$’000
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Minority interests

Year ended 31 December
2007
2006
2005
Restated
10,007,656
6,835,161
5,786,386
731,012
316,189
342,157
( 209,630)
( 70,152)
( 110,642)
521,382
246,037
231,515
282,777
200,815
221,703
238,605
45,222
9,812
521,382
246,037
231,515
31 December
2007
2006
2005
Restated
24,897,231
4,373,701
3,080,713
5,877,734
4,954,660
2,939,314
30,774,965
9,328,361
6,020,027
4,436,425
2,854,539
1,437,385
19,178,981
2,968,733
1,615,235
23,615,406
5,823,272
3,052,620
1,088,096
279,746
25,634
6,071,463
3,225,343
2,941,773

– 21 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(B) AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE TWO YEARS ENDED 31 DECEMBER 2007

The following was extracted from the Company’s 2007 annual report. References to page numbers in the extract reproduced below are to pages contained in such annual report.

INDEPENDENT AUDITORS’ REPORT

==> picture [151 x 40] intentionally omitted <==

To the shareholders of CITIC Resources Holdings Limited

(Incorporated in Bermuda with limited liability)

We have audited the financial statements of CITIC Resources Holdings Limited set out on pages 49 to 156, which comprise the consolidated and Company balance sheets as at 31 December 2007, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. Our 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 report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

– 22 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and true and fair presentation of the financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2007 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Ernst & Young

Certified Public Accountants

18th Floor Two International Finance Centre 8 Finance Street, Central Hong Kong

18 April 2008

– 23 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED INCOME STATEMENT

YEAR ENDED 31 DECEMBER 2007 HK$’000 Notes REVENUE 5 Cost of sales Gross profit Other income and gains 5 Selling and distribution costs Administrative expenses Other operating expenses, net Finance costs 9 Share of profit of an associate PROFIT BEFORE TAX 6 Tax 10 PROFIT FOR THE YEAR ATTRIBUTABLE TO: Shareholders of the Company 11 Minority interests EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY SHAREHOLDERS OF THE COMPANY 12 Basic Diluted DIVIDEND PER SHARE	2007 10,007,656 (8,576,552) 1,431,104 430,672 (103,132) (310,118) (190,629) (542,583) 15,698 731,012 (209,630) 521,382 282,777 238,605 521,382 HK 5.65 cents HK 5.61 cents Nil	2006 (restated) 6,835,161 (6,306,331) 528,830 283,245 (68,302) (214,910) (62,319) (150,355) — 316,189 (70,152) 246,037 200,815 45,222 246,037 HK 4.65 cents HK 4.61 cents Nil

– 24 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

31 DECEMBER 2007 HK$’000

Notes NON-CURRENT ASSETS Property, plant and equipment 13 Prepaid land lease premiums 14 Goodwill 17 Other intangible assets 15 Other assets 16 Interest in an associate 21 Available-for-sale investments 22 Prepayments, deposits and other receivables 23 Loan receivable 26 Deferred tax assets 37 Total non-current assets CURRENT ASSETS Inventories 24 Accounts receivable 27 Prepayments, deposits and other receivables 23 Loan receivable 26 Equity investments at fair value through profit or loss 28 Derivative financial instruments 32 Due from related companies 25 Due from the ultimate holding company 25 Other assets 16 Tax recoverable Cash and bank balances 29 Total current assets CURRENT LIABILITIES Accounts payable 30 Tax payable Accrued liabilities and other payables 31 Derivative financial instruments 32 Due to a minority shareholder 33 Due to related companies 25 Bank and other loans 34 Bond obligations 35 Provisions 36 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	2007 22,187,440 72,451 341,512 142,038 549,295 1,164,472 201,206 78,860 3,222 156,735 24,897,231 1,126,642 1,619,666 745,518 18,393 2,430 8,608 119,600 — 70,125 92,295 2,074,457 5,877,734 613,991 408,984 653,313 102,366 — 9,674 2,238,916 356,868 52,313 4,436,425 1,441,309 26,338,540	2006 (restated) 2,194,250 58,353 341,512 135,701 555,983 — 845,936 16,346 21,615 204,005
		4,373,701
		800,007 1,252,081 1,867,396 17,327 1,974 16,380 51,486 34,320 62,945 — 850,744
		4,954,660
		533,788 47,108 306,789 286,920 38,174 — 1,588,022 — 53,738
		2,854,539
		2,100,121
		6,473,822

– 25 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

31 DECEMBER 2007 HK$’000 Notes TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank and other loans 34 Bond obligations 35 Deferred tax liabilities 37 Derivative financial instruments 32 Provisions 36 Other payables Total non-current liabilities NET ASSETS EQUITY Equity attributable to shareholders of the Company Issued capital 38 Reserves 40(a) Minority interests TOTAL EQUITY	2007 26,338,540 1,963,188 7,635,991 9,173,110 86,756 246,612 73,324 19,178,981 7,159,559 262,894 5,808,569 6,071,463 1,088,096 7,159,559	2006 (restated) 6,473,822
		2,214,540 — 519,933 41,063 117,549 75,648
		2,968,733
		3,505,089

		215,909 3,009,434
		3,225,343 279,746
		3,505,089

Sun Xinguo Director

Li So Mui Director

– 26 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2007 HK$’000

			Attributable to shareholders of the Company	Attributable to shareholders of the Company	Attributable to shareholders of the Company	Attributable to shareholders of the Company		Total equity 2,967,407 7,818 72,915 (23,507)
Issued capital 215,844 — — — — — — — — 65 — 215,909	Share premium account 2,561,962 — — — — — — — — 1,625 — 2,563,587*	Contributed surplus 65,527 — — — — — — — — — — 65,527*	Exchange fluctuation reserve (6,840) 5,802 — — 5,802 — 5,802 — — — — (1,038)*	Available- for-sale investment revaluation reserve 290,786 — — (23,507) (23,507) — (23,507) — — — — 267,279*	Hedging reserve (152,331) — 72,915 — 72,915 — 72,915 — — — — (79,416)*	Share option reserve 12,680 — — — — — — — — (286) 26,141 38,535*	Retained profits/ Reserve (accumulated funds losses) — (45,855) — — — — — — — — — 200,815 — 200,815 — — — — — — — — — 154,960
								57,226 246,037
								303,263 213,432 (6,558) 1,404 26,141
								3,505,089

– 27 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2007 HK$’000

			Attributable to shareholders of the Company	Attributable to shareholders of the Company	Attributable to shareholders of the Company	Attributable to shareholders of the Company			Total equity 3,505,089 (249,604)
Issued capital 215,909 — 215,909 — — — — — — — — — 40,050 — 6,935 — — 262,894	Share premium account 2,563,587 — 2,563,587 — — — — — — — — — 2,132,410 (34,610) 182,430 — — 4,843,817 *	Contributed surplus 65,527 — 65,527 — — — — — — — — — — — — — — 65,527 *	Exchange fluctuation reserve (1,038) (5,045) (6,083) 303,819 — — 303,819 — 303,819 — — — — — — — — 297,736 *	Available- for-sale investment revaluation reserve 267,279 (320,668) (53,389) — — 64,199 64,199 — 64,199 — — (577) — — — — — 10,233 *	Hedging reserve (79,416) — (79,416) — 136,232 — 136,232 — 136,232 — — 1,169 — — — — — 57,985 *	Share option reserve 38,535 — 38,535 — — — — — — — — — — — (39,669) 20,559 — 19,425 *	Reserve funds (note 40 (a)) — — — — — — — — — — — — — — — — 20,340 20,340 *	Retained profits 154,960 76,109 231,069 — — — — 282,777 282,777 — — — — — — — (20,340) 493,506 *
									3,255,485 308,890 136,232 64,199
									509,321 521,382
									1,030,703 618,892 (54,218) 592 2,172,460 (34,610) 149,696 20,559 —
									7,159,559

These reserve accounts comprise the consolidated reserves of HK$5,808,569,000 (2006: HK$3,009,434,000) in the consolidated balance sheet.

Amounts net of deferred tax impact.

– 28 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 31 DECEMBER 2007 HK$’000

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Interest income 5 Interest income from CITIC Group 5 Dividend income from available-for-sale listed investments 5 Gain on disposal of coal exploration interests 5 Gain on disposal of available-for-sale listed investments 5 Gain on conversion of available-for-sale listed investments 5 Equity-settled share option expenses 6 Depreciation 6 Amortisation 6 Loss on disposal/write-off of items of property, plant and equipment 6 Provision/(write-back of provision) for impairment of items of property, plant and equipment 6 Provision for long service and leave payments 6 Provision for impairment of accounts receivable 6 Provision for inventories 6 Provision for rehabilitation cost 6 Provision for abandonment cost 6 Unrealised losses/(gains) on embedded derivatives Unrealised foreign exchange losses Warranty income, net 6 Finance costs 9 Share of profit of an associate Excess over the cost of a business combination 5 Write-off of payable 5 Decrease/(increase) in inventories Increase in accounts receivable Increase in prepayments, deposits and other receivables Increase in amounts due from related companies Decrease in amounts due from ultimate holding company Increase/(decrease) in accounts payable Decrease in accrued liabilities and other payables Increase/(decrease) in an amount due to a minority shareholder/related companies Decrease in provisions Cash generated/(used in) from operations Australian income tax paid Kazakhstan income tax paid PRC income tax paid Net cash inflow/(outflow) from operating activities	2007 731,012 (342,174) (3,096) (15,670) (7,358) — — 20,559 248,952 77,632 6,586 65,598 906 5,126 27,731 13,808 1,556 (36,466) 33,646 — 542,583 (15,698) (11,933) (13,443) 1,329,857 7,491 (73,608) (123,413) (68,114) 34,320 (42,373) (20,398) (28,500) (11,451) 1,003,811 (126,158) (26,655) (12,061) 838,937	2006 316,189 (144,810) — (55,115) — (5,235) (17,502) 26,158 92,560 68,113 4,568 (4,893) 6,715 1,816 1,515 8,554 112 111,667 25,777 (14,908) 150,355 — — — 571,636 (302,729) (502,396) (59,723) (51,486) — 313,906 (116,872) 38,174 — (109,490) (144,835) — (623) (254,948)

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

YEAR ENDED 31 DECEMBER 2007 HK$’000

Notes
2007
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received
5
342,174
Interest received from CITIC Group
67,600
Dividends received from available-for-sale listed investments
5
15,670
Purchases of items of property, plant and equipment
13
(527,085)
Purchase of other intangible assets
15
(377)
Purchases of prepaid land lease premiums
14
(310)
Purchases of available-for-sale investments
22
(4,377)
Proceeds from disposal of items of property,
plant and equipment
34,255
Proceeds from disposal of available-for-sale listed investments
—
Net cash inflow/(outflow) from acquisition of
the subsidiaries
41(a) to (d)
(7,844,081)
Acquisition of additional equity interest in an associate
21
(757,358)
Repayment of loan receivable
26
17,327
Net cash outflow from acquisition of the Seram Interest
41(e)
—
Deposit paid for potential investment projects
23
—
Payments of interest, legal and professional fees and
other charges incurred in relation to
potential investment projects
—
Net cash outflow from investing activities
(8,656,562)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital, net of expenses
38
2,287,546
Proceeds from issue of bonds
7,621,666
Dividends paid to minority shareholders
(54,218)
New bank and other loans
6,098,247
Repayment of bank and other loans
(6,409,437)
Interest paid
(520,063)
Finance charges paid
(4,561)
Interest paid for earnest money
(64,504)
Net cash inflow from financing activities
8,954,676
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS
1,137,051
Cash and cash equivalents at beginning of year
850,744
Effect of foreign exchange rate changes, net
86,662
CASH AND CASH EQUIVALENTS
AT END OF YEAR
2,074,457
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances
29
757,871
Non-pledged time deposits with original maturity of
less than three months when acquired
29
1,316,586
2,074,457

2006
142,403
—
55,115
(173,368)
(32)
—
—
21,632
31,221
148,230
—
15,990
(757,723)
(1,560,000)
(35,177)
(2,111,709)
1,404
—
(6,558)
6,019,860
(4,183,162)
(137,025)
(3,652)
—
1,690,867
(675,790)
1,519,595
6,939
850,744
310,258
540,486
850,744

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

BALANCE SHEET

31 DECEMBER 2007 HK$’000 Notes NON-CURRENT ASSETS Property, plant and equipment 13 Interests in subsidiaries 18 Prepayments, deposits and other receivables 23 Total non-current assets CURRENT ASSETS Prepayments, deposits and other receivables 23 Bank balances 29 Total current assets CURRENT LIABILITIES Accrued liabilities and other payables Bank loans, unsecured 34 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank loans, unsecured 34 NET ASSETS EQUITY Issued capital 38 Reserves 40(b) TOTAL EQUITY Sun Xinguo Director	2007 426 5,053,089 3,508 5,057,023 5,362 747,114 752,476 25,240 234,000 259,240 493,236 5,550,259 936,000 4,614,259 262,894 4,351,365 4,614,259 Li So Mui Director	2006 — 2,382,642 5,527
		2,388,169
		1,674,413 22,690
		1,697,103
		76,706 343,200
		419,906
		1,277,197
		3,665,366 1,170,000
		2,495,366

		215,909 2,279,457
		2,495,366

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

1. CORPORATE 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.

Following the acquisition of Tincy Group Energy Resources Limited (“ Tincy Group ”), Renowned Nation Limited and its subsidiaries (the “ RNL Group ”) and Guangxi Qinzhou Guixin Ferroalloy Co., Ltd. (“ Guixin Ferroalloy ”), as detailed in note 41(a) to (c), the Group is principally engaged in the following businesses:

(a) the operation of the Portland Aluminium Smelter which sources alumina and produces aluminium ingots in Australia;
(b) the operation of coal mining and the sale of coal in Australia;
(c) the export of various commodity products such as alumina, aluminium ingots, iron ore and steel; and the import of other commodities and manufactured goods such as vehicle and industrial batteries, tyres, alloy wheels and various metals such as steel and aluminium extrusion products in Australia;
(d) the operation of manganese mining and the sale of refined manganese products in the People’s Republic of China (the “ PRC ”);
(e) the exploration, development, production and the sale of naphtha and high sulphur fuel oil produced from the Seram Island Non-Bula Block, Indonesia;
(f) the exploration, development and operation of the Hainan-Yuedong Block in the Bohai Bay Basin in Liaoning Province, the PRC (the “ Hainan-Yuedong Block ”); and
(g) the exploration, development, production and sale of oil in the Karazhanbas Oil and Gas Field in Mangistau Oblast, Kazakhstan (“ Karazhanbas oilfield ”).

On 23 November 2007, CITIC Dameng Mining Industries Limited (the “ Manganese Company ”), a 48% owned subsidiary of the Group, entered into an agreement (the “ S&P Agreement ”) with Future Idea Investment Limited, a third party company, to acquire a 51% indirect interest in Compagnie Industrielle ET Commerciale Des Mines De Hua Zhou (Gabon) (“ Compagnie Industrielle ”) at a consideration of US$15,880,000 (HK$123,864,000). Compagnie Industrielle holds certain pre-operating exploration and mining rights in Gabon, Western Africa. Pursuant to the S&P Agreement, the Manganese Company has an option to withdraw from this transaction if the final approval of the exploration and mining rights are not successfully obtained prior to 30 June 2008 or within 30 days after the commencement of mining operations. This transaction is currently expected to be completed soon.

In the opinion of the directors, the holding company and the ultimate holding company of the Company is CITIC Group, a company established in the PRC.

During the year, the Group continues to explore other investment opportunities in the field of energy and natural resources.

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

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, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for derivative financial instruments and equity investments, which have been measured at fair value. These financial statements are presented in Hong Kong dollars (“ HK$ ”) and all values are rounded to the nearest thousand (HK$’000) except where otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “ Group ”) for the year ended 31 December 2007. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The acquisition of subsidiaries during the year has been accounted for using the purchase method of accounting. This method involves allocating the cost of business combinations to the fair value of the identifiable assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. The cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Minority interests represent interests of outside shareholders not held by the Group in the results and net assets of the Company’s subsidiaries.

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has adopted the following new and revised HKFRSs for the first time for the current year’s financial statements. Except for certain cases giving rise to new and revised accounting policies and additional disclosures, the adoption of these new and revised standards and interpretations has had no material effect on these financial statements.

HKFRS 7 Financial Instruments: Disclosures HKAS 1 Amendment Capital Disclosures HK(IFRIC)-Int 8 Scope of HKFRS 2 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued)

The principal effects of adopting these new and revised HKFRSs are as follows:

(a) HKFRS 7 Financial Instruments: Disclosures

This standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group’s financial instruments and the nature and extent of risks arising from those financial instruments. The new disclosures are included throughout the financial statements. While there has been no effect on the financial position or results of operations of the Group, comparative information has been included/revised where appropriate.

(b) Amendment to HKAS 1 Presentation of Financial Statements — Capital Disclosures

This amendment requires the Group to make disclosures that enable users of the financial statements to evaluate the Group’s objectives, policies and processes for managing capital. These new disclosures are shown in note 49 to the financial statements.

(c) HK(IFRIC)-Int 8 Scope of HKFRS 2

This interpretation requires HKFRS 2 to be applied to any arrangement in which the Group cannot identify specifically some or all of the goods or services received, for which equity instruments are granted or liabilities (based on a value of the Group’s equity instruments) are incurred by the Group for a consideration, and which appears to be less than the fair value of the equity instruments granted or liabilities incurred. As the Company has only issued equity instruments to the Group’s employees in accordance with the Company’s share option scheme, the interpretation has had no effect on these financial statements.

(d) HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives

This interpretation requires that the date to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative is the date that the Group first becomes a party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. As the Group has not changed the terms of such contracts, the interpretation has had no material impact on the financial position or results of operations of the Group.

(e) HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment

The Group has adopted this interpretation as of 1 January 2007, which requires that an impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument classified as available-for-sale or a financial asset carried at cost is not subsequently reversed. As the Group had no impairment losses previously reversed in respect of such assets, the interpretation has had no impact on the financial position or results of operations of the Group.

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.3 IMPACT OF 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.

HKFRS 2 Amendment Share-based Payment – Vesting Conditions and Cancellation[4] HKFRS 3 (Revised) Business Combination[5] HKFRS 8 Operating Segments[4] HKAS 23 (Revised) Borrowing Costs[4] HKAS 27 (Revised) Consolidated and Separate Financial Statements[5] HK(IFRIC)-Int 11 HKFRS 2 – Group and Treasury Share Transactions[1] HK(IFRIC)-Int 12 Service Concession Arrangements[2] HK(IFRIC)-Int 13 Customer Loyalty Programmes[3] HK(IFRIC)-Int 14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction[2]

1 Effective for annual periods beginning on or after 1 March 2007
2 Effective for annual periods beginning on or after 1 January 2008
3 Effective for annual periods beginning on or after 1 July 2008
4 Effective for annual periods beginning on or after 1 January 2009
5 Effective for annual periods beginning on or after 1 July 2009

The amendment to HKFRS 2 clarifies the definition of “vesting conditions” and specifies the accounting treatment of “cancellations” by the counterparty to a share-based arrangement.

HKFRS 3 (Revised) amends the definitions of a business and a business combination and additional guidance was added for identifying when a group of assets constitutes a business. It also clarifies how the acquirer makes any classifications, designations or assessments for the identifiable assets acquired and liabilities assumed in a business combination.

HKFRS 8, which will replace HKAS 14 Segment Reporting, specifies how an entity should report information about its operating segments, based on information about the components of the entity that is available to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. The standard also requires the disclosure of information about the products and services provided by the segments, the geographical areas in which the Group operates, and revenue from the Group’s major customers. The Group expects to adopt HKFRS 8 from 1 January 2009.

HKAS 23 has been revised to require capitalisation of borrowing costs when such costs are directly attributable to the acquisition, construction or production of a qualifying asset. As the Group’s current policy for borrowing costs aligns with the requirements of the revised standard, the revised standard is unlikely to have any financial impact on the Group.

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued)

HKAS 27 has been revised to add a new term “non-controlling interest” to replace the term “minority interest”, and require that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity measures any gain or loss arising on the loss of control of a subsidiary.

HK(IFRIC)-Int 11 requires arrangements whereby an employee is granted rights to the Group’s equity instruments, to be accounted for as an equity-settled scheme, even if the Group acquires the instruments from another party, or the shareholders provide the equity instruments needed. HK(IFRIC)-Int 11 also addresses the accounting for sharebased payment transactions involving two or more entities within the Group. As the Group currently has no such transactions, the interpretation is unlikely to have any financial impact on the Group.

HK(IFRIC)-Int 12 requires an operator under public-to-private service concession arrangements to recognise the consideration received or receivable in exchange for the construction services as a financial asset and/or an intangible asset, based on the terms of the contractual arrangements. HK(IFRIC)-Int 12 also addresses how an operator shall apply existing HKFRSs to account for the obligations and the rights arising from service concession arrangements by which a government or a public sector entity grants a contract for the construction of infrastructure used to provide public services and/or for the supply of public services. As the Group currently has no such arrangements, the interpretation is unlikely to have any financial impact on the Group.

HK(IFRIC)-Int 13 requires that loyalty award credits granted to customers as part of a sales transaction are accounted for as a separate component of the sales transaction. The consideration received in the sales transaction is allocated between the loyalty award credits and the other components of the sale. The amount allocated to the loyalty award credits is determined by reference to their fair value and is deferred until the awards are redeemed or the liability is otherwise extinguished.

HK(IFRIC)-Int 14 addresses how to assess the limit under HKAS 19 Employee Benefits, on the amount of a refund or a reduction in future contributions in relation to a defined benefit scheme that can be recognised as an asset, in particular, when a minimum funding requirement exists.

As the Group currently has no customer loyalty award credits and defined benefit scheme, HK(IFRIC)-Int 13 and HK(IFRIC)-Int 14 are not applicable to the Group and therefore are unlikely to have any financial impact on the Group.

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, it has concluded that while the adoption of HKFRS 8 may result in new or amended disclosures, these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture is treated as:

(a) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture’s financial and operating policies;
(b) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, over the joint venture;
(c) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture’s registered capital and is in a position to exercise significant influence over the joint venture; or
(d) an equity investment accounted for in accordance with HKAS 39 Financial Instruments : Recognition and Measurement, if the Group holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture.

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Jointly-controlled assets

Jointly-controlled assets are assets in a joint venture over which the Group has joint control with other venturers in accordance with contractual arrangements and through the joint control of which the Group has control over its share of future economic benefits earned from the assets.

The Group’s share of jointly-controlled assets and any liabilities incurred jointly with other venturers are recognised in the consolidated balance sheet and classified according to their nature. Liabilities and expenses incurred directly in respect of its interests of jointly-controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group’s share of the output of the jointly-controlled assets, together with its share of any expenses incurred by the joint ventures, are recognised in the income statement when it is probable that the economic benefits associated with the transactions will flow to or from the Group. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Jointly-controlled entities

A jointly-controlled entities is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity.

The Group’s interests in jointly-controlled entities are accounted for by proportionate consolidation, which involves recognising its share of the jointly-controlled entities’ assets, liabilities, income and expenses with similar items in the consolidated financial statements on a line-by-line basis. Unrealised gains and losses resulting from transactions between the Group and its jointly-controlled entities are eliminated to the extent of the Group’s interests in the jointly-controlled entities, except where unrealised losses provide evidence of an impairment of the assets transferred.

Associates

An associate is an entity, not being a subsidiary or a jointly-controlled 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. The Group’s equity voting rights in Macarthur Coal Limited (“ Macarthur Coal ”) is less than 20%. However, the Group is able to exercise significant influence over the company and the investment is accounted for as an associate of the Group.

The Group’s interest in an associate is stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. The Group’s share of the post-acquisition results and reserves of an associate is included in the consolidated income statement and consolidated reserves, respectively. Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associate, except where unrealised losses provide evidence of an impairment of the asset transferred.

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses.

The carrying amount of goodwill is reviewed 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 cashgenerating 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 forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cashgenerating unit retained.

Excess over the cost of business combinations

Any excess of the Group’s interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of acquisition of subsidiaries (previously referred to as negative goodwill), after reassessment, is recognised immediately in the consolidated income statement.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of non-financial assets other than goodwill

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 asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, 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 period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill and certain financial assets 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 impairment loss is credited to the consolidated income statement in the period in which it arises.

Related parties

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

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;
(b) the party is an associate;
(c) the party is a jointly-controlled entity;
(d) the party is a member of the key management personnel of the Group or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d);
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or
(g) the party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group.

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment and depreciation

Property, plant and equipment, other than 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 it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

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, which include the furnace, water system, pot room and ingot mill, and buildings and structures used in the Portland Aluminium Smelter, 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 – 12 years or over the unexpired lease terms, whichever is shorter Motor vehicles, plant, machinery, tools and equipment 5 – 26 years Furniture and fixtures 4 – 5 years Buildings and structures 15 – 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 each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. 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 building and structure 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.

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment and depreciation (continued)

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.

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

Oil and gas properties are stated at cost less accumulated depreciation and depletion. 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 field. The remaining reserves figure is the amount estimated up to the licence expiration date plus the production for the period. Oil and gas properties with a useful life less than the licence life is calculated based on a straight-line basis over each asset’s estimated useful life that ranges from 3 to 10 years. 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 propertyby-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 from 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 and an accretion expense is recognised using the credit-adjusted risk-free 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.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment and depreciation (continued)

Capital works

Capital works represent exploration and development expenditure in relation to the Group’s mining activities, which are carried forward to the extent that:

(a) such costs are expected to be recouped through successful development and production of the areas or by its sale; or
(b) exploration activities in the area that have not reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves.

Costs are amortised from the date of commencement of production on a production output basis.

Other intangible assets

Other intangible assets represent mining rights and are stated at cost less accumulated amortisation and impairment losses. The mining rights are amortised using the units of production method based on the proven and probable mineral reserves, which are reviewed at least at each balance sheet date. The intangible assets are assessed for impairment whenever there is an indication that the intangible assets may be impaired.

Other assets

Other assets represent the amounts paid for an electricity supply agreement (the “ ESA ”), a 30-year base power contract entered into with the State Electricity Commission of Victoria, Australia. The ESA provides steady electricity supply at a fixed tariff to the Portland Aluminium Smelter for a period to 31 October 2016. Other assets are stated at cost less accumulated amortisation, provided on a straight-line basis over the term of the base power contract, and any impairment losses.

Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

The Group assesses whether a contract contains an embedded derivative when the Group first becomes a party to it and assesses whether an embedded derivatives is required to be separated from the host contract when the analysis shows that the economic characteristics and risks of the embedded derivatives are not closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments and other financial assets (continued)

The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, 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.

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. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or financial guarantee contracts. Gains or losses on these financial assets are recognised in the consolidated income statement. The net fair value gain or loss recognised in the consolidated income statement does 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.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial asset at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in the consolidated income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments and other financial assets (continued)

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities that are designated as available for sale or are not classified in any of the other two categories. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated income statement. Interest and dividends earned are reported as interest income and dividend income, respectively, and are recognised in the income statement as “Other income” in accordance with the policies set out for “Revenue recognition” below. Losses arising from the impairment of such investments are recognised in the consolidated income statement as “Impairment losses on available-for-sale financial assets” and are transferred from the available-for-sale investment revaluation reserve.

When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models.

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in the consolidated income statement. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery.

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (continued)

Assets carried at amortised cost (continued)

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognised in the consolidated income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

In relation to accounts and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor and significant changes in the technological, market economic or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice. The carrying amount of the receivables is reduced through the use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Available-for-sale financial assets

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 recognised in the consolidated income statement, is transferred from equity to the consolidated income statement. A provision for impairment is made for available-for-sale investments when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgement. In addition, the Group evaluates other factors, such as the share price volatility. Impairment losses on equity instruments classified as available-for-sale are not reversed through the consolidated income statement.

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 derecognised where:

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

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derecognition of financial assets (continued)

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. 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.

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cashsettled option or similar provision) on an asset measured at fair value, where the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial liabilities at amortised cost (including bank and other loans and bond obligations)

Financial liabilities including bank and other loans and bond obligations are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost. The related interest expense is recognised within “finance costs” in the consolidated income statement.

Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the amortisation process.

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 from the same lender on substantially different terms, or the terms of an 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 amounts is recognised in the consolidated income statement.

Derivative financial instruments and hedging

The Group uses derivative financial instruments such as forward currency and commodity contracts and interest rate swaps to hedge its risks associated with foreign currency, commodity price and interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derivative financial instruments and hedging (continued)

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the consolidated income statement.

The fair value of forward currency and commodity contracts is calculated by reference to current forward exchange rates and commodity prices for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to applicable interest rates in the market.

For the purpose of hedge accounting, hedges are classified as:

(a) fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability, or an unrecognised firm commitment (except for foreign currency risk); or
(b) 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 a 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 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 financial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Fair value hedges

The change in the fair value of a hedging derivative is recognised in the consolidated income statement. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying amount of the hedged item and is also recognised in the consolidated income statement.

For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through the consolidated income statement over the remaining term to maturity. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to the consolidated income statement.

Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognised, the unamortised fair value is recognised immediately in the consolidated income statement.

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derivative financial instruments and hedging (continued)

Fair value hedges (continued)

When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in the consolidated income statement. The changes in the fair value of the hedging instrument are also recognised in the consolidated income statement.

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised immediately in the consolidated income statement.

Amounts taken to equity are transferred to the consolidated income statement when the hedged transaction affects the consolidated income statement, 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 taken to equity are transferred to the initial carrying amount of the non-financial asset or non-financial liability.

If the forecast transaction or firm commitment is no longer expected to occur, the amounts previously recognised in equity are transferred to the consolidated income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, the amounts previously recognised immediately in equity remain in equity until the forecast transaction or firm commitment occurs.

Inventories

Inventories are stated at the lower of cost and net realisable value. Except for the costs of crude oil and exported goods held for re-sale which are determined on the first-in, first-out basis, cost is determined on the weighted average basis. In the case of work in progress and finished goods, cost comprises 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 cash flow statement, 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, are subject to an insignificant risk of changes in value, and have 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 balance sheets, cash and bank balances comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 balance sheet date 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 rehabilitation cost represents the estimated costs of rehabilitation relating to the areas disturbed during the operation of the Portland Aluminium Smelter 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 has been classified under long term liabilities. The associated cost is capitalised and the liability is discounted and an accretion expense is recognised using the credit-adjusted risk-free interest rate in effect when the liability is initially recognised.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the consolidated income statement, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date 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) where the deferred tax liability arises from goodwill or the 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 profit nor taxable profit or loss; and
(b) in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint ventures and an associate, where 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.

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income tax (continued)

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

(a) where the deferred tax asset relating to the deductible temporary differences arises from the 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 profit nor taxable profit or loss; and
(b) in respect of deductible temporary differences associated with investments in subsidiaries and interests in joint ventures and an associate, 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 profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

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, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

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 taxation authority.

Revenue recognition

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

(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 through the expected life of the financial instrument to the net carrying amount of the financial assets;

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

(c) handling service fee, when the services have been rendered; and
(d) dividend income, when the shareholders’ right to receive payment has been established.

Operating leases

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.

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

Employee benefits

Share-based payment transactions

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

In situations where equity instruments are issued and some or all of the goods or services received by the Group as consideration cannot be specifically identified, the unidentifiable goods or services are measured as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received at the grant date.

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using the Black-Scholes option pricing model, further details of which are given in note 39 to the financial statements. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (the “ market condition ”), if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the “ vesting date ”). The cumulative expense recognised for equitysettled transactions at each balance sheet date 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.

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Employee benefits (continued)

Share-based payment transactions (continued)

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance 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. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

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. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

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

The Group has adopted the transitional provisions of HKFRS 2 in respect of equity-settled awards and has applied HKFRS 2 only to equity-settled awards granted after 7 November 2002 that had not vested by 1 January 2005 and to those granted on or after 1 January 2005.

Ownership-based remuneration is provided to employees via the CITIC Australia Trading Limited (“ CATL ”) director option plan and the employee option plan.

Share-based compensation to directors and employees is recognised as an expense in respect of the services received measured on a fair value basis.

Share options granted after 7 November 2002 and vested on or after 1 January 2005

The fair value of the options granted under the director and employee option plans is recognised as an employee benefits expense with a corresponding increase in equity. The fair value is measured at the grant date and recognised over the period during which the employees become unconditionally entitled to the options.

The fair value of the options at the grant date is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the options, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the options, the share price at the grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the options.

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Employee benefits (continued)

Share options granted after 7 November 2002 and vested on or after 1 January 2005 (continued)

The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefits expense recognised during each period takes into account the most recent estimate.

Upon the exercise of options, the balance of the share option reserve relating to those options is transferred to the share premium account. The market value of any shares issued to employees for no cash consideration under the employee share option scheme is recognised as an employee benefits expense with a corresponding increase in equity when the employees become entitled to the shares.

Pension schemes

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “ MPF Scheme ”) under the Mandatory Provident Fund Schemes Ordinance for all of its employees who are eligible to participate in the MPF Scheme. 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 contributions as an employer vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiaries which operate in the PRC are required to participate in a central pension scheme operated by the local municipal government. 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 operates a defined contribution retirement benefits scheme (the “ RB Scheme ”) under the superannuation legislation of the Australian government for those employees in Australia 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 RB Scheme. The assets of the RB Scheme are held separately from those of the Group in an independently administered fund. The Group’s contributions as an employer vest fully with the employees when contributed into the RB Scheme.

The Group’s jointly-controlled entities, with operations domiciled in Kazakhstan, pay certain post retirement insurance, which represent their contribution to the post retirement benefits of their employees.

In accordance with the Law of the Republic of Kazakhstan “Pension provisioning in the Republic of Kazakhstan” effective from 1 January 1998 which replaced the state mandated pension system, all employees have the right to receive pension payments from the individual pension accumulation accounts. The accumulating pension funds comprise the compulsory pension contributions of 10% from employees’ income subject to a maximum statutory limit.

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

31 DECEMBER 2007

NOTES TO FINANCIAL STATEMENTS

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Employee benefits (continued)

Paid leave carried forward

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

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets 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.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation 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 are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to 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 determined.

The functional currencies of certain overseas subsidiaries, jointly-controlled assets and entities and an associate are currencies other than the Hong Kong dollar. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the balance sheet date and, their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the consolidated income statement.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries, jointly-controlled assets and entities are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries, jointly-controlled assets and entities which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

– 55 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATE

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 the disclosure of contingent liabilities, at the reporting date. However, 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.

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 profit will be available against which the deductible temporary differences can be utilised. This requires significant judgement on the tax treatments of certain transactions and also assessment on the probability that adequate future taxable profits will be available for the deferred tax assets to be recovered.

Employee benefits — share-based payment transactions

The valuation of the fair value of share options granted requires judgement in determining the expected volatility of the share price, the dividends expected on the shares, the risk-free interest rate during the life of the options and the number of share options that are expected to become exercisable, details of which are set in note 39 to the financial statements. Where the actual outcome of the number of exercisable options is different from the previously estimated number of exercisable options, such difference will have impact on the consolidated income statement in the subsequent remaining vesting period of the relevant share options.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed 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 unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2007 was HK$341,512,000 (2006: HK$341,512,000). More details are given in note 17 to the financial statements.

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATE (continued)

Estimation uncertainty (continued)

Oil and gas reserves and mining reserves

The most significant estimates in the oil and gas operation pertain to oil and gas reserves and mining reserves volumes and the future development, purchase price allocation, provision for rehabilitation cost and abandonment cost, as well as estimates relating to certain oil and gas reserves and mining revenues and expenses. Actual amounts could differ from those estimates and assumptions. More details are given in notes 13, 36 and 41 to the financial statements.

4. SEGMENT INFORMATION

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Group’s operating businesses are structured and managed separately according to the nature of their operations and the products and services they provide. Each of the Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of the other business segments. Summary details of the business segments are as follows:

(a) the aluminium smelting segment comprises the operation of the Portland Aluminium Smelter 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 represents the export of various commodity products such as alumina, aluminium ingots, iron ore and steel; and the import of other commodities and manufactured goods such as vehicle and industrial batteries, tyres, alloy wheels and various metals such as steel and aluminium extrusion products in Australia;
(d) the manganese segment comprises the operation of manganese mining operated by the Manganese Company (a non-wholly-owned subsidiary of the Company) and the sale of refined manganese products in the PRC;
(e) the crude oil segment comprises the operation of oilfields and the sale of crude oil in Indonesia, the PRC and Kazakhstan; and
(f) the others segment comprises other operating activities of the Group.

In determining the Group’s geographical segments, revenues are attributed to the segments based on the location of the customers, and assets are attributed to the segments based on the location of the assets.

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

– 57 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

4. SEGMENT INFORMATION (continued)

(a) Business segments

The following tables present revenue, profit and certain assets, liabilities and expenditure information for the Group’s business segments for the years ended 31 December 2007 and 2006.

Group

Aluminium Year ended 31 December 2007 smelting Segment revenue: Sales to external customers 1,761,416 Other income 9,635 1,771,051 Segment results 210,997 Interest income and unallocated gains Unallocated expenses Profit from operating activities Unallocated finance costs Share of profit of an associate — Profit before tax Tax Profit for the year Assets and liabilities Segment assets 2,493,820 Interest in an associate — Unallocated assets Total assets Segment liabilities 473,965 Unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation 130,163 Unallocated amounts Impairment losses recognised in the income statement 28,427 Other non-cash expenses 16,790 Unallocated amounts Capital expenditure 88,865 Unallocated amounts	Coal 169,895 7,436 177,331 14,645 15,698 106,106 1,164,472 68,781 11,407 — — 66,628	Import and export of commodities 5,873,555 7,680 5,881,235 152,686 — 1,285,740 — 164,888 1,774 — 1,517 2,991	Manganese 1,684,457 7,002 1,691,459 439,017 — 1,556,915 — 354,835 45,351 3,448 24,547 248,828	Crude oil 518,333 3,580 521,913 221,766 — 21,458,955 — 669,178 123,911 — 621 113,035	Others — 13,443 13,443 (33,929) — 14,776 — 3,836 11,221 33,723 — —	Consolidated 10,007,656 48,776 10,056,432 1,005,182 381,896 (129,181) 1,257,897 (542,583) 15,698 731,012 (209,630) 521,382 26,916,312 1,164,472 2,694,181 30,774,965 1,735,483 21,879,923 23,615,406 323,827 2,757 326,584 65,598 43,475 4,746 48,221 520,347 7,115 527,462

– 58 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

4. SEGMENT INFORMATION (continued)

(a) Business segments (continued)

Group

Aluminium Year ended 31 December 2006 smelting (restated) Segment revenue: Sales to external customers 1,602,930 Other income 37,039 1,639,969 Segment results 108,340 Interest income and unallocated gains Unallocated expenses Profit from operating activities Unallocated finance costs Profit before tax Tax Profit for the year Assets and liabilities Segment assets 2,351,007 Unallocated assets Total assets Segment liabilities 596,365 Unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation 106,630 Unallocated amounts Other non-cash expenses 19,750 Unallocated amounts Capital expenditure 14,955 Unallocated amounts	Coal 274,752 120 274,872 76,756 157,624 62,113 10,060 5,487 10,795	Import and export of commodities 4,405,869 9,756 4,415,625 111,025 1,379,843 258,892 1,460 842 2,368	Manganese 538,006 15,193 553,199 65,759 941,984 162,748 17,198 2,041 133,111	Crude oil 13,604 5,637 19,241 15,847 841,030 260,650 11,549 — 7,975	Others — — — (11,980) 55,195 28,788 11,534 — —	Consolidated 6,835,161 67,745 6,902,906 365,747 215,500 (114,703) 466,544 (150,355) 316,189 (70,152) 246,037 5,726,683 3,601,678 9,328,361 1,369,556 4,453,716 5,823,272 158,431 2,242 160,673 28,120 33,668 61,788 169,204 4,196 173,400

– 59 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

4. SEGMENT INFORMATION (continued)

(b) Geographical segments

The following tables present revenue and certain asset and expenditure information for the Group’s geographical segments for the years ended 31 December 2007 and 2006.

Group

Year ended 31 December 2007 Segment revenue: Sales to external customers Other segment information: Segment assets Capital expenditure Year ended 31 December 2006 (restated) Segment revenue: Sales to external customers Other segment information: Segment assets Capital expenditure	Hong Kong — 878,116 2,155 — 1,860,751 280	PRC 4,015,092 4,268,366 249,326 3,305,764 1,788,287 137,027	Australia 1,928,766 4,998,022 163,256 827,015 4,373,161 28,118	Europe 1,980,642 270,695 — 1,850,518 215,243 —	North America 179,452 37,834 — 315,187 — —	Other Asian Kazakhstan countries 197,160 1,642,888 19,238,990 1,078,315 68,092 44,633 — 494,481 — 1,090,919 — 7,975	Others Consolidated 63,656 10,007,656 4,627 30,774,965 — 527,462 42,196 6,835,161 — 9,328,361 — 173,400	Others Consolidated 63,656 10,007,656 4,627 30,774,965 — 527,462 42,196 6,835,161 — 9,328,361 — 173,400

								30,774,965

								527,462

								6,835,161

								9,328,361

								173,400

– 60 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

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, trade discounts and royalties.

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

Notes Revenue Sale of goods: Aluminium smelting Coal Import and export of commodities Manganese Crude oil Other income and gains Interest income Handling service fees Dividend income from available-for-sale listed investments Gain on disposal of coal exploration interests Gain on disposal of available-for-sale listed investments Insurance claim income Gain on conversion of available-for-sale listed investments 42(b) Interest income from CITIC Group 47(b) Excess over the cost of a business combination 41(c) Write-off of payable Sale of scraps Others	2007 1,761,416 169,895 5,873,555 1,684,457 518,333 10,007,656 342,174 8,164 15,670 7,358 — — — 3,096 11,933 13,443 7,878 20,956 430,672 10,438,328	2006 (restated) 1,602,930 274,752 4,405,869 538,006 13,604
		6,835,161
		144,810 7,121 55,115 — 5,235 25,996 17,502 — — — 11,891 15,575
		283,245
		7,118,406

– 61 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

6. PROFIT BEFORE TAX

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

Notes Cost of inventories sold Depreciation 13 Amortisation of the ESA 16 Amortisation of other intangible assets 15 Amortisation of prepaid land lease premiums 14 Minimum lease payments under operating leases on land and buildings Auditors’ remuneration Employee benefits expense (including directors’ remuneration — note 7): Wages and salaries Equity-settled share option expenses Pension scheme contributions Provision for long service and leave payments Loss on disposal/write-off of items of property, plant and equipment Provision/(write-back of provision) for impairment of items of property, plant and equipment Exchange losses, net Provision for inventories Provision for impairment of accounts receivable * Provision for rehabilitation cost Provision for abandonment cost Warranty income, net ** #	2007 8,576,552 248,952 70,108 5,969 1,555 11,651 12,080 107,492 20,559 715 906 129,672 6,586 65,598 86,485 27,731 5,126 13,808 1,556 —	2006 (restated) 6,306,331 92,560 62,930 4,235 948 8,504 7,369 95,218 26,158 289 6,715 128,380 4,568 (4,893) 53,883 1,515 1,816 8,554 112 (14,908)

Cost of inventories sold for the year ended 31 December 2007 included an amount of HK$469,178,111 (2006: HK$331,693,257), which comprised direct staff costs, operating lease rentals, depreciation and amortisation of the ESA. Such amount has also been included in the respective expense items disclosed above.

** These amounts are included in “Other operating expenses, net” on the face of the consolidated income statement.

The warranty income, net, represents warranty income of HK$34,320,000 received from CITIC Group net of loss of HK$19,412,000 incurred on conversion of the Group’s 40% participating interest in Kongnan Block within the Dagang Oilfield in the PRC (the “ Dagang Participating Interest ”) into common shares of Ivanhoe Energy Inc. and a 3-year non-interest-bearing unsecured loan of US$7,386,135 (HK$57,612,000). More details are given in note 47(c) to the financial statements.

– 62 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

7. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year, disclosed pursuant to Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and Section 161 of the Hong Kong Companies Ordinance, is as follows:

Fees: Executive directors and non-executive directors Independent non-executive directors Other emoluments of executive directors: Salaries, allowances and benefits in kind Bonuses Share option benefits Pension scheme contributions	2007 728 690 1,418 9,735 3,130 20,559 380 33,804 35,222	2006 860 567
		1,427
		11,910 2,865 24,618 322
		39,715
		41,142

During the year, a director was granted share options, in respect of his services to the Group, under the share option scheme of the Company, further details of which are set out in note 39 to the financial statements. The fair value of such options, which has been recognised in the consolidated income statement over the vesting period, was determined as at the date of grant and the amount included in the financial statements for the current year is included in the above director’s remuneration disclosures.

(a) Independent non-executive directors

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

Fan Ren Da, Anthony Ngai Man Tsang Link Carl, Brian	2007 230 230 230 690	2006 200 167 200
		567

There were no other emoluments payable to the independent non-executive directors during the year (2006: Nil).

– 63 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

7. DIRECTORS’ REMUNERATION (continued)

(b) Executive directors and non-executive directors

Fees 2007 Executive directors: Kong Dan 50 Mi Zengxin 138 Shou Xuancheng — Sun Xinguo — Li So Mui — Qiu Yiyong 138 Zeng Chen 138 Zhang Jijing 138 Kwok Peter Viem # — Ma Ting Hung — Non-executive directors: Tang Kui 63 Ma Ting Hung 63 728 2006 Executive directors: Kwok Peter Viem — Ma Ting Hung — Shou Xuancheng — Sun Xinguo — Li So Mui — Mi Zengxin 215 Qiu Yiyong 215 Zeng Chen 215 Zhang Jijing 215 860	Salaries, allowances and benefits in kind — — 1,938 1,938 2,206 — 2,096 — 768 789 — — 9,735 1,873 2,003 2,003 2,003 2,003 — — 2,025 — 11,910	Bonuses — — 600 600 750 — 954 — 113 113 — — 3,130 300 300 450 450 450 — — 915 — 2,865	Share option benefits 11,429 — — — — — — — 4,565 4,565 — — 20,559 7,825 7,825 1,283 1,597 642 1,283 1,283 1,597 1,283 24,618	Pension scheme contributions — — 12 12 12 — 328 — 8 8 — — 380 12 12 12 12 12 — — 262 — 322	Total remuneration 11,479 138 2,550 2,550 2,968 138 3,516 138 5,454 5,475 63 63
					34,532

					10,010 10,140 3,748 4,062 3,107 1,498 1,498 5,014 1,498
					40,575

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

Resigned on 21 August 2007

Re-designated as non-executive director on 21 August 2007

– 64 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

8. FIVE HIGHEST PAID EMPLOYEES

The five highest paid individuals during the year included five (2006: five) directors, details of whose remuneration are set out in note 7 above.

9. FINANCE COSTS

Interest expense on bank and other loans repayable: Within one year In the second to fifth years, inclusive Beyond five years Fixed rate senior notes, net Total interest expense on financial liabilities not at fair value through profit or loss Amortisation of fixed rate senior notes Less: Interest capitalised Other finance charges: Increase in discounted amounts of provision arising from the passage of time Others *	Group 2007 111,266 62,300 16,201 330,296 520,063 14,392 — 534,455 1,562 6,566 542,583	2006 85,452 64,773 9,697 — 159,922 — (22,897) 137,025 7,673 5,657 150,355

Included amortisation of up-front fees of HK$2,004,600 (2006: HK$2,004,600).

10. TAX

Current – Hong Kong Current – Elsewhere Charge for the year Overprovision in prior years Deferred – note 37 Total tax charge for the year	Group 2007 — 189,579 (2,467) 22,518 209,630	2006 — 103,072 (4,533) (28,387) 70,152

The statutory tax rate for Hong Kong profits tax is 17.5% (2006: 17.5%) on the estimated assessable profits arising in Hong Kong during the year. No provision for Hong Kong profits tax has been made as the Group had no assessable profits arising in Hong Kong for the year (2006: Nil).

– 65 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

10. TAX (continued)

Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Provision for Australian income tax has been made at the statutory rate of 30% (2006: 30%) on the estimated assessable profits arising in Australia during the year.

For the year ended 31 December 2007, the corporate tax rates applicable to the subsidiaries and jointly-controlled entities established and operating in the PRC, Indonesia and Kazakhstan are 33% (2006: 33%), 30% (2006: 30%) and 30% respectively.

Certain PRC subsidiaries of the Group are subject to a full corporate income tax exemption for the two years and a 50% reduction in the succeeding three years, commencing from the first profitable year.

Under the new PRC Corporate Income Tax Law (the “ New Corporate Income Tax Law ”) and its Implementation Rules (effective on 1 January 2008), the PRC corporate income tax rates for domestic and foreign-invested enterprises (including Sino-foreign equity joint ventures) are unified to 25%. Sino-foreign equity joint ventures which were established before the New Corporate Income Tax Law was promulgated and have been entitled to the above income tax holiday can continue to enjoy the existing tax holiday until its expiry, subject to a five-year period restriction. Consequently, certain PRC subsidiaries of the Group can continue to enjoy their tax holiday, commencing from their respective first profitable year and expiring within five years from 1 January 2008.

The Group’s subsidiary owning participating interest in oil and gas properties in Indonesia is subject to branch tax at the effective rate of 14%.

In accordance with the subsoil use contract, the Group’s jointly-controlled entities with operation domiciled in Kazakhstan shall pay excess profit tax (the “ EPT ”) on its profit after corporate income tax each year, pursuant to the Tax Code of Kazakhstan. The EPT shall be paid on a basis of the cumulative real internal rate of return (the “ IRR ”) exceeding 20%. The IRR is calculated based on the after-tax cash flow (the “ ATCF ”) and by further discounting using the published oil machinery and equipment index. The ATCF shall be calculated as the cumulative gross income less all expenses relating to petroleum operations, including transporting expenses, operating costs, capital expenditures and all taxes. The EPT is paid at progressive rates from 4% to 30% of the profit after corporate income tax, as shown in the table below:

IRR	EPT rate	Effective EPT rate
20% - 22%	4%	2.8%
22% - 24%	8%	5.6%
24% - 26%	12%	8.4%
26% - 28%	18%	12.6%
28% - 30%	24%	16.8%
More than 30%	30%	21.0%

– 66 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

10. TAX (continued)

A reconciliation of the tax charge/(credit) applicable to profit/(loss) before tax using the statutory rates for the countries/jurisdiction in which the Company and its subsidiaries are domiciled to the tax charge/(credit) at the effective tax rates is as follows:

Profits before tax Tax at statutory rate of 17.5% Higher tax rates on profits arising elsewhere Lower tax rate/tax holiday or concessions for specific provinces or local authorities Adjustments in respect of current tax of previous periods Income not subject to tax Expenses not deductible for tax Tax losses utilised from previous periods Increase in unutilised tax losses carried forward Tax charge at the Group’s effective rate	Group 2007 731,012 127,927 167,268 (115,789) ( 2,467) (61,322) 120,538 ( 26,525) — 209,630	2006 316,189 55,333 47,483 ( 25,638) ( 4,533) ( 25,819) 23,300 ( 6,815) 6,841 70,152

The share of tax attributable to associate amounting to HK$7,450,000 (2006: Nil) and is included in “Share of profit of an associate’’ on the face of the consolidated income statement.

The Group has unrecognised deferred tax assets from tax losses arising in Hong Kong and the PRC in aggregate of HK$82,490,000 (2006: aggregate of HK$69,569,000) that are available for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in companies that have been loss-making for some time.

11. PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

The consolidated profit attributable to shareholders of the Company for the year ended 31 December 2007 includes a loss of HK$189,467,000 (2006: loss of HK$152,093,000) (note 40(b)) which has been dealt with in the financial statements of the Company.

– 67 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

12. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY SHAREHOLDERS OF THE COMPANY

The calculation of basic earnings per share is based on the profit for the year attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares in issue during the year.

The calculation of diluted earnings per share is 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 is 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.

The calculations of basic and diluted earnings per share are based on:

Earnings Profit attributable to ordinary shareholders of the Company, used in the basic earnings per share calculation Shares Weighted average number of ordinary shares in issue during the year used in the basic earnings per share calculation Effect of dilution – weighted average number of ordinary shares: Share options	2007 2006 282,777 200,815 Number of shares 2007 2006 5,008,380,271 4,317,072,600 30,706,963 43,138,686 5,039,087,234 4,360,211,286	2006 200,815

		4,360,211,286

– 68 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

13. PROPERTY, PLANT AND EQUIPMENT

Group – 31 December 2007

Note Cost: At beginning of year Additions Disposals/write-off Acquisition of subsidiaries 41(a) to (c) Transfers Exchange realignment At 31 December 2007 Accumulated depreciation and impairment: At beginning of year Depreciation provided during the year Disposals/write-off Transfers Impairment Exchange realignment At 31 December 2007 Net book value: At 31 December 2007	Oil and gas properties 657,254 45,960 — 18,761,865 276,306 (3,154 ) 19,738,231 3,323 119,890 — (389 ) — (577 ) 122,247 19,615,984	Motor vehicles, plant, machinery, Freehold Leasehold tools and land improvements equipment 5,857 4,329 1,134,226 323 34 108,593 (1,237 ) — (20,318 ) — — 129,121 — — 22,607 1,181 143 246,871 6,124 4,506 1,621,100 — 1,611 171,684 — 538 93,130 — — (8,601 ) — — 1,593 — — 54,330 — 278 77,288 — 2,427 389,424 6,124 2,079 1,231,676	Construction in progress and construction material 109,735 262,730 — 618,565 (340,356 ) 7,898 658,572 — — — — 6,997 — 6,997 651,575	Furniture and fixtures 6,558 5,484 (932 ) 21,976 (3,595 ) 204 29,695 731 3,838 (505 ) 209 — 115 4,388 25,307	Buildings and structures 426,193 19,201 (18,780 ) 32,455 45,038 88,566 592,673 41,002 26,587 (1,071 ) (1,413 ) 4,271 26,776 96,152 496,521	Capital works 90,694 84,760 (2,393 ) — — 17,017 190,078 22,245 4,969 — — — 4,690 31,904 158,174	Total 2,434,846 527,085 (43,660 ) 19,563,982 — 358,726 22,840,979 240,596 248,952 (10,177 ) — 65,598 108,570 653,539 22,187,440

Note: As at 31 December 2007, the property, plant and equipment of HK$374,735,000 (2006: HK$62,252,000) were pledged against the bank loans as further detailed in note 34(a) to the financial statements. Freehold land of the Group is located in Australia.

During the year ended 31 December 2007, the directors of the Company considered that certain machinery, tools and equipment were impaired following an explosion at the Group’s spent pot lining plant in Australia resulting in the inability to process spent pot lining. The assets and machinery of Dongguan Xinlian Wood Products Company Limited (“ Dongguan Xinlian ’’) were frozen by the Shenzhen Intermediate People’s Court due to the litigation explained in note 43(a). Accordingly, an impairment provision of HK$56,290,000 was made on these assets, machinery, tools and equipment in 2007.

– 69 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

13. PROPERTY, PLANT AND EQUIPMENT (continued)

Group – 31 December 2006

Notes Cost: At beginning of year Additions Disposals/write-off Acquisition of subsidiaries 41(d) Acquisition of the Seram Interest 41(e) Transfers At 31 December 2006 Accumulated depreciation and impairment: At beginning of year Depreciation provided during the year Disposals/write-off Impairment/(reversal of impairment) Exchange realignment At 31 December 2006 Net book value: At 31 December 2006	Oil and gas properties (restated) — 7,975 — — 649,279 — 657,254 — 3,323 — — — 3,323 653,931	Motor vehicles, plant, machinery, Freehold Leasehold tools and land improvements equipment 5,832 4,119 977,819 25 210 41,710 — — (19,184 ) — — 117,990 — — — — — 15,891 5,857 4,329 1,134,226 — 867 125,389 — 742 63,662 — — (4,875 ) — — (14,583 ) — 2 2,091 — 1,611 171,684 5,857 2,718 962,542	Construction in progress and construction material — 85,714 (8,711 ) 69,172 — (36,440 ) 109,735 — — — — — — 109,735	Furniture and fixtures 1,377 755 (165 ) 2,524 2,067 — 6,558 238 565 (72 ) — — 731 5,827	Buildings and structures 275,926 10,700 (3,181 ) 122,199 — 20,549 426,193 21,048 19,253 (257 ) 191 767 41,002 385,191	Capital works 60,582 26,279 (163 ) 3,996 — — 90,694 7,499 5,015 — 9,499 232 22,245 68,449	Total (restated) 1,325,655 173,368 (31,404 ) 315,881 651,346 — 2,434,846 155,041 92,560 (5,204 ) (4,893 ) 3,092 240,596 2,194,250

– 70 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

13. PROPERTY, PLANT AND EQUIPMENT (continued)

Company – 31 December 2007

	Motor vehicles
	and equipment
Cost:
At beginning of year	—
Additions	541
At 31 December 2007	541
Accumulated depreciation and impairment:
At beginning of year	—
Provided during the year	115
At 31 December 2007	115
Net book value:
At 31 December 2007	426
At 31 December 2006	—

14. PREPAID LAND LEASE PREMIUMS

Carrying amount at 1 January Acquisition of subsidiaries (note 41(c) and (d)) Addition Amortisation Exchange realignment Carrying amount at 31 December Current portion included in prepayments, deposits and other receivables Non-current portion	Group 2007 59,616 11,105 310 (1,555) 4,545 74,021 (1,570) 72,451	2006 — 60,564 — (948) — 59,616 (1,263) 58,353

The leasehold land is held under a long-term lease and is situated in the PRC. Leasehold land of HK$52,347,000 (2006: HK$1,300,000) is pledged for certain bank loans as further detailed in note 34(a) to the financial statements.

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

15. OTHER INTANGIBLE ASSETS

OTHER INTANGIBLE ASSETS
Mining rights Cost: At beginning of year Additions Acquisition of subsidiaries (note 41(a) and (d)) Exchange realignment At 31 December Accumulated amortisation: At beginning of year Provided during the year Exchange realignment At 31 December Net carrying amount at 31 December	Group 2007 139,936 377 4,220 7,911 152,444 4,235 5,969 202 10,406 142,038	2006 — 32 139,904 —
		139,936
		— 4,235 —
		4,235
		135,701

As at 31 December 2007, mining right of HK$119,518,000 (2006: HK$135,701,000) was pledged against a bank loan of the Group, as further detailed in note 34(a) to the financial statements.

The mining right of HK$17,641,000 will expire in October 2008. As at the date of this annual report, management is in the process of applying for an extension of the mining right and management is confident that the extension will be successfully obtained.

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

16. OTHER ASSETS

Cost: At beginning of year Exchange realignment At 31 December Accumulated amortisation: At beginning of year Provided during the year Exchange realignment At 31 December Net book value: At 31 December Non-current portion Current portion Other assets represent the amounts paid for the ESA. GOODWILL Cost and carrying amount: At beginning and end of year	Group 2007 792,244 90,369 882,613 173,316 70,108 19,769 263,193 619,420 549,295 70,125 619,420 Group 2007 341,512	2006 737,311 54,933
		792,244
		105,068 62,930 5,318
		173,316
		618,928

		555,983 62,945
		618,928

		2006 341,512

17. GOODWILL

– 73 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

17. GOODWILL (continued)

Impairment testing of goodwill

Goodwill acquired through business combinations has been allocated to the following cash-generating units, which are reportable segments, for impairment testing:

aluminium smelting segment of HK$316,830,000 (2006: HK$316,830,000); and
import and export of commodities segment of HK$24,682,000 (2006: HK$24,682,000).

Aluminium smelting segment

The recoverable amount of the aluminium smelter cash-generating unit is determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The discount rate applied to cash flow projections is 9.5% (2006: 9.6%).

Import and export of commodities segment

The recoverable amount of the import and export of commodities cash-generating unit is determined based on fair value less costs to sell. The fair value is calculated by reference to the market share price of CATL, the listed vehicle of the import and export of commodities segment in Australia, as at 31 December 2007.

18. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries Impairment	Company 2007 2006 173,133 173,134 6,009,896 2,822,924 (370,128) (1,716) 5,812,901 2,994,342 (759,812) (611,700) 5,053,089 2,382,642

The balances with subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

– 74 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

18. INTERESTS IN SUBSIDIARIES (continued)

Particulars of the principal subsidiaries are as follows:

	Place of		Percentage of
	incorporation/	Nominal value of	equity interest
	registration	issued share/	attributable to	Principal
Name	and operations	paid-up capital	the Company	activities
Directly held
SEA Wood Investment	British Virgin Islands/	US$10,000	100	Investment
Holdings Limited	Hong Kong			holding
Starbest Venture Limited	British VirginIs lands/	US$1	100	Investment
	Hong Kong			holding
Star Elite Venture Limited	British Virgin Islands/	US$1	100	Investment
	Hong Kong			holding
CITIC Resources	British Virgin Islands/	US$1	100	Financing
Finance (2007) Limited*	Hong Kong
Indirectly held
Nusoil Manufacturing	British Virgin Islands/	US$100	100	Investment
Limited	PRC			holding
Wing Lam (International)	Hong Kong	HK$60,000,000	100	Investment
Timber Limited				holding
Dongguan Xinlian	PRC	HK$60,000,000	100	Dormant
Wood Products
Company Limited (note (a))#
Global Enterprises (HK)	Hong Kong	HK$2	100	Provision of
Limited				management
				services
Maxpower Resources	British Virgin Islands/	US$1	100	Investment
Limited	Hong Kong			holding
Toplight Resources	British Virgin Islands/	US$1	100	Investment
Limited	Hong Kong			holding
Richfirst Holdings Limited	British Virgin Islands/	US$100	100	Investment
	PRC			holding
Cogent Assets Limited	British Virgin Islands/	US$2	100	Investment
	Hong Kong			holding

– 75 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

18. INTERESTS IN SUBSIDIARIES (continued)

	Place of		Percentage of
	incorporation/	Nominal value of	equity interest
	registration	issued share/	attributable to	Principal
Name	and operations	paid-up capital	the Company	activities
Indirectly held (continued)
Group Smart Resources	British Virgin Islands/	US$1	100	Investment
Limited	Hong Kong			holding
Highkeen Resources	British Virgin Islands/	US$1	100	Investment
Limited	Hong Kong			holding
CITIC Petrochemical	British Virgin Islands/	US$1	100	Investment
Holdings Limited	Hong Kong			holding
CITIC Petrochemical	British Virgin Islands/	US$1	100	Investment
Investments Limited	Hong Kong			holding
CITIC Resources Australia	State of Victoria,	A$199,019,212	100	Investment
Pty Limited	Australia			holding
CITIC Portland Holdings	State of Victoria,	A$196,791,454	100	Investment
Pty Limited	Australia			holding
CITIC Australia (Portland)	State of Victoria,	A$45,675,117	100	Aluminium
Pty Limited	Australia			smelting
CITIC Portland Surety	State of Victoria,	A$1	100	Investment
Pty Limited	Australia			holding
CITIC (Portland)	State of Victoria,	A$2	100	Investment
Nominees I	Australia			holding
Pty Limited (note (b))
CITIC (Portland)	State of Victoria,	A$2	100	Investment
Nominees II	Australia			holding
Pty Limited (note (b))
CITIC Nominees Pty	State of Victoria,	A$6,693,943	100	Investment
Limited Partnership	Australia			holding
CITIC Nominees Pty	State of Victoria,	A$2	100	Investment
Limited	Australia			holding
CITIC Portland Finance I	State of Victoria,	A$2	100	Financing
Pty Limited	Australia

– 76 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

18. INTERESTS IN SUBSIDIARIES (continued)

	Place of		Percentage of
	incorporation/	Nominal value of	equity interest
	registration	issued share/	attributable to	Principal
Name	and operations	paid-up capital	the Company	activities
Indirectly held (continued)
CITIC Australia Trading	State of Victoria,	A$7,635,440	76.35	Investment
Limited (note (c))	Australia			holding
CITIC Australia	State of Victoria,	A$500,002	76.35	Import and
Commodity Trading	Australia			export of
Pty Limited				commodities
				and
				manufactured
				goods
CITIC Tyres & Wheels	State of Victoria,	A$100	76.35	Import of
Pty Limited	Australia			tyres and alloy
				wheels
CITIC Batteries	State of Victoria,	A$2	76.35	Dormant
Pty Limited	Australia
CITIC Australia Coal	State of Victoria,	A$6,589,637	100	Investment
Pty Limited	Australia			holding
CITIC Australia Coal	State of Victoria,	A$2,845,375	100	Exploration,
Exploration Pty	Australia			development
Limited				and mining
				of coal
CITIC Australia Coppabella	State of Victoria,	A$5,000,002	100	Mining and
Pty Limited	Australia			production
				of coal
CITIC Australia Moorvale	State of Victoria,	A$2	100	Exploration and
West Pty Limited	Australia			development of
				coal mines
CITIC Olive Downs	State of Victoria,	A$99,958	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC West Walker	State of Victoria,	A$91,812	100	Exploration and
Pty Limited	Australia			development of
				coal mines

– 77 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

18. INTERESTS IN SUBSIDIARIES (continued)

	Place of		Percentage of
	incorporation/	Nominal value of	equity interest
	registration	issued share/	attributable to	Principal
Name	and operations	paid-up capital	the Company	activities
Indirectly held (continued)
CITIC West Rolleston	State of Victoria,	A$196,390	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC West/North Burton	State of Victoria,	A$34,238	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC Capricorn	State of Victoria,	A$9,549	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC Bowen Basin	State of Victoria,	A$378,353	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC Nickel Pty Ltd	State of Victoria,	A$2	100	Investment
	Australia			holding
CITIC Nickel Australia	State of Victoria,	A$1	100	Exploration and
Pty Limited	Australia			development of
				nickel mines
CITIC Nickel International	State of Victoria,	A$1	100	Exploration and
Pty Limited	Australia			development of
				nickel mines
Beijing Qian Quan	PRC	RMB1,243,173	100	Consulting
Investment Consultant
Limited# +
Beijing Yi Xin Mei Cheng	PRC	RMB500,000	100	Consulting
Commercial Information
Consulting Co. Ltd.# +
CITIC Mining Equipment	State of Victoria,	A$2	100	Investment
Pty Limited	Australia			holding
Tyre Choice Pty Limited	State of Victoria,	A$2	76.35	Investment
	Australia			holding

– 78 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

18. INTERESTS IN SUBSIDIARIES (continued)

		Place of		Percentage of
		incorporation/	Nominal value of	equity interest
		registration	issued share/	attributable to	Principal
Name		and operations	paid-up capital	the Company	activities
Indirectly held (continued)
CITIC Dameng Holdings		Bermuda/	HK$100,000	80	Investment
Limited		Hong Kong			holding
CITIC Dameng Investments	British Virgin Islands/		US$1	80	Investment
Limited (note (d))		Hong Kong			holding
CITIC Dameng Trading		Hong Kong	HK$10,000	80	Trading
Limited
CITIC Dameng Mining		PRC	RMB500,000,000	48	Exploration and
Industries Limited					development of
(��)^					manganese mines
Guangxi Start Manganese Materials		PRC	RMB24,280,000	34.16	Manufacture
Co., Ltd.					and sale of
(��)+					manganese products
Guangxi Nanning Kuanguang		PRC	RMB1,000,000	36.96	Provision of
Industry & Trade Co., Ltd.					transportation
(��					services
��)+
Tiandeng Dameng Ferroalloy		PRC	RMB6,000,000	28.8	Manufacture
Co., Ltd.					and sale of
(��) +					ferroalloy
					products
Guangxi Daxin Dabao Ferroalloy		PRC	RMB2,680,000	28.8	Ferroalloy
Co., Ltd.					smelting
(��
��) +
Guangxi Qinzhou Guixin		PRC	RMB30,000,000	33.6	Manufacture
Ferroalloy Co., Ltd.					and sale of
(��					chromium
��)*+					alloy

– 79 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

18. INTERESTS IN SUBSIDIARIES (continued)

	Place of		Percentage of
	incorporation/	Nominal value of	equity interest
	registration	issued share/	attributable to	Principal
Name	and operations	paid-up capital	the Company	activities
Indirectly held (continued)
CITIC Indonesia Energy	British Virgin Islands/	US$1	100	Investment
Limited	Hong Kong			holding
CITIC Seram Energy	British Virgin Islands/	US$1	100	Investment
Limited	Indonesia			holding
CITIC New Highland	British Virgin Islands/	US$1	100	Investment
Petroleum Limited	Hong Kong			holding
CITIC Haiyue Energy	British Virgin Islands/	US$1	100	Investment
Limited (note (e))*	Hong Kong			holding
Tincy Group Energy	Hong Kong/	HK$10,000,000	90	Exploration,
Resources Limited*	PRC			development and
				operation of
				oilfield
CITIC Oil and Gas	British Virgin Islands/	US$100	100	Investment
Holdings Limited (note (f))	Hong Kong			holding
Renowned Nation Limited	British Virgin Islands/	US$1	100	Investment
(“RNL”)*	Hong Kong			holding
KBM Energy Limited	British Virgin Islands/	US$1	100	Investment
(“KEL”)*	Hong Kong			holding
CITIC Netherlands Energy	Netherlands/	Euro100	100	Investment
Coöperatief U.A.*	Hong Kong			holding

Acquired, established or incorporated during the year.

Not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

^ Sino-foreign equity joint venture registered under PRC law.
- Limited liability company registered under the PRC law.

The above table lists the subsidiaries of the Company which, in the opinion of the directors of the Company, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors of the Company, result in particulars of excessive length.

– 80 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

18. INTERESTS IN SUBSIDIARIES (continued)

Notes:

(a) Dongguan Xinlian is a wholly-foreign owned enterprise established by Wing Lam (International) Timber Limited (“ Wing Lam ”) in the PRC for a period of 12 years commencing from the date of issuance of its business licence on 3 January 1997.
(b) These two companies jointly own CITIC Nominees Pty Limited Partnership, which owns the interests in the Portland Aluminium Smelter joint venture.
(c) The shares of CATL are listed on the Australian Stock Exchange (the “ ASX ”) and the market value of its shares as at 31 December 2007 was A$58,521,000 (HK$402,390,000) (2006: A$49,093,000 (HK$303,002,000)).
(d) The Manganese Company, Guangxi Start Manganese Materials Co., Ltd., Guangxi Nanning Kuanguang Industry & Trade Co., Ltd., Tiandeng Dameng Ferroalloy Co., Ltd. and Guangxi Daxin Dabao Ferroalloy Co., Ltd. (collectively referred to as the “ Manganese Group ”) are subsidiaries of CITIC Dameng Investments Limited, a 80% indirectly owned subsidiary of the Company. Accordingly, they are accounted for as subsidiaries by virtue of the Company’s control over them. The Manganese Group acquired a 70% equity interest in Guixin Ferroalloy during the year. The acquisition was completed on 8 February 2007 (note 41(c)).
(e) On 10 October 2007, CITIC Haiyue Energy Limited (“ CITIC Haiyue ”) completed the acquisition of a 90% interest in Tincy Group, a company which holds the right to explore, develop and operate the Hainan-Yuedong Block (note 41(b)).
(f) On 12 December 2007, CITIC Oil & Gas Holdings Limited completed the acquisition of RNL, a company which principally holds a 47.3% equity interest in JSC Karazhanbasmunai, a joint stock company formed under the laws of Kazakhstan, and is engaged in the development, production and sale of oil in the Karazhanbas oilfield (note 41(a)).

– 81 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

19. INTERESTS IN JOINTLY-CONTROLLED ENTITIES

At 31 December 2007, the Group’s jointly-controlled entities are primarily engaged in the exploration, development, production and sale of oil in Kazakhstan. Particulars of the jointly-controlled entities are as follows:

	Place of	Nominal value of	Percentage of
	incorporation/	issued ordinary/	equity interest
	registration	registered	attributable to	Principal
Name	and operations	share capital	the Company	activities
Indirectly held
CITIC Canada Energy Limited*	Canada	US$1	50	Investment
				holding
CITIC Canada Petroleum	Canada	US$96,377,881	50	Investment
Limited (“CCPL”)*
JSC Karazhanbasmunai	Kazakhstan	Ordinary share:	47.3	Exploration,
(“KBM”)*		2,045,035,000		development,
		Tenge		production and
				sale of oil
		Preference share:
		116,077,000
		Tenge
Argymak TransService LLP	Kazakhstan	200,000	50	Provision of
(“ATS”)*		Tenge		transportation
				services and other
				oilfield related
				logistic services
Tulpar Munai Service LLP	Kazakhstan	100,000	50	Provision of oil
(“TMS”)*		Tenge		well drilling,
				construction and
				workover services
CITIC Services Inc.*	United States of	US$1,000	50	Provision of
	America			management
				services

Acquired during the year.

– 82 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

19. INTERESTS IN JOINTLY-CONTROLLED ENTITIES (continued)

The following table illustrates the summarised financial information of the Group’s proportionate share of the jointly-controlled entities, which was proportionately consolidated by the Group as at 31 December 2007 and for the year then ended.

2007 2006

Proportionate share of the jointly-controlled entities’

assets and liabilities:

Non-current assets Current assets Current liabilities Non-current liabilities Net assets oportionate share of the jointly-controlled entities’ results: Revenue Other income Total expenses Tax Profit after tax	14,640,628 1,610,397 (7,835,339) (7,262,044) 1,153,642 197,160 1,245 198,405 (102,954) (51,475) 43,976	— — — —
		—

		— —
		— — —
		—

Proportionate share of the jointly-controlled entities’ results:

20. INTERESTS IN JOINTLY-CONTROLLED ASSETS

At 31 December 2007, the Group held interests in the following joint ventures:

(a) 22.5% participating interest in the Portland Aluminium Smelter joint venture, the principal activity of which is aluminium smelting;
(b) 16% participating interest in the spent potlining project joint venture at Portland, the principal activity of which is the processing of spent potlining;
(c) 7% participating interest in the Coppabella and Moorvale coal mines joint venture, the principal activity of which is the mining and sale of coal;

– 83 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

20. INTERESTS IN JOINTLY-CONTROLLED ASSETS (continued)

(d) 10% participating interest in the Olive Downs joint venture, the principal activity of which is the exploration of coal;
(e) 10% participating interest in the Moorvale West joint venture, the principal activity of which is the exploration of coal;
(f) 10% participating interest in the West/North Burton joint venture, the principal activity of which is the exploration of coal;
(g) 10% participating interest in the West Rolleston joint venture, the principal activity of which is the exploration of coal;
(h) 15% participating interest in the West Walkers joint venture, the principal activity of which is the exploration of coal;
(i) 15% participating interest in the Capricorn joint venture, the principal activity of which is the exploration of coal;
(j) 15% participating interest in the Bowen Basin Coal joint venture, the principal activity of which is the exploration of coal;
(k) 50% participating interest in the CB Exploration joint venture, the principal activity of which is the exploration of coal;
(l) 51% participating interest in the Seram Island Non-Bula Block production sharing contract (the “ Seram Interest ”). Details of the acquisition of the participating interest in this oilfield are included in note 41(e) to the financial statements; and
(m) the Production Sharing Contract dated 24 February 2004 for the exploration, development and operation of the Hainan-Yuedong Block.

The jointly-controlled assets as detailed in (c) to (k) above have different reporting dates to the Group, being 30 June compared to 31 December. The jointly-controlled assets as detailed in (a) to (k) are not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network. The audited financial statements issued by the auditors of these jointly-controlled assets up to 31 December 2007 have been used for the purpose of preparation of the consolidated financial statements of the Group.

– 84 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

20. INTERESTS IN JOINTLY-CONTROLLED ASSETS (continued)

The Group’s interests in the net assets employed in the Portland Aluminium Smelter joint venture are included in the consolidated balance sheet under the classifications shown below:

Non-current assets Current assets Current liabilities Non-current liabilities Share of net assets employed in the Portland Aluminium Smelter joint venture	2007 2,440,457 175,537 (243,355) (195,010) 2,177,629	2006 2,200,182 146,986 (318,611) (92,210) 1,936,347

The Group’s interests in the net assets employed in the Seram Interest are included in the consolidated balance sheet under the classifications shown below:

Non-current assets Current assets Current liabilities Non-current liabilities Share of net assets employed in the Seram Interest	2007 718,420 321,664 (32,941) (59,437) 947,706	2006 853,295 203,556 (49,604) (100,483) 906,764

The Group’s interests in the combined net assets employed in the remaining jointly-controlled assets are included in the consolidated balance sheet under the classifications shown below:

Non-current assets Current assets Current liabilities Non-current liabilities Share of net assets employed in the remaining jointly-controlled assets	2007 294,275 130,154 (30,916) (14,625) 378,888	2006 68,602 94,123 (43,599) (14,696) 104,430

– 85 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

21. INTEREST IN AN ASSOCIATE

Share of net assets Particulars of the Group’s associate are as follows: Registered ordinary Place of Name share capital incorporation Macarthur Coal# A$246,343,000 Australia	Group 2007 1,164,472 Percentage of equity interest attributable to the Group 19.99%	2006 — Principal activities Operation, exploration, development and mining of coal

Not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

Macarthur Coal has a different reporting date to the Group, being 30 June compared to 31 December.

As at 31 December 2006, the Group had an 11.62% equity interest in Macarthur Coal, a public company listed on the ASX, which had been accounted for as an available-for-sale investments of the Group and was carried at fair value with changes recognised directly in equity. On 6 July 2007, the Group completed the acquisition of an additional 8.37% equity interest in Macarthur Coal at a consideration of A$112,923,000 (HK$757,358,000), which was then accounted for as an associate of the Group.

The Group accounted for this step acquisition prospectively from 1 January 2007 by reverting the Group’s original cost and the related fair value changes for its investment in Macarthur Coal and applied equity accounting in the previous periods based on the Group’s ownership percentage in Macarthur Coal in those periods. The resulting share of post acquisition profits or losses net of any dividends receivable, and any changes in fair value of the underlying investments since the acquisition of the first tranche was adjusted through retained earnings.

Subsequent to the balance sheet date, Macarthur Coal has issued additional shares for the acquisition of assets. The Group’s shareholding in Macarthur Coal has been diluted from 19.99% to 17.66%.

– 86 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

21. INTEREST IN AN ASSOCIATE (continued)

The effects of the above are summarised below:

Effect on the consolidated balance sheet

At 1 January 2007

Assets Interest in an associate Available-for-sale listed investments Liabilities/Equity Deferred tax liabilities Exchange fluctuation reserve Available-for-sale investment revaluation reserve Retained profits	Increase/ (decrease) Total 348,013 (739,349) (391,336) (141,732) (5,045) (320,668) 76,109 (391,336)

The following table illustrates the summarised financial information of Macarthur Coal extracted from its financial statements for the six months ended 31 December 2007:

	2007	2006
Assets	4,481,412	—
Liabilities	1,680,543	—
Revenues	946,095	—
Profit	88,319	—

– 87 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

22. AVAILABLE-FOR-SALE INVESTMENTS

Non-current listed equity investments, at fair value: Australia Canada Unlisted equity investments, at fair value The cost of the above investments were: Australia Canada	Group 2007 109,703 87,126 196,829 4,377 201,206 32,794 130,013 162,807	2006 770,538 75,398
		845,936 —
		845,936

		296,344 130,013
		426,357

During the year, the gain on fair value of the Group’s available-for-sale investments of HK$86,686,000 (2006: loss of HK$10,175,000) and related deferred tax liability of HK$22,487,000 (2006: HK$13,332,000) amounted to HK$64,199,000 were credited directly into equity (2006: HK$23,507,000 debited directly from equity).

The fair values of available-for-sale listed investments are based on quoted market prices.

23. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Current portion

The 2006 balance included an amount of US$200,000,000 (HK$1,560,000,000) which was paid as earnest money for the investment project in Kazakhstan. This amount was capitalised into the cost of investments upon completion of the acquisition of the RNL Group during the current year. Further details of which are set out in note 41(a) to the financial statements.

The 2006 balance also included an amount of HK$86,115,727, being professional fees incurred for financial and legal advice in connection with the Group’s potential investment projects. Out of which, HK$77,884,794 were capitalised into the cost of investments upon completion of the related investment projects in the current year. The remaining amounts are intended to be capitalised into the cost of potential investments if the Group proceeds with these investments. Otherwise such professional fees will be expensed off to the consolidated income statement once it is determined that the Group will not proceed with the related investment.

An amount of HK$51,000 (2006: HK$2,066,000) included in the current portion represents an amount due from fellow subsidiaries of the Group. The balances are unsecured, interest-free and have no fixed terms of repayment.

The 2007 balance mainly included an amount of HK$70,095,000 which was paid as deposit for purchase of property, plant and equipment.

– 88 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

24. INVENTORIES

Raw materials Work in progress Finished goods	Group 2007 552,496 89,908 484,238 1,126,642	2006 (restated) 184,149 124,512 491,346 800,007

25. DUE FROM/(TO) RELATED COMPANIES/THE ULTIMATE HOLDING COMPANY

The amounts due from/(to) related companies and the ultimate holding company of the Group are unsecured, interest-free and repayable on demand. Included in the Group’s total amount due from related companies is an amount due from a minority shareholder of the Group of HK$29,217,000 (2006: Nil). The carrying values of the amounts due from/(to) related companies and the ultimate holding company approximate to their fair values.

The maximum outstanding balances during the year due from related companies, the ultimate holding company and a minority shareholder were HK$101,996,000 (2006: HK$51,486,000), HK$34,320,000 (2006: HK$34,320,000) and HK$75,599,000 (2006: Nil), respectively.

26. LOAN RECEIVABLE

The Group’s loan receivable arose from the conversion of the Dagang Participating Interest into common shares of Ivanhoe Energy Inc. (the “ Ivanhoe Shares ”) and a three-year non-interest-bearing unsecured loan of US$7,386,135 (HK$57,612,000) in 2006.

The amortised cost of the Group’s loan receivable approximate to its fair value.

An analysis of the loan receivable as at the balance sheet date, based on the remaining periods to its contractual maturity date, is as follows:

Repayable: Within three months Three months to one year One year to five years Portion classified as current assets Portion classified as non-current assets	Group 2007 4,493 13,900 3,222 21,615 (18,393) 3,222	2006 4,235 13,092 21,615 38,942 (17,327) 21,615

– 89 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

27. ACCOUNTS RECEIVABLE

Trade receivables Notes receivable Impairment	Group 2007 1,588,464 40,767 (9,565) 1,619,666	2006 (restated) 1,238,545 18,522 (4,986)
		1,252,081

Notes receivables represent bank acceptance notes of the Manganese Group which are issued by major banks in the PRC.

The Group normally offers credit terms of 30 to 60 days to its established customers.

An aged analysis of the accounts receivable as at the balance sheet date, based on the invoice date, is as follows:

Within one month One to two months Two to three months Over three months	Group 2007 1,365,118 203,292 12,115 39,141 1,619,666	2006 (restated) 955,608 255,889 17,794 22,790
		1,252,081

The movements in provision for impairment of accounts receivable are as follows:

At 1 January Impairment losses recognised (note 6) Exchange realignment At 31 December	Group 2007 4,986 5,126 (547) 9,565	2006 3,170 1,816 —
		4,986

– 90 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

27. ACCOUNTS RECEIVABLE (continued)

Included in the above provision for impairment of accounts receivable is a provision for individually impaired accounts receivable of HK$9,565,000 with an aggregate carrying amount of HK$9,565,000. The individually impaired accounts receivable relate to customers that were in financial difficulties and only a portion of the receivables is expected to be recovered. The Group does not hold any collateral or other credit enhancements over these balances.

The aged analysis of the accounts receivable that are not considered to be impaired is as follows:

Neither past due nor impaired One to three months past due Over three months past due	Group 2007 1,609,040 4,615 6,011 1,619,666	2006 1,221,645 15,679 14,757
		1,252,081

Receivables that were neither past due nor impaired relate to a large number of diversified customers in respect of whom there was no recent history of default.

Receivables that were past due but not impaired related to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is 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. The Group does not hold any collateral or other credit enhancements over these balances.

Included in the Group’s total accounts receivable is an amount due from the Group’s fellow subsidiary of HK$1,516,000 (2006: HK$235,785,000), which is repayable on similar credit terms to those offered to other customers of the Group.

28. EQUITY INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

	Group
	2007	2006
Current unlisted equity investments, at fair value:
Australia	2,430	1,974

The above equity investments at 31 December 2006 and 2007 were classified as held for trading.

– 91 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

29. CASH AND BANK BALANCES AND PLEDGED BANK DEPOSITS

Cash and bank balances Time deposits *	Group 2007 2006 757,871 310,258 1,316,586 540,486 2,074,457 850,744	Company 2007 2006 4,740 1,955 742,374 20,735 747,114 22,690	Company 2007 2006 4,740 1,955 742,374 20,735 747,114 22,690
			22,690

Time deposits of HK$54,592,000 (2006: HK$75,528,000) and HK$54,357,000 (2006: HK$15,372,000) of the Group and of the Company, respectively, as at 31 December 2007 were placed with CITIC Ka Wah Bank Limited.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term time deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default. The carrying amounts of the cash and cash equivalents and pledged deposits approximate to their fair values.

At the balance sheet date, the cash and bank balances of the Group and the Company denominated in Renminbi (“ RMB ”) amounted to HK$255,952,000 and HK$2,233,000, respectively (2006: HK$116,755,000 and HK$2,310,000) and the cash and bank balances of the Group denominated in Tenge amounted to HK$18,062,000 (2006: Nil). The RMB and Tenge are not freely convertible into other currencies, however, under the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations and the National Bank of the Republic of Kazakhstan, the Group is permitted to exchange RMB and Tenge for other currencies through banks authorised to conduct foreign exchange business.

30. ACCOUNTS PAYABLE

An aged analysis of the accounts payable as at the balance sheet date, based on the invoice date, is as follows:

Within one month One to two months Two to three months Over three months	Group 2007 581,630 15,534 2,520 14,307 613,991	2006 455,696 58,416 5,284 14,392
		533,788

The accounts payable are non-interest-bearing and are normally settled on 60 days terms.

– 92 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

31. ACCRUED LIABILITIES AND OTHER PAYABLES

Included in the total balance was an amount of HK$6,565,000 (2006: HK$7,210,000) due to CITIC Group, the ultimate holding company of the Company, which represents an interest expense payable on loans totalling US$39,000,000 (HK$304,179,000) that had been advanced by CITIC Group (note 34(g)).

32. DERIVATIVE FINANCIAL INSTRUMENTS

Group

Forward currency contracts and currency options Forward commodity contracts Interest rate swaps and options Derivative financial instruments — embedded derivative Portion classified as non-current: Derivative financial instruments — embedded derivative Current portion	2007 Assets 6,931 — 1,677 — 8,608 — 8,608	Liabilities — 20,933 — 168,189 189,122 (86,756) 102,366

The carrying amounts of forward currency and commodity contracts, interest rate swaps and embedded derivatives are the same as their fair values.

The Group is the party to derivative financial instruments in the normal course of business in order to hedge the exposure to fluctuations in foreign exchange rates, commodity prices and interest rates.

Accounting policies in relation to derivative financial instruments are set out in note 2.4 to the financial statements.

– 93 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

32. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Forward currency contracts and currency options — cash flow hedges

The Group’s exports business in Australia involves transactions where both the sales revenue and the majority of the related costs of the goods sold are denominated in United States dollars, as well as other currencies. The Group has entered into forward currency contracts and currency options to hedge its net foreign currency exposures in relation to such transactions.

Imports of the Group generally involve transactions where the purchases of imported goods (as well as some of the costs related to such purchases) are denominated in United States dollars, as well as other currencies. However, subsequent sales of such goods are generally denominated in Australian dollars. Therefore, to enable the Group to manage such business operations, including setting the Australian dollar selling prices of the imported goods, forward currency contracts and currency options are entered into to hedge current and anticipated future purchases.

The contracts are timed to mature when major shipments are scheduled to arrive and cover anticipated purchases and sales in the ensuing financial year. Forward currency contracts described above are considered to be cash flow hedges, and are accounted for in accordance with the accounting policy in note 2.4 to the financial statements.

At 31 December, the terms of the outstanding contracts held by the Group were as follows:

Forward contracts: (i) Sell A$/Buy US$ Less than 3 months (ii) Buy A$/Sell US$ Less than 3 months In 3 to 12 months, inclusive In 1 to 2 years, inclusive (iii) Buy Euro/Sell US$ Less than 3 months Currency options: (i) Put US$ option sell Less than 3 months (ii) Variable forward plus options Less than 3 months In 3 to 12 months, inclusive	2007 Weighted average exchange Contractual rate amount 0.8862 149,794 0.8372 124,724 0.8667 10,314 — — 1.4198 4,882 — — 0.8700 15,471 0.8700 46,413	2006 Weighted average exchange Contractual rate amount 0.7681 303,625 0.7312 68,849 0.7137 58,548 0.7134 6,413 — — 0.7700 40,081 — — — —	2006 Weighted average exchange Contractual rate amount 0.7681 303,625 0.7312 68,849 0.7137 58,548 0.7134 6,413 — — 0.7700 40,081 — — — —

			40,081 — —

Amounts disclosed above represent currencies sold measured at the contracted rate.

– 94 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

32. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Forward currency contracts and currency options — 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 equity. When a cash flow occurs, the Group adjusts the initial measurement of the component recognised in the consolidated balance sheet by the related amount in equity.

Forward commodity contracts — cash flow hedges

The Group has also committed to the following contracts in order to protect the Group from adverse movements in aluminium prices.

All commodity contracts are normally settled other than by physical delivery of the underlying commodities and hence are classified as financial instruments. On maturity, the contracted price is compared to the spot price and the differential is applied to the contracted quantity. A net amount is paid or received by the Group.

Aluminium forward contracts are entered into for the purpose of hedging future production, the contracts are considered to be cash flow hedges, and are accounted for in accordance with the accounting policy in note 2.4 to the financial statements.

At 31 December, the terms of the Group’s outstanding commodity derivative financial instruments were as follows:

		2007			2006
		Average			Average
	Quantity	price	Contractual	Quantity	price	Contractual
	hedged	per tonne	amount	hedged	per tonne	amount
	(MT)	HK$	HK$’000	(MT)	HK$	HK$’000
Aluminium forward (sold):
Less than 3 months	3,050	16,903	51,542	5,600	15,733	88,883
In 3 to 12 months, inclusive	5,850	16,786	98,176	15,750	16,988	267,581
In 1 to 2 years, inclusive	2,450	19,188	47,011	6,700	15,444	102,340
In 2 to 5 years, inclusive	—	—	—	450	14,680	6,604

– 95 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

32. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Interest rate swap contracts and options — cash flow hedges

The Group has entered into interest rate swaps to hedge against unfavourable movements in interest rates payable on floating rate borrowings. The Group is obliged to pay interest at fixed rates and receive interest at floating rates on the notional principal of the swaps, with settlement being on a net basis.

The contracts require settlement of net interest receivable or payable at specified intervals which coincide with the dates on which interest is payable on the underlying debt. Such net receipts or payments are recognised as an adjustment to interest expense at the time the floating rates are set for each interval. The floating rates for A$ denominated swaps are set by reference to Bank Bill Swap reference rate and for US$ denominated swaps are set by reference to London Interbank Offered Rate (“ LIBOR ”).

Swap currently in place cover 50% of the syndicate loan principal outstanding in CITIC Australia (Portland) Pty Limited and are timed to expire as each loan repayment falls due. The fixed interest rate is fixed at 3.58% over the whole term of the contract and the variable interest rates are set at six-month LIBOR.

Interest rate options are entered from time to time by the coal mining and other joint venture managers on behalf of the joint venture partners to reduce the impact of changes in interest rates on floating rate long-term basis.

At 31 December, the remaining terms, notional principal amounts and other significant terms of the Group’s outstanding interest rate swap contracts and options were as follows:

	2007		2006
	Weighted		Weighted
	average	Notional	average	Notional
	rate	amount	rate	amount
	%		%
US$ interest rate swap
Less than 1 year	3.58	296,400	3.58	23,400
In 2 to 5 years, inclusive	—	—	3.58	296,400

– 96 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

32. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Interest rate swap contracts and options — cash flow hedges (continued)

The terms of the forward contracts and options have been negotiated to match the terms of the commitments. The cash flow hedges of the expected future sales and the expected future purchases were assessed to be highly effective and a net gain, before deferred tax, of HK$227,061,000 was included in the hedging reserve as follows:

Total fair value gains included in the hedging reserve Transfers from the hedging reserve and recognised in the consolidated income statement Deferred tax Net gains on cash flow hedges	2007 227,061 (33,646) (57,183) 136,232

Derivative financial instruments – embedded derivative

The pricing mechanism used in the ESA between the Group and its suppliers include a component that is subject to variability of the aluminium prices. It has identified that an embedded derivative exists and the derivative component has been separated from its host agreement. The embedded derivative is revalued at each balance sheet date with its fair value gain or loss recognised in the consolidated income statement.

33. DUE TO A MINORITY SHAREHOLDER

The amount due to a minority shareholder was unsecured, interest-free and repayable on demand. Its carrying amount approximated to its fair value. The outstanding balance was fully repaid in 2007.

– 97 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

34. BANK AND OTHER LOANS

Notes Bank loans — secured #(Note) (a) Bank loans — unsecured# (b) Unsecured loan from Transport Infrastructure Corridor (c) Unsecured loan from Exploration Permit for coal* (d) Unsecured loans from former minority shareholders ^ (e) Unsecured loans from minority shareholders ^ (f) Unsecured loan from CITIC Group # (g) Unsecured loans from�� ^ (h) Bank loans — unsecured#	Group 2007 2006 1,210,720 878,650 2,522,840 2,465,035 6,448 6,815 6,125 6,242 11,862 11,862 139,930 61,930 304,179 327,003 — 45,025 4,202,104 3,802,562 Company 2007 2006 1,170,000 1,513,200	2006 878,650 2,465,035 6,815 6,242 11,862 61,930 327,003 45,025
		3,802,562

Fixed rate

Floating rate

^ Interest-free

Note: Includes the effects of a related interest rate swap as further detailed in note 32 to the financial statements.

– 98 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

34. BANK AND OTHER LOANS (continued)

Notes:

(a) The secured bank loans of HK$1,210,720,000 include mainly:
(i) a US$76,000,000 (HK$592,758,000) loan due on 31 December 2008 (extendable in accordance with the terms of the Portland Aluminium Smelter joint venture), which was interest-bearing at LIBOR and is secured by a 22.5% participating interest in Portland Aluminium Smelter joint venture;
(ii) a loan of RMB430,000,000 (HK$447,917,000) with due dates from 20 January 2008 to 31 March 2014, which are interest-bearing at rates ranging from 6.12% to 8.96% per annum and are secured by property, plant and equipment of HK$80,727,000 (2006: HK$62,252,000), prepaid land lease premiums of HK$52,347,000 (2006: HK$1,300,000), mining right of HK$119,518,000 (2006: HK$135,701,000) and a guarantee provided by a minority shareholder; and
(iii) a loan of 2,631,562,500 Tenge (HK$170,045,000) due on 1 July 2011, which is interest-bearing at 11.8% and is secured by property, plant and equipment of KBM in an amount of 4,550,000,000 Tenge (HK$294,008,000).
(b) The unsecured bank loans of HK$2,522,840,000 include mainly a term loan of US$150,000,000 (HK$1,170,000,000), which are interest-bearing at LIBOR plus 0.7%. Subsequent to the balance sheet date on 23 January 2008, the loan was refinanced with new financial covenants to match the latest development of the Company.

The unsecured bank loans also include (1) trade finance facilities of A$129,808,606 (HK$892,563,975) which were interest-bearing at LIBOR and are guaranteed by CITIC Resources Australia Pty Limited; and (2) a bank loan borrowed by KBM of 6,121,000,000 Tenge (HK$395,522,000) which is interest-bearing at 9.5% and due on 12 April 2009.

The loans of RMB60,000,000 (HK$62,500,000) with due dates from 20 January 2008 to 20 November 2008 were interest-bearing at rates ranging from 7.29% to 7.47% per annum.

(c) The loan was obtained from the State Government of Queensland, Australia. The loan is unsecured, interest-bearing at 6.69% per annum and repayable in equal quarterly instalments by 30 September 2012.
(d) The loan was obtained from the manager of the Coppabella and Moorvale coal mines joint venture. The loan is unsecured, interest-bearing at 6% per annum and repayable in equal annual instalments by 11 December 2013.
(e) The loans were obtained from the former minority shareholders (details of which are set out in note 43(a)). The loans are unsecured, interest-free and not repayable within one year.
(f) The unsecured loans from minority shareholders include:

The loan of HK$61,930,000 was obtained from a minority shareholder of CITIC Dameng Holdings Limited, namely, CITIC United Asia Investments Limited (which is an indirect wholly-owned subsidiary of CITIC Group). The loan is unsecured, interest-free and not repayable within one year.

The loan of US$10,000,000 (HK$78,000,000) was obtained from Far Great Investments Limited (“ Far Great ”) (a minority shareholder of Tincy Group). The loan is unsecured, interest-free and repayable on 31 May 2008.

(g) The loan of US$39,000,000 (HK$304,179,000) was granted by CITIC Group, the ultimate holding company of the Group. The loan is unsecured, interest-bearing at LIBOR plus 1.5% per annum and repayable in equal annual instalments by 7 September 2012.
(h) The loans in 2006 were obtained from ��. The loans were unsecured and interest-free, and were fully repaid in 2007.

– 99 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

34. BANK AND OTHER LOANS (continued)

Bank loans repayable:
Within one year or on demand
In the second year
In the third to fifth years, inclusive
Beyond five years
Other loans repayable:
Within one year
In the second year
In the third to fifth years, inclusive
Beyond five years
Loans from former minority shareholders:
Beyond one year
Loans from minority shareholders:
Within one year
Beyond one year
Loan from CITIC Group:
Within one year
In the second year
In the third to fifth years, inclusive
Beyond five years
Total bank and other loans
Portion classified as current liabilities
Non-current portion
Bank loans repayable:
Within one year or on demand
In the second year
In the third to fifth years, inclusive
Total bank and other loans
Portion classified as current liabilities
Non-current portion

Group
2007
2006
2,143,225
1,495,017
730,531
833,648
783,189
1,015,020
76,615
—
3,733,560
3,343,685
2,092
46,796
2,217
1,878
7,089
6,335
1,175
3,073
12,573
58,082
11,862
11,862
78,000
—
61,930
61,930
139,930
61,930
15,599
46,209
15,599
38,999
46,797
116,998
226,184
124,797
304,179
327,003
4,202,104
3,802,562
(2,238,916)
(1,588,022)
1,963,188
2,214,540
Company
2007
2006
234,000
343,200
234,000
234,000
702,000
936,000
1,170,000
1,513,200
(234,000)
(343,200)
936,000
1,170,000

– 100 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

34. BANK AND OTHER LOANS (continued)

The carrying amounts of the Group’s and the Company’s current borrowings approximate to their fair values. The carrying amounts and fair values of the Group’s non-current borrowings are as follows:

Group

Effective interest rate p.a. (%) Unsecured loans from Transport Infrastructure Corridor 7.911 Unsecured loans from Exploration Permit for coal 7.871 Unsecured loan from CITIC Group 4.798 Unsecured bank loans 4.505 Secured bank loans 10.058 Unsecured bank loans 7.779 - 10.000 Other secured bank loans 7.560 - 7.830 Unsecured loans from former minority shareholders 7.740 Unsecured loan from a minority shareholder 7.740 Company Effective interest rate p.a. (%) Unsecured bank loans 4.505	Carrying amounts 2007 2006 5,234 5,788 5,247 5,498 288,580 280,794 936,000 1,170,000 121,460 592,785 397,458 6,863 135,417 79,020 11,862 11,862 61,930 61,930 1,963,188 2,214,540 Carrying amounts 2007 2006 936,000 1,170,000	Fair values 2007 2006 6,250 5,923 5,782 5,506 315,260 289,509 942,443 1,176,820 175,707 593,662 394,295 6,955 134,566 81,091 11,730 11,557 61,241 59,755 2,047,274 2,230,778 Fair values 2007 2006 942,443 1,176,820

– 101 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

35. BOND OBLIGATIONS

Notes Senior notes, listed in Singapore (a) Bonds, listed in Kazakhstan (b) Total bond obligations Portion classified as current liabilities Non-current portion	Group 2007 7,635,991 356,868 7,992,859 (356,868) 7,635,991	2006 — —
		— —
		—

Notes:

(a) On 17 May 2007, CITIC Resources Finance (2007) Limited (“ CR Finance ”), a direct wholly-owned subsidiary of the Company, completed the issuance of US$1,000,000,000 senior notes (the “ Notes ”) at the issue price of 99.726%. The Notes bear interest at the rate of 6.75% per annum and the interest is payable semi-annually. The obligations of CR Finance under the Notes are irrevocably and unconditionally guaranteed by the Company and will mature on 15 May 2014.

The Notes shall become immediately due and payable in the case of an event of default, and are subject to redemption on the occurrence of certain events.

As at 31 December 2007, the fair value of the Notes was estimated at US$944,500,000 (HK$7,367,100,000), which was determined based on the closing market price of the Notes on that date.

(b) The bonds are 11,100,000 non-callable coupon bonds in the aggregate amount of 11.1 billion Tenge issued and registered with the Kazakhstan Stock Exchange in December 2003 with a five-year maturity. The bonds bear interest at a rate of 8% per annum during the first six months of their tenor and a floating rate for the rest of their tenor by referring to the inflation index as reported by the Agency of Statistics of the Republic of Kazakhstan. The maximum floating rate is capped at 14%. The interest is payable semi-annually.

As at 31 December 2007, the fair value of the bonds was estimated at HK$369,327,000, which was determined based on the closing market price of the bonds on that date.

– 102 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

36. PROVISIONS

Group

At 1 January 2007 Acquisition of subsidiaries (note 41(a)) Additions Payment Increase due to passage of time Exchange realignment At 31 December 2007 Portion classified as current liabilities Non-current portion	Long service and leave payments 56,192 — 906 (11,451) — 6,453 52,100 (51,687) 413	Provision for rehabilitation cost 90,301 — 13,808 — 1,562 8,729 114,400 (626) 113,774	Provision for abandonment cost 24,794 106,055 1,556 — — 20 132,425 — 132,425	Total 171,287 106,055 16,270 (11,451) 1,562 15,202 298,925 (52,313) 246,612

– 103 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

37. DEFERRED TAX

The movements in the Group’s deferred tax liabilities and assets during the year were as follows:

Deferred tax liabilities — 2007

At 1 January 2007 Opening adjustment (note 21) As restated Acquisition of subsidiaries (note 41(a) to (c)) Deferred tax charged/(credited) to the consolidated income statement during the year (note 10) Deferred tax debited to equity during the year Exchange realignment Gross deferred tax liabilities at 31 December 2007 Deferred tax assets — 2007 At 1 January 2007 Acquisition of a subsidiary (note 41(c)) Deferred tax charged to the consolidated income statement during the year (note 10) Deferred tax offset against other tax payable Exchange realignment Gross deferred tax assets at 31 December 2007 Net deferred tax liabilities at 31 December 2007	Accelerated tax depreciation 450,402 (141,732) 308,670 8,684,566 (6,422) — 30,043 9,016,857	Fair value adjustments 69,531 — 69,531 — 2,415 79,670 4,637 156,253	Total 519,933 (141,732) 378,201 8,684,566 (4,007) 79,670 34,680 9,173,110 Losses available for offset against future taxable profit 204,005 6,589 (26,525) (28,636) 1,302 156,735 9,016,375

– 104 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

37. DEFERRED TAX (continued)

Deferred tax liabilities — 2006

At 1 January 2006 Acquisition of subsidiaries (note 41(d)) Deferred tax credited to the consolidated income statement during the year (note 10) Deferred tax debited to equity during the year Exchange realignment Gross deferred tax liabilities at 31 December 2006	Accelerated tax depreciation 430,687 3,465 (14,363) — 30,613 450,402	Fair value adjustments 40,298 7,788 (15,458) 30,461 6,442 69,531	Total 470,985 11,253 (29,821) 30,461 37,055 519,933

Deferred tax assets — 2006

At 1 January 2006 Acquisition of the Seram Interest (note 41(e)) Deferred tax charged to the consolidated income statement during the year (note 10) Deferred tax debited to equity during the year Exchange realignment Gross deferred tax assets at 31 December 2006 Net deferred tax liabilities at 31 December 2006	Losses available for offset against future taxable profit (restated) 11,188 197,251 (1,434) (4,484) 1,484 204,005 315,928

– 105 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

38. SHARE CAPITAL

Shares Authorised: 10,000,000,000 (2006: 6,000,000,000) ordinary shares of HK$0.05 each Issued and fully paid: 5,257,884,381 (2006: 4,318,184,381) ordinary shares of HK$0.05 each	2007 500,000 262,894	2006 300,000

		215,909

During the year, the movements in share capital were as follows:

(a) On 9 February 2007, the Company entered into a placing and subscription agreement with United Star International Inc. (“ USI ”) as subscriber, pursuant to which the Company agreed to allot and issue, and USI agreed to subscribe for 570,000,000 new ordinary shares of the Company of HK$0.05 each (the “ USI Subscription Shares ”) at a price of HK$2.46 per share. The transaction was completed on 28 February 2007. The total consideration of the USI Subscription Shares, before issuance expenses, amounted to HK$1,402,200,000 and was paid in cash on the completion date. Further details of the transaction are set out in the announcement of the Company dated 9 February 2007.
(b) On 9 February 2007, the Company entered into the subscription agreement with Keentech Group Limited (“ Keentech ”), a major shareholder of the Company, pursuant to which the Company conditionally agreed to allot and issue, and Keentech agreed to subscribe for 130,000,000 new ordinary shares of the Company of HK$0.05 each (the “ Keentech Subscription Shares ”) at a price of HK$2.46 per share. The transaction, completed on 19 April 2007, constituted a connected transaction under the Listing Rules. The total consideration of the Keentech Subscription Shares, before issuance expenses, amounted to HK$319,800,000 and was paid in cash on the completion date. Further details of the transaction are set out in the circular of the Company dated 5 March 2007.
(c) On 20 March 2007, an ordinary resolution was passed at the special general meeting of the Company whereby the authorised share capital of the Company of HK$300,000,000 divided into 6,000,000,000 ordinary shares of HK$0.05 each be increased to HK$500,000,000 divided into 10,000,000,000 ordinary shares of HK$0.05 each by the creation of an additional 4,000,000,000 ordinary shares of HK$0.05 each, which such shares shall on their issue rank pari passu in all respects with existing issued shares.

– 106 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

38. SHARE CAPITAL (continued)

(d) On 15 June 2007, the Company entered into the subscription agreement with Ellington Investments Pte. Ltd. (“ Ellington ”), an indirect wholly-owned subsidiary of Temasek Holdings (Private) Limited, pursuant to which Ellington has conditionally agreed to subscribe for, and the Company agreed to issue, 101,000,000 new ordinary shares of the Company of HK$0.05 each (the “ Temasek Subscription Shares ”) at a price of HK$4.46 per share. The transaction was completed on 3 July 2007 and the total consideration of the Temasek Subscription Shares, before issuance expenses, of HK$450,460,000 was paid in cash on the completion date.
(e) The subscription rights attaching to 133,700,000 and 5,000,000 share options were exercised at a subscription price of HK$1.08 and HK$1.06 per share, respectively, resulting in the issuance of 138,700,000 ordinary shares of HK$0.05 each for a total cash consideration, before issuance expenses, of HK$149,696,000. The proceeds are used for the Group’s normal daily operation.

A summary of transactions during the year with reference to the above movements in the Company’s issued share capital is as follows:

Notes At 1 January 2006 Share options exercised 40(b) Equity-settled share options arrangements 40(b) At 31 December 2006 and 1 January 2007 Share subscription: USI Subscription Shares (a) Keentech Subscription Shares (b) Temasek Subscription Shares (d) Share options exercised (e) Equity-settled share options arrangements 40 (b) Share issue expenses At 31 December 2007	Number of shares in issue 4,316,884,381 1,300,000 — 4,318,184,381 570,000,000 130,000,000 101,000,000 138,700,000 — 5,257,884,381 — 5,257,884,381	Issued share capital HK$’000 215,844 65 — 215,909 28,500 6,500 5,050 6,935 — 262,894 — 262,894	Share premium account HK$’000 2,561,962 1,625 — 2,563,587 1,373,700 313,300 445,410 182,430 — 4,878,427 (34,610) 4,843,817	Share option reserve HK$’000 12,663 (286) 26,158 38,535 — — — (39,669) 20,559 19,425 — 19,425	Total HK$’000 2,790,469 1,404 26,158
					2,818,031 1,402,200 319,800 450,460 149,696 20,559
					5,160,746 (34,610)
					5,126,136

Share options

Details of the Company’s share option scheme and the share options issued under the scheme are included in note 39 to the financial statements.

– 107 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

39. SHARE OPTION SCHEME

On 30 June 2004, a new share option scheme (the “ New Scheme ”) was adopted by the Company to replace the share option scheme which was adopted by the Company on 21 August 1997 (the “ Old Scheme ”). The Old Scheme was terminated on 30 June 2004.

Pursuant to the New Scheme, the Company may grant options to eligible participants to subscribe for shares in the Company subject to the terms and conditions stipulated therein. A summary of the New Scheme is as follows:

(a)	Purpose	—	To enable the Company to grant options to Eligible Participants (as
			defined below) as incentives and rewards for their contributions to
			the Group.
(b)	Eligible Participants	—	Being employees or executives or officers of the Company or any of
			its subsidiaries (including their respective executive and non-executive
			directors) and consultants, business associates and advisers who will
			provide or have provided services to the Group.
(c)	Total number of shares	—	The total number of shares which may be issued upon the exercise of
	available for issue under		all outstanding options granted and yet to be exercised under the New
	the New Scheme		Scheme shall not exceed 30% of the total number of shares of the
			Company in issue.
(d)	Maximum entitlement of	—	The total number of shares issued and to be issued upon exercise of
	each Eligible Participant		the options granted to each Eligible Participant (including 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)	Period during which	—	The period during which an option may be exercised is determined
	the shares must be		by the board of directors of the Company at its absolute discretion,
	taken up under an option		except that no option may be exercised after 10 years from the date
			of adoption of the New Scheme, subject to early termination of the
			New Scheme.
(f)	Minimum period for	—	The minimum period for which an option must be held before it can
	which an option must be		be exercised is one year.
	held before it can be
	exercised

– 108 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

39. SHARE OPTION SCHEME (continued)

(g) Basis of determining the exercise price
The exercise price must be at least the highest of (i) the closing price of the shares of the Company on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) as stated in the Stock Exchange’s daily quotation sheet on the date of grant, which must be a business day; (ii) the average of the closing prices of the shares of the Company on the Stock Exchange as stated in the Stock Exchange’s daily quotation sheets for the five business days immediately preceding the date of the grant; and (iii) the nominal value of a share.
(h) Remaining life of the New Scheme
The New Scheme remains in force until 29 June 2014 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 shareholders’ meetings.

The following share options were outstanding under the Scheme during the year:

At 1 January Granted during the year Exercised during the year At 31 December	2007 Weighted average exercise price Number per share of options HK$ ’000 1.079 175,700 3.072 20,000 1.079 (138,700) 1.777 57,000	2006 Weighted average exercise price Number per share of options HK$ ’000 1.079 177,000 — — 1.080 (1,300) 1.079 175,700

The weighted average share price at the date of exercise for share options exercised during the year was HK$4.834 (2006: HK$1.809)

– 109 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

39. SHARE OPTION SCHEME (continued)

The exercise prices and exercise periods of the share options outstanding as at that balance sheet date are as follows:

2007

Number of options	Exercise price per share *	Exercise period
’000	HK$
32,000	1.080	02/06/2006 - 01/06/2010
5,000	1.060	28/12/2006 - 27/12/2010
20,000	3.072	07/03/2008 - 06/03/2012
57,000

2006

Number of options	Exercise price per share *	Exercise period
’000	HK$
65,700	1.080	02/06/2006 - 01/06/2010
100,000	1.080	02/06/2007 - 01/06/2010
10,000	1.060	28/12/2006 - 27/12/2010
175,700

The exercise price of the share options is subject to adjustment in case of rights or bonus issues, or other similar changes in the Company’s share capital.

On 7 March 2007, the Company granted share options under the New Scheme to Mr. Kong Dan, the director of the Company, in respect of 20,000,000 shares in the Company at the exercise price of HK$3.072 per share. The closing price of the shares at the date of grant was HK$3.13 per share.

The fair value of the share options granted during the year was HK$15,240,000 (HK$0.762 each) of which the Group recognised a share option expense of HK$11,429,000 during the year ended 31 December 2007. There was no share option granted during the year ended 31 December 2006.

– 110 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

39. SHARE OPTION SCHEME (continued)

The fair value of equity-settled share options granted during the year was estimated as at the date of grant using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

	2007
Dividend yield (%)	0
Volatility (%)	48.26
Risk-free interest rate (%)	4.001
Expected life of options (year)	2

The expected life of the options is based on the historical data over the past three years and 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 options granted was incorporated into the measurement of fair value.

The 138,700,000 share options exercised during the year resulted in the issuance of 138,700,000 new ordinary shares of the Company of HK$0.05 each and new share capital of HK$6,935,000 and share premium of HK$182,430,000 (before issue expenses), as further detailed in note 38 to the financial statements.

At the balance sheet date, the Company had 57,000,000 share options outstanding under the New Scheme. The exercise in full of the remaining share options would, under the present capital structure of the Company, result in the issue of 57,000,000 additional ordinary shares of the Company, additional share capital of HK$2,850,000 and share premium of HK$98,450,000 (before issue expenses).

At the date of approval of these financial statements, the Company had 57,000,000 share options outstanding under the Scheme, which represented 1.08% of the Company’s shares in issue as at that date.

40. RESERVES

(a) Group

Movements in the Group’s reserves for the current and prior years are presented in the consolidated statement of changes in equity on pages 52 and 53 of the financial statements.

The contributed surplus of the Group represents the difference between the nominal value of the share capital of the 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.

Pursuant to the relevant laws and regulations for Sino-foreign joint venture enterprises, a portion of the profits of the Group’s subsidiaries which are established in the PRC has been transferred to reserve funds which are restricted as to use.

– 111 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

40. RESERVES (continued)

(b) Company

As at 1 January 2006 Issue of new shares upon exercise of share options (note 38) Equity-settled share options arrangements (note 38) Loss for the year At 31 December 2006 and 1 January 2007 Exchange realignment Issue of new shares Share issue expenses Issue of new shares upon exercise of share options (note 38) Equity-settled share options arrangements (note 38) Loss for the year At 31 December 2007	Share premium account 2,561,962 1,625 — — 2,563,587 — 2,132,410 (34,610) 182,430 — — 4,843,817	Contributed surplus 172,934 — — — 172,934 — — — — — — 172,934	Exchange fluctuation reserve — — — — — 255 — — — — — 255	Share option reserve 12,663 (286) 26,158 — 38,535 — — — (39,669) 20,559 — 19,425	Accumulated losses (343,506) — — (152,093) (495,599) — — — — — (189,467) (685,066)	Total 2,404,053 1,339 26,158 (152,093) 2,279,457 255 2,132,410 (34,610) 142,761 20,559 (189,467) 4,351,365

The contributed surplus of the Company represents the excess of the then combined net assets of the subsidiaries acquired pursuant to the Group reorganisation detailed in note (a) above, over the nominal value of the share capital of the Company issued in exchange therefor. In accordance with the laws of Bermuda, the contributed surplus of the Company may be distributed in cash or in specie in certain prescribed circumstances.

The share option reserve comprises the fair value of share options granted which are yet to be exercised, as further explained in the accounting policy for share based payment transactions in note 2.4 to the financial statements. The amount will either be transferred to the share premium account when the related options are exercised, or be transferred to retained profits should the related options expire or be forfeited.

– 112 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

41. BUSINESS COMBINATION

(a) On 30 April 2007, the Group conditionally agreed to acquire from CITIC Group the entire issued share capital of RNL, and thereby the Kazakhstan Interests (as defined below), and the benefit of certain indebtedness owing by KEL to CITIC Group (the “ Kazakhstan Transaction ”).

Further details of the Kazakhstan Transaction are set out in the circular of the Company dated 12 June 2007 and the announcement of the Company dated 12 December 2007.

The Kazakhstan Interests comprise interests in 50% of the issued voting shares of KBM (which represents 47.3% of the total issued shares of KBM) and 50% of the participation rights in each of ATS and TMS. KBM, ATS and TMS operate the oil and oil related businesses and activities in Kazakhstan. KBM is engaged in the development, production and sale of oil and holds the right to explore, develop, produce and sale of oil in the Karazhanbas oilfield until 2020. ATS is engaged in the provision of transportation services and other oilfield related logistics services. TMS is engaged in the provision of oil well drilling, construction and workover services.

The Kazakhstan Transaction, completed on 12 December 2007, constituted a connected and very substantial acquisition under the Listing Rules. The purchase consideration in respect of the Kazakhstan Transaction is US$1,030,610,001 (HK$8,038,448,000). The purchase consideration was settled by a deposit of US$200,000,000 (HK$1,560,000,000) paid by the Group to CITIC Group in 2006 (note 23), cash payment of US$830,610,001 (HK$6,478,448,000) paid by the Group to CITIC Group upon completion of the Kazakhstan Transaction and other directly attributable costs of HK$110,284,000 recorded as prepayments prior to the date of completion of the Kazakhstan Transaction. In addition, certain indebtedness of RNL in an aggregate amount of US$100,000,000 (HK$779,800,000) due to CITIC Group became part of liabilities of the Group. RNL’s indebtedness to CITIC Group was settled by the Group immediately after the completion of the Kazakhstan Transaction.

– 113 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

41. BUSINESS COMBINATION (continued)

(a) (continued)

The fair values of the identifiable assets and liabilities of the RNL Group as at the date of acquisition and the carrying amounts immediately before the acquisition were as follows:

Notes Net assets acquired: Property, plant and equipment 13 Other intangible assets 15 Inventories Accounts receivable Prepayments, deposits and other receivables Tax recoverable Cash and bank balances Accounts payable Tax payable Accrued liabilities and other payables Bank and other loans Bond obligations Provisions 36 Deferred tax liabilities 37 Minority interests Satisfied by: Cash Deposit paid in 2006 23 Professional fees paid	Fair value recognised on acquisition 17,524,854 4,220 345,030 296,368 478,060 98,159 420,276 (106,136) (345,112) (128,124) (569,576) (356,801) (106,055) (8,153,612) (473,019) 8,928,532 7,258,248 1,560,000 110,284 8,928,532	Previous carrying amount 14,533,560 4,220 345,030 296,368 478,060 98,159 420,276 (106,136) (345,112) (128,124) (569,576) (356,801) (106,055) (6,625,061) (394,452) 7,544,356

An analysis of the net outflow of cash and cash equivalents in respect of the Kazakhstan Transaction is as follows:

Cash consideration paid Cash and bank balances acquired Net outflow of cash and cash equivalents in respect of the Kazakhstan Transaction	2007 (7,258,248) 420,276 (6,837,972)

– 114 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

41. BUSINESS COMBINATION (continued)

(a) (continued)

Since the completion of the Kazakhstan Transaction, RNL Group has contributed HK$197,160,000 to the Group’s revenue and HK$37,120,000 to the consolidated profit attributable to shareholders of the Company for the year ended 31 December 2007.

The following unaudited proforma consolidated financial information reflects the results of the operations of the Group for the year ended 31 December 2007, as if the Kazakhstan Transaction described above had completed on 1 January 2007 and the Notes had been issued on 1 January 2007.

	Proforma
	financial results
	of the Group
	for the year ended
	31 December 2007
	(unaudited)
Total revenue	12,819,816
Profit before tax	1,380,707
Profit after tax attributable to shareholders of the Company	423,591
Earnings per share
– Basic	HK 8.46 cents
– Diluted	HK 8.41 cents

The purchase price allocation set out above is still preliminary, pending the finalisation of the valuation of certain property, plant and equipment and intangible assets and the determination of the tax basis of the assets and liabilities acquired.

(b) On 1 May 2007, CITIC Haiyue, an indirect wholly-owned subsidiary of the Company, acquired an option to purchase 90% of the issued shares of Tincy Group from Far Great. Tincy Group holds the right to explore, develop and operate, until 2034, the Hainan-Yuedong Block.

On 28 September 2007, CITIC Haiyue exercised the option by entering into a sale and purchase agreement with Far Great and its shareholders to purchase 90% of the issued shares of Tincy Group for a consideration of US$148,183,648 (HK$1,155,832,000), subject to adjustments as provided for in such agreement. The transaction was completed on 10 October 2007 and the purchase consideration was in the form of cash. As at 31 December 2007, the purchase consideration of US$125,145,813 (HK$976,131,341) and directly attributable cost of HK$41,122,463 were settled by the Group, and the remaining purchase consideration of US$23,037,835 (HK$179,700,659) and other directly attributable cost of HK$5,590,998 were recorded by the Group as other payables as at 31 December 2007.

– 115 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

41. BUSINESS COMBINATION (continued)

(b) (continued)

The fair values of the identifiable assets and liabilities of Tincy Group as at the date of acquisition and the carrying amounts immediately before the acquisition were as follows:

Notes Net assets acquired: Property, plant and equipment 13 Prepayments, deposits and other receivables Cash and bank balances Accrued liabilities and other payables Bank and other loans Deferred tax liabilities 37 Minority interests Satisfied by: Cash Other payables	Fair value recognised on acquisition 1,987,381 46 251 (45,793) (78,000) (527,724) (133,616) 1,202,545 1,017,254 185,291 1,202,545	Previous carrying amount 151,821 46 251 (45,793) (78,000) — (2,833) 25,492

An analysis of the net outflow of cash and cash equivalents in respect of the acquisition of Tincy Group is as follows:

Cash consideration paid Cash and bank balances acquired Net outflow of cash and cash equivalents in respect of the acquisition of Tincy Group	2007 (1,017,254) 251 (1,017,003)

Since its acquisition, Tincy Group has not contributed any revenue to the Group as the principal field within the Hainan-Yuedong Block is still in the appraisal and development stage.

– 116 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

41. BUSINESS COMBINATION (continued)

(c) On 8 February 2007, the Group acquired an effective 33.6% indirect interest in Guixin Ferroalloy which is engaged in the manufacture and sale of high-carbon chromium alloy in the PRC. The purchase consideration was in the form of cash, with HK$16,667,000 (RMB16,000,000) paid by the Group upon the completion of the acquisition.

The fair values of the identifiable assets and liabilities of Guixin Ferroalloy as at the date of acquisition and the carrying amounts immediately before the acquisition were as follows:

Notes Net assets acquired: Property, plant and equipment 13 Prepaid land lease premiums 14 Deferred tax assets 37 Inventories Accounts receivable Prepayments, deposits and other receivables Cash and bank balances Accounts payable Tax payable Accrued liabilities and other payables Bank and other loans Deferred tax liabilities 37 Minority interests Excess over the cost of a business combination recognised in the consolidated income statement 5 Satisfied by cash	Fair value recognised on acquisition 51,747 11,105 6,589 16,827 2,208 11,099 27,561 (16,440) (390) (47,469) (18,750) (3,230) (12,257) 28,600 (11,933) 16,667	Previous carrying amount 46,227 3,008 — 16,827 2,208 11,099 27,561 (16,440) (390) (47,469) (18,750) — (7,164) 16,717

An analysis of the net inflow of cash and cash equivalents in respect of the acquisition of Guixin Ferroalloy is as follows:

Cash consideration paid Cash and bank balances acquired Net inflow of cash and cash equivalents in respect of the acquisition of Guixin Ferroalloy	2007 (16,667) 27,561 10,894

– 117 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

41. BUSINESS COMBINATION (continued)

Since its acquisition, Guixin Ferroalloy contributed HK$269,343,202 to the Group’s revenue and HK$5,433,204 to the consolidated profit for the year ended 31 December 2007.

Had the acquisition taken place at the beginning of the year, the revenue of the Group and the profit of the Group for the year would have been HK$277,335,011 and HK$8,509,588, respectively.

(d) On 28 February 2006, the Group acquired a 48% indirect interest (with effective control via a 80% owned subsidiary) in the Manganese Company. The Manganese Company is engaged in the operation of manganese mining and sale of refined manganese products in the PRC. The purchase consideration was in the form of cash, consideration amount of RMB300,000,000 (HK$288,500,000) to the Manganese Company and the cost directly attributable to the acquisition of HK$17,170,000 had been paid in 2005 and recorded as a long-term prepayment.

The fair values of the identifiable assets and liabilities of the Manganese Group as at the date of acquisition and the carrying amounts immediately before the acquisition were as follows:

Notes Net assets acquired: Property, plant and equipment 13 Prepaid land lease premiums 14 Other intangible assets 15 Cash and bank balances Inventories Accounts receivable Prepayments, deposits and other receivables Accounts payable Accrued liabilities and other payables Tax payable Deferred tax liabilities 37 Bank and other loans Minority interests Satisfied by deposits paid in 2005	Fair value recognised on acquisition 315,881 60,564 139,904 148,230 16,801 12,624 6,755 (19,188) (139,279) (823) (11,253) (11,114) (213,432) 305,670 305,670	Previous carrying amount 315,881 60,564 104,013 148,230 16,801 12,624 6,755 (19,188) (139,279) (823) (3,465) (11,114) (202,191) 288,808

– 118 –

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

41. BUSINESS COMBINATION (continued)

(d) (continued)

An analysis of the net inflow of cash and cash equivalents in respect of the acquisition of the Manganese Group is as follows:

Cash consideration paid Cash and bank balances acquired Net inflow of cash and cash equivalents in respect of the acquisition of the Manganese Group	2006 — 148,230
	148,230

Since its acquisition, the Manganese Group contributed HK$538,006,000 to the Group’s revenue and HK$65,759,000 to the consolidated profit for the year ended 31 December 2006.

Had the combination taken place on 1 January 2006, the revenue of the Group and the profit of the Group for the year ended 31 December 2006 would have been HK$7,529,736,000 and HK$252,978,000, respectively.

– 119 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

41. BUSINESS COMBINATION (continued)

(e) On 22 November 2006, the Group acquired the Seram Interest. The purchase consideration for the acquisition was in the form of cash, with HK$757,723,000 paid at the acquisition date and directly attributable costs of HK$117,229,000 taken up as accrued liabilities and other payables.

The fair values of the identifiable assets and liabilities of the Seram Interest as at the date of acquisition and the carrying amounts immediately before the acquisition were as follows:

Notes Net assets acquired: Oil and gas properties 13 Furniture and fixtures 13 Deferred tax assets 37 Inventories Prepayments, deposits and other receivables Accounts payable Accrued liabilities and other payables Tax payable Provisions Long-term other payables Satisfied by: Cash Accrued liabilities and other payables	Fair value recognised on acquisition (restated) 649,279 2,067 197,251 75,611 99,415 (8,121) (26,335) (8,135) (24,682) (81,398) 874,952 757,723 117,229 874,952	Previous carrying amount 639,920 2,067 243,549 75,611 99,415 (8,121) (26,335) (8,135) (24,682) (81,398) 911,891

An analysis of the net outflow of cash and cash equivalents in respect of the acquisition of the Seram Interest is as follows:

Cash consideration paid Cash and bank balances acquired Net outflow of cash and cash equivalents in respect of the acquisition of the Seram Interest	2006 757,723 — (757,723)

– 120 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

41. BUSINESS COMBINATION (continued)

(e) (continued)

The purchase price allocation set out above has been determined following the finalisation of the valuation relating to the oil and gas reserves and the determination of the tax basis of the assets and liabilities acquired during the current year. Restatement adjustments to the initial accounting within the twelve months of the acquisition date for this business combination have been recognised in these financial statements . Oil and gas properties and deferred tax assets have been restated to reflect the change retrospectively and the effects of which are summarised below:

Effect on the consolidated balance sheet

At 1 January 2007 Assets Oil and gas properties Deferred tax assets At 31 December 2007 Assets Oil and gas properties Deferred tax assets Liabilities/Equity Other tax payable Retained earnings Effect on the consolidated income statement for the year ended 31 December 2007 Increase in deferred tax expense Total decrease in profit	Increase/ (decrease) (197,251) 197,251 — Increase/ (decrease) (197,251) 122,451 (74,800) (28,636) (46,164) (74,800) 46,164 46,164

– 121 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

42. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

Major non-cash transactions

(a) On 6 July 2007, the Group completed the acquisition of an additional 8.37% equity interest in Macarthur Coal, which became an associate of the Group after the acquisition. As a result, the Group’s investment in Macarthur Coal, which was previously accounted for as an available-for-sale investment with a carrying amount of HK$739,349,000 was reclassified to interest in an associate upon the completion of the acquisition.
(b) During the year ended 31 December 2006, Mount Gibson Iron Limited (“ Mount Gibson ”), a third party, acquired Aztec Resources Limited, an available-for-sale investment of the Group, through the issuance of new shares of Mount Gibson to a subsidiary of the Group. Such non-cash share swap transaction resulted in a gain on disposal of available-for-sale investments of HK$17,502,000 (note 5).
(c) During the year ended 31 December 2006, the Group has incurred professional fees in connection with the Group’s potential investment projects which had been accrued and remained unsettled as at 31 December 2006 in aggregate of HK$50,939,000.

43. LITIGATION

(a) In January 1999, Dongguan Xinlian, a wholly-owned subsidiary of the Company held through Wing Lam, received a writ of summons (the “ Claim ”) from China Foreign Trade Development Company (the “ Plaintiff ”) claiming US$6,362,000 (HK$49,624,000) and related interest in respect of six re-export contracts purported to have been entered into by Dongguan Xinlian prior to it becoming a Group subsidiary. A judgement (the “ First Judgement ”) was issued by the Shenzhen Intermediate People’s Court in February 2000 against Dongguan Xinlian for a sum of US$3,448,000 (HK$26,894,000). In response, Dongguan Xinlian filed an appeal against the First Judgement with the People’s High Court of Guangdong Province (the “ Guangdong High Court ”).

In August 2003, certain members of the Plaintiff’s management team were sentenced to imprisonment for creating forged documents, including those presented by them in relation to the Claim. Despite this, the Guangdong High Court issued a judgement (the “ Second Judgement ”) in December 2003 against Dongguan Xinlian for US$4,800,000 (HK$37,440,000) with related interest. In January 2004, Dongguan Xinlian filed a further appeal to the State Supreme Court requesting the withdrawal of the Second Judgement and a decision that Dongguan Xinlian was not liable to the Plaintiff in respect of the Second Judgement. In December 2004, the Guangdong High Court overturned the Second Judgement and issued a decision that it would re-hear the case.

In December 2005, the Guangdong High Court issued a judgement whereby the validity of the Second Judgement against Dongguan Xinlian was maintained (the “ Third Judgement ”).

– 122 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

43. LITIGATION (continued)

(a) (continued)

As advised by the Group’s legal advisers, there were a number of conflicts and discrepancies with regard to the Second Judgement and the Third Judgement. The Second Judgement and the Third Judgement were not supported by valid evidence. Although the Guangdong High Court acknowledged the criminal liabilities of certain members of the Plaintiff’s management team (including forging the contracts connected to the Claim), the Guangdong High Court did not, contrary to normal legal procedures, take these factors into account when it gave the Third Judgement.

In February 2006, Dongguan Xinlian commenced an appeal process to the State Supreme Court against the Third Judgement. In the meantime, the Shenzhen Intermediate People’s Court has frozen the assets and machinery of Dongguan Xinlian and the Group has also taken steps to apply for a suspension of the auction of the assets and machinery of Dongguan Xinlian.

In November 2006, the Supreme People’s Procuratorate of the PRC confirmed the grounds of the petition and filed the protest with the State Supreme Court for retrial. In February 2007, the State Supreme Court issued a written civil ruling to retry the case. The hearing was set for October 2007 but the Plaintiff did not attend. A new date for the hearing has not been fixed at the date of this annual report.

In March 2007, the Group’s legal advisers re-confirmed the conflicts and discrepancies with regard to the Second Judgement and the Third Judgement.

The ex-shareholders of Wing Lam (the “ Ex-shareholders ”) have given an undertaking to indemnify the Group against all monetary losses that may arise from the Claim up to HK$11,862,000, being the outstanding other loans from the Ex-shareholders as at 31 December 2007.

In light of the indemnity from the Ex-shareholders and the advice of the Group’s legal advisers, the directors believe that the outcome of the Claim will not have a material adverse impact on the financial results of the Group. Accordingly, no provision is considered necessary.

(b) In September 2005, Thomas de Shazo (“ de Shazo ”) filed a summons and complaint (the “ Complaint ”) in the Southern District of Texas in the United States District Court against CCPL, Ecolo Investments Limited, Aequitas Energy, S.A., Novomundo Trading Ltd., Hashim Djojohadikusumo, Philip Hirschler and Patrick O’Mara. The United States Federal Court dismissed de Shazo’s claim in March 2007 and de Shazo appealed in April 2007. De Shazo is claiming an amount of US$200 million and an additional punitive damage. Oral argument in respect of the appeal were heard by the United States Courts of Appeals in March 2008. The opinion and judgement from the court is still pending.

The directors of the Group believe that there are no grounds for such claim to succeed and as such, no provision has been made as at 31 December 2007.

– 123 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

43. LITIGATION (continued)

(c) During 2005, the taxation authority of Kazakhstan conducted a tax audit on the accounting records of KBM (acquired by the Group on 12 December 2007 and the Group’s equity interest is 47.3%) for the three years ended 31 December 2004. In December 2005, as a result of the tax audit, KBM received a claim from the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan to pay additional taxes in the amount of HK$432,066,000 (6,686,552,000 Tenge) as well as penalties and fines of HK$319,822,000 (4,949,490,000 Tenge) (the “ Tax Claim ”). In July 2006, KBM received a favourable decision from the Astana City court. In September 2006, KBM received a favourable decision from the Collegiums of Judges of Astana City. In December 2007, the General Prosecutor issued a protest against the court decision under this case in favour of the Tax Committee. On 16 January 2008, according to the resolution of the Supervisory Collegium of the Supreme Court, the protest of the General Prosecutor was partially satisfied, and an amount of HK$7,332,000 (113,464,000 Tenge) was accrued by KBM in the current year financial statements. As of 16 January 2008, this case was finally closed.

During 2007, KBM’s books and records have been audited by the Kazakhstan tax authorities with regard to the calculation and accrual of withholding tax from the source of payment for the years 2002-2006. As a result, KBM received a claim from the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan to pay additional tax of HK$15,818,000 (244,790,000 Tenge) and penalty of HK$6,335,000 (98,032,000 Tenge).

In 2007, KBM’s books have also been audited by the Kazakhstan tax authorities with regards to the calculation and accrual of excess profits tax for the years 2002-2004. As a result, KBM received a claim from the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan to pay additional tax of HK$761,292,000 (11,781,577,000 Tenge), fines of HK$380,646,000 (5,890,789,000 Tenge) and penalty of HK$445,278,000 (6,891,013,000 Tenge).

On 11 March 2008, KBM has appealed against the excess profits tax claims to Astana city court. The outcome of this appeal remains uncertain as of the date of this annual report. However, KBM believes that the case will be ruled in its favour.

KBM believes that it has paid or accrued all taxes that are applicable. Where practice concerning the provision of taxes is unclear, KBM has accrued tax liabilities based on management’s best estimate. KBM’s policy is to accrue contingencies in the accounting period in which a loss is deemed probable and the amount is reasonably determinable. Because of the uncertainties associated with the Kazakhstan tax system, the ultimate amount of taxes, penalties and interest, if any, may be in excess of the amount expensed to date and accrued as at 31 December 2007. Although such amounts are possible and may be material, it is the opinion of the KBM’s management that these amounts are either not probable, not reasonably determinable, or both.

– 124 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

44. CONTINGENT LIABILITY

As at 31 December 2007, the Notes issued by CR Finance, a direct wholly-owned subsidiary of the Company, are irrevocably and unconditionally guaranteed by the Company.

45. OPERATING LEASE ARRANGEMENTS

At 31 December 2007, the Group had total future minimum lease payments under non-cancellable operating leases in respect of land and buildings falling due as follows:

Within one year In the second to fifth years, inclusive Beyond five years	Group 2007 15,829 14,389 949 31,167	2006 12,883 16,803 9,848
		39,534

46. COMMITMENTS

In addition to the operating lease commitments detailed in note 45 above, the Group had the following capital expenditure commitments:

Contracted, but not provided for: Capital expenditure in respect of infrastructure and acquisition of property, plant and equipment Authorised, but not contracted for: Minimum work programme for the year 2008	Group 2007 514,872 855,693	2006 —

		—

In addition, the Group’s share of the jointly-controlled assets’ own capital commitments, which are not included in the above, is as follows:

	Group
	2007	2006
Contracted, but not provided for
Capital expenditure in respect of infrastructure and
acquisition of property, plant and equipment	200,290	27,445

Save as the aforesaid, at the balance sheet date, neither the Company nor the Group had other significant commitments (2006: Nil).

– 125 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

47. RELATED PARTY TRANSACTIONS AND CONNECTED TRANSACTIONS

In addition to matters disclosed elsewhere in the financial statements, during the year, the Group had the following transactions with its related parties:

(a)

		Group
	Notes	2007	2006
Fellow subsidiaries:
Sale of products	(i)	1,919,389	1,378,446
Related companies:
Sale of products	(i)	45,676	—
Purchases of goods	(ii)	84,130	—
Minority shareholder:
Sale of products	(i)	3,294	—

(i) The sales were made on normal commercial terms and conditions offered to the major customers of the Group.
(ii) The purchase from the related companies were made according to the published prices and conditions offered by the related companies to their major customers.

(b) Interest income from CITIC Group

During the year ended 31 December 2007, the Group received interest income from CITIC Group on earnest money (note 23) relating to the investment in the RNL Group which amounted to HK$67,600,000. This amount was used to pay the interest incurred by the Group on bank loans to finance the payment of the earnest money to CITIC Group. The net interest income of HK$3,096,000, after netting off the related bank interest expense of HK$64,504,000, was recorded as interest income in the consolidated income statement (note 5).

On 31 October 2006, an acknowledgement from CITIC Group was received by the Group in respect of a warranty settlement agreement dated 10 October 2006 between the Group and CITIC Group, pursuant to which CITIC Group agreed to compensate the Company for HK$34,320,000 in respect of loss of HK$19,412,000 suffered by the Company in respect of the conversion of the Dagang Participating Interest by Richfirst Holdings Limited into Ivanhoe Shares. As a result of a delay in conversion, a loss arose from the reduction in the number of Ivanhoe Shares converted due to the appreciation in the price of Ivanhoe Shares during the delayed conversion period.

As at 31 December 2006, the Group had an outstanding amount due from the ultimate holding company of HK$34,320,000 due to the above (note 25). The outstanding amount was settled in 2007.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

47. RELATED PARTY TRANSACTIONS AND CONNECTED TRANSACTIONS (continued)

(d) During the year, the Group has paid rental charges of HK$2,563,000 (2006: HK$2,814,000) to 99 King Street Property Management Pty. Ltd., a subsidiary of CITIC Group.
(e) Outstanding balances with related parties:
(i) As disclosed in the consolidated balance sheet, the Group had an outstanding balance due to its minority shareholder of HK$38,174,000 in 2006. Details of the advances are included in note 33 to the financial statements.
(ii) Details of the Group’s receivables from its fellow subsidiary, related companies and the ultimate holding company of HK$1,516,000 and HK$51,000 (2006: HK$235,785,000 and HK$2,066,000), HK$119,600,000 (2006: HK$51,486,000) and nil (2006: HK$34,320,000), respectively, as at the balance sheet date, are included in notes 27 and 25 to the financial statements.
(iii) Details of the Group’s loans from the Company’s former minority sharesholders, minority shareholders and the ultimate holding company are included in note 34 to the financial statements.

48. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the balance sheet date are as follows:

2007 Financial assets Financial assets at fair value through profit or loss – held for trading Available-for-sale investments — Accounts receivables — Financial assets included in prepayments, deposits and other receivables — Loan receivable — Equity investments at fair value through profit or loss 2,430 Derivative financial instruments 8,608 Due from related companies — Cash and bank balances — 11,038	Group Available- for-sale Loans and financial receivables assets — 201,206 1,619,666 — 67,359 — 21,615 — — — — — 119,600 — 2,074,457 — 3,902,697 201,206	Total 201,206 1,619,666 67,359 21,615 2,430 8,608 119,600 2,074,457
		4,114,941

– 127 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

48. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

2007

Group

Financial liabilities

Financial liabilities at fair value through profit or loss – held for trading Due to related companies — Accounts payable — Financial liabilities included in accrued liabilities and other payables — Derivative financial instruments 189,122 Bank and other loans — Bond obligations — 189,122	Financial liabilities at amortised cost 9,674 613,991 101,933 — 4,202,104 7,992,859 12,920,561	Total 9,674 613,991 101,933 189,122 4,202,104 7,992,859
		13,109,683

2006

Group

Financial assets

Financial assets at fair value through profit or loss – held for trading Available-for-sale investments — Accounts receivables — Financial assets included in prepayments, deposits and other receivables — Loan receivable — Equity investments at fair value through profit or loss 1,974 Derivative financial instruments 16,380 Due from related companies — Due from the ultimate holding company — Cash and bank balances — 18,354	Loans and receivables — 1,252,081 12,284 38,942 — — 51,486 34,320 850,744 2,239,857	Available- for-sale financial assets 845,936 — — — — — — — — 845,936	Total 845,936 1,252,081 12,284 38,942 1,974 16,380 51,486 34,320 850,744
			3,104,147

– 128 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007 HK$’000

48. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

2006 Group Financial liabilities

Financial liabilities	Financial liabilities
Financial liabilities Financial at fair value liabilities at through profit or loss amortised – held for trading cost Accounts payable — 533,788 Financial liabilities included in accrued liabilities and other payables — 14,263 Derivative financial instruments 327,983 — Due to a minority shareholder — 38,174 Bank and other loans — 3,802,562 327,983 4,388,787 Company Financial assets 2007 Loans and receivables Due from subsidiaries 6,009,896 Financial assets included in prepayments, deposits and other receivables 3,119 Bank balances 747,114 6,760,129 Company Financial liabilities 2007 Financial liabilities at amortised cost Due to subsidiaries 370,128 Financial liabilities included in accrued liabilities and other payables 25,192 Bank loans, unsecured 1,170,000 1,565,320		Total 533,788 14,263 327,983 38,174 3,802,562
		4,716,770

		2006 Loans and receivables 2,822,924 2,672 22,690
		2,848,286

		2006 Financial liabilities at amortised cost 1,716 73 1,513,200
		1,514,989

– 129 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

49. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments, other than derivatives, comprise bank loans, other interest-bearing loans, bond obligations, cash and short-term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as accounts receivable and accounts payable, which arise directly from its operations.

The Group also enters into derivative transactions, including principally interest rate swap, forward currency and commodity contracts. The purpose is to manage the interest rate, currency and commodity price risks arising from the Group’s operations and its sources of finance.

It is, and has been throughout the year under review, the Group’s policy that trading in financial instruments shall be undertaken only with due care.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The Group’s accounting policies in relation to derivatives are set out in note 2.4 to the financial statements.

Interest rate risk

The Group’s exposure to the risk of changes in interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates.

The Group’s policy is to manage its interest rate costs using a mix of fixed and variable rate debts with respect to the prevailing interest rate environment. To manage this mix in a cost-effective manner, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designed to hedge the underlying debt obligations. Long-term notes issued at fixed coupon expose the Group to fair value interest rate risk. At 31 December 2007, after taking into account the effect of the interest rate swaps, 68% (2006: 9%) of the Group’s interest-bearing borrowings bore interest at fixed rates.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

49. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

The following table demonstrates the sensitivity to a reasonably determined possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings) and the Group’s and the Company’s equity.

2007 US$ US$ 2006 US$ US$	Group Increase/ Increase/ (decrease) Increase/ (decrease) in profit (decrease) in basis points before tax in equity % (1) (1,298) (1,298) 1 1,298 1,298 (1) 24 24 1 (24) (24)	Company
		Increase/ Increase/ (decrease) (decrease) in basis points in equity % (1) 79 1 (79) (1) (379) 1 379

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 currency. The Group will assess the respective exposure of each of its operating units and enter into an appropriate amount of forward contracts to hedge that part of the exposure. The forward currency contracts must be in the same currency as the hedged item. It is the Group’s policy not to enter into forward contracts until a firm commitment is in place.

It is also the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness.

– 131 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

49. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

The following table demonstrates the sensitivity at the balance sheet date to a reasonably determined possible change in the United States dollar exchange rate, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity (due to changes in the fair value of forward currency contracts).

	Increase/
	(decrease)	Increase	Increase/
	in US$	in profit	(decrease)
	rate	before tax	in equity
	%
2007
If US$ weakens against A$	(10)	14,023	(61,348)
If US$ strengthens against A$	10	(11,472)	50,078
2006
If US$ weakens against A$	(10)	33,724	(26,799)
If US$ strengthens against A$	10	(27,601)	23,009

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 financial assets, other receivables and certain derivative instruments, arises from default of the counterparty, 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, by geographical region and by industry sector. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s accounts receivable are widely dispersed in different sectors and industries.

Further quantitative data in respect of the Group’s exposure to credit risk arising from accounts receivable are disclosed in note 27 to the financial statements.

– 132 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

49. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

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 receivables) and projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and other interest-bearing loans. The Group generally seeks to keep minimal cash balances and the surplus is used to extinguish debt to reduce financing costs and improve return to shareholders of the Company. 21.3% of the Group’s debts would mature in less than one year as at 31 December 2007 (2006: 41.8%) based on the carrying value of borrowings reflected in the financial statements.

The maturity profile of the Group’s financial liabilities as at the balance sheet date was as follows:

Group

2007 Due to related companies Accounts payable Financial liabilities included in accrued liabilities and other payables Derivative financial instruments Bank and other loans Bond obligations 2006 Accounts payable Financial liabilities included in accrued liabilities and other payables Derivative financial instruments Due to a minority shareholder Bank and other loans	On demand 9,674 581,630 — — — — 591,304 455,696 — — 38,174 — 493,870	Less than 3 months — 15,534 101,933 — — — 117,467 58,416 14,263 — — — 72,679	3 to less than 12 months — 16,827 — 29,981 2,238,916 356,868 2,642,592 19,676 — 157,170 — 1,588,022 1,764,868	1 to 5 years — — — 113,903 1,659,214 — 1,773,117 — — 84,299 — 2,086,670 2,170,969	Over 5 years — — — 45,238 303,974 7,635,991 7,985,203 — — 86,514 — 127,870 214,384	Total 9,674 613,991 101,933 189,122 4,202,104 7,992,859
						13,109,683

						533,788 14,263 327,983 38,174 3,802,562
						4,716,770

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

49. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Liquidity risk (continued)

The maturity profile of the Group’s financial liabilities as at the balance sheet date was as follows: (continued)

Company

2007 Due to subsidiaries Financial liabilities included in accrued liabilities and other payables Bank loans, unsecured 2006 Due to subsidiaries Financial liabilities included in accrued liabilities and other payables Bank loans, unsecured	On demand 370,128 25,192 — 395,320 1,716 73 — 1,789	Less than 3 months — — — — — — 343,200 343,200	3 to less than 12 months — — 234,000 234,000 — — — —	1 to 5 years — — 936,000 936,000 — — 1,170,000 1,170,000	Over 5 years — — — — — — — —	Total 370,128 25,192 1,170,000
						1,565,320

						1,716 73 1,513,200
						1,514,989

Capital management

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in 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. No changes were made in the objectives, policies or processes during the years ended 31 December 2007 and 2006.

– 134 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007 HK$’000

49. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Capital management (continued)

The Group monitors capital using a gearing ratio, which is total debt divided by the total capital. The Group’s current objective is to gradually lower the gearing ratio to below 100%. Total debt includes bank and other loans and bond obligations. Capital includes equity attributable to shareholders of the Company. The gearing ratios as at the balance sheet dates were as follows:

Bank and other loans Bond obligations Total debt Capital Gearing ratio	Group 2007 4,202,104 7,992,859 12,194,963 6,071,463 200.9%	2006 3,802,562 —
		3,802,562
		3,225,343
		117.9%

50. COMPARATIVE AMOUNTS

As further explained in notes 21 and 41(e) to the financial statements, certain opening and prior year adjustments have been made. In addition, reclassification adjustment has been made to reduce revenue and cost of sales in 2006 by HK$668,267,000 to reflect the substance of a financing arrangement relating to sale and repurchase of aluminium ingot, and certain comparative amounts have been restated to conform with the current year’s presentation and accounting treatment.

51. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 18 April 2008.

– 135 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(C) REVIEW OF OPERATIONS AND PROSPECTS OF THE GROUP

The Group has grown considerably since it took its first steps in 2004 to diversify its business operations and activities into energy and natural resources. Currently, the Group has interests in aluminum smelting, coal, import and export of commodities, manganese mining and processing and oil exploration, development and production. Its recent acquisitions of an almost 50% interest in the Karazhanbas oilfield in Kazakhstan and a 90% interest in the contractor’s rights in the Hainan-Yuedong Block in the Bohai Bay Basin in Liaoning Province, the PRC have helped the Group create a meaningful oil platform and enhance its base from which it can continue to develop its energy and natural resources businesses. This, together with its recent US$1,000,000,000 bond debut in the debt markets, has helped raise the Group’s profile.

In 2008, one of the Group’s principal challenges in the short term is to improve the efficiency and productivity of its existing assets. Moving forward, the Directors see as important steps for the Group, the development of an effective working relationship with its joint venture partners and business associates, the improvement in the efficiency and production at the Karazhanbas oilfield and the commencement of development and commercial production of oil from the Hainan-Yuedong Block.

The acquisition of its interest in the Karazhanbas oilfield enables the Group to become one of the largest PRC controlled listed oil producers active in overseas oil production. Contributions from the Karazhanbas oilfield will improve considerably the Group’s annual oil production and oil related generated revenue which is expected to become a substantial profit contributor to the Group. Capital expenditure and operating expenses associated with the Karazhanbas oilfield will, however, increase the Group’s overall capital commitments and operating costs although net cash flows of the Group from operations at the Karazhanbas oilfield should still generally improve. For 2008, the Group will be able to include a full year’s contribution from the Karazhanbas oilfield. As a result of continuing high oil prices and the commissioning of more wells expected in the year, the Group’s interest in the Karazhanbas oilfield is expected to make a significant contribution to the Group’s performance in 2008.

The successful acquisition of the Hainan-Yuedong Block interest has further increased the Group’s business focus and development in the oil sector. The Group operates the block in cooperation with China National Petroleum Corporation. As the Yuedong oilfield, the principal field within the Hainan-Yuedong Block, is still in the appraisal and development stage, a substantial amount of capital expenditure will be required in respect of this investment with no immediate contribution to the Group’s revenue. It will cause a decrease in net cash flows of the Group from operations at the Hainan-Yuedong Block until full production is commenced.

The Group anticipates in 2008 the commencement of additional exploration within the Seram Island Non-Bula Block, Indonesia in which the Group holds a 51% participating interest. In May 2008, the Group announced the discovery of the Lower Nief and Manusela carbonate oil reservoirs at the Nief Utara -A1 drilling well. The Group plans to drill two more drilling wells and two exploration wells in the Seram Island Non-Bula Block in 2008. In addition, the Group is placing greater efforts in maintenance, optimization of well parameter and improvement of surface facility, to maintain production from existing wells at a low declining rate.

– 136 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Group has a strong involvement in the operation and management of the Karazhanbas oilfield, the Hainan-Yuedong Block and the Seram Island Non-Bula Block where it is effectively responsible for operations.

The Group is also committed to improving the profitability of the commodities businesses in Australia. The businesses and interests there continue to make significant contributions to the Group’s performance and remain an integral part of the Group’s overall strategy to be an integrated provider of key energy and natural resources and commodities.

The manganese business also makes a good contribution to the Group’s profits and the Group will continue to increase the productivity and capacity of the manganese mines.

The Directors will continue with their endeavours to maximise the Group’s performance and return on its investments, to broaden its business portfolio and to enhance shareholder value. The Directors will continue to look at various methods to achieve this including exploring and assessing new investment opportunities, particularly in the oil sector; as demand in Asia, together with strong demand in the Americas, Japan and Europe, continues to drive competition for energy resources. A part of the Group’s strategy in this respect is to explore overseas markets and to build up the Group’s presence in the energy, natural resources and commodities sectors in the region. In conjunction, there will be an emphasis on improving returns from the Group’s existing businesses; in particular, the Group will strive to improve efficiency at, and increase production from, our existing oil interests in Kazakhstan, China and Indonesia. The Directors will also consider other methods to unlock or realise the real worth of the Group’s investments including, if appropriate, reviewing the feasibility of separate listings of the Group’s viable stand alone investments.

The Directors expect the commodities markets to remain competitive and the financial markets to be volatile in the near term and these factors will present a number of challenges which the Directors believe the Group is well positioned to deal with.

As a whole, the Group is financially sound and well-positioned to implement and support its business strategy. It has a strong cash position and it is able to leverage on the support of its major Shareholders when necessary to develop the Group’s businesses.

– 137 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(D) INDEBTEDNESS

Borrowings

As at 30 April 2008, being the latest practicable date for the purpose of preparing this indebtedness statement prior to the printing of this Prospectus, the Group had the following outstanding borrowings:

		30 April 2008
	Notes	HK$’000
Bank loans:
Secured	(a)	1,420,381
Unsecured	(b)	2,711,881
		4,132,262
Other loans, unsecured		395,790
Bonds, unsecured	(c)	8,001,165
Total borrowings		12,529,217

Notes:

(a) The secured bank loans include mainly:
(i) a US$76,000,000 (HK$592,800,000) loan due on 31 December 2008 (extendable in accordance with the terms of the Portland Aluminium Smelter joint venture), which is interest-bearing at LIBOR and is secured by the Group’s 22.5% participating interest in the Portland Aluminium Smelter joint venture;
(ii) loans of RMB606,000,000 (HK$673,327,000) with due dates from 21 June 2008 to 31 March 2015, which are interest-bearing at rates ranging from 6.57% to 8.22% per annum and are secured by CITIC Dameng Mining Industries Limited’s property, plant and equipment of HK$171,967,000, prepaid land lease premiums of HK$56,641,000 and inventory of HK$22,222,000 and a guarantee provided by a minority shareholder; and
(iii) a loan of 2,382,719,000 Tenge (HK$154,236,000) due on 1 July 2011, which is interest-bearing at 11.80% per annum and is secured by property, plant and equipment of JSC Karazhanbasmunai (“ KBM ”) in an amount of 4,301,900,000 Tenge (HK$278,468,000).
(b) The unsecured bank loans include mainly a term loan of US$150,000,000 (HK$1,170,000,000), which are interest-bearing at LIBOR plus 0.58% per annum.

The unsecured bank loans also include (1) trade finance facilities of A$146,626,912 (HK$1,067,884,000) which are interest-bearing at LIBOR and are guaranteed by CITIC Resources Australia Pty Limited; and (2) a bank loan borrowed by KBM of 6,121,000,000 Tenge (HK$396,220,000) which is interest-bearing at 9.50% per annum and due on 12 April 2009.

The loans of RMB70,000,000 (HK$77,777,000) with due dates from 20 November 2008 to 20 January 2009 are interest-bearing at rates ranging from 7.29% to 7.47% per annum.

(c) The bonds include mainly:
(i) the US$1,000,000,000 (HK$7,800,000,000) 6.75% senior notes due 2014 (the “ Notes ”) issued by CITIC Resources Finance (2007) Limited on 17 May 2007, which are fully and unconditionally guaranteed by the Company; and
(ii) the Group’s share of the 11,100,000 non-callable coupon bonds due 2008 in the aggregate amount of 11.1 billion Tenge (HK$718,517,000) issued by KBM and registered with the Kazakhstan Stock Exchange in December 2003.

– 138 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Contingent liabilities

As at 30 April 2008, the Notes are irrevocably and unconditionally guaranteed by the Company.

Disclaimer

Save as aforesaid or as otherwise mentioned herein and the litigation as detailed in the section headed “Litigation” in Appendix III to this Prospectus, and apart from intra-group liabilities, none of the companies in the Group had, at the close of business on 30 April 2008, any outstanding loan capital issued and outstanding or agreed to be issued, bank overdrafts, charges or debentures, mortgages, loans or other similar indebtedness or any finance lease commitments, hire purchase commitments, liabilities under acceptances (other than normal trade bills), acceptance credits or any guarantees or other contingent liabilities.

Save as aforesaid, the Directors have confirmed that there have been no other material changes in the indebtedness and contingent liabilities of the Group since 30 April 2008.

Foreign currency transactions

Foreign currency amounts have, for the purpose of this indebtedness statement, been translated into Hong Kong dollars at the applicable rate of exchange ruling at the close of business on 30 April 2008.

(E) WORKING CAPITAL

The Directors are of the opinion that after taking into account the existing financing available to the Group, the working capital requirements and the expected cash flows of the Group, the Group will, following the completion of the Rights Issue, have sufficient working capital for its present requirements for the next 12 months from the date of this Prospectus in the absence of unforeseen material circumstances.

– 139 –

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE GROUP

(A) UNAUDITED PRO FORMA STATEMENT OF THE ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The following is the unaudited pro forma statement of the adjusted consolidated net tangible assets of the Group (the “ Unaudited Pro Forma Financial Information ”) assuming that completion of the Rights Issue had taken place on 31 December 2007 in accordance with terms of the Rights Issue as detailed in this Prospectus. The Unaudited Pro Forma Financial Information has been prepared in accordance with Rule 4.29 of the Listing Rules and for illustrative purposes only. Because of its hypothetical nature, it may not give a true picture of the financial position of the Group following the completion of the Rights Issue.

Consolidated net tangible assets Consolidated net tangible assets per Share	As at 31 December 2007 HK$’000 (Note 1) 5,587,913 HK$1.063	Estimated net proceeds Pro forma balance from the upon completion of Rights Issue the Rights Issue Unaudited HK$’000 HK$’000 (Note 2) (Note 3) 2,505,685 8,093,598 HK$1.339	Estimated net proceeds Pro forma balance from the upon completion of Rights Issue the Rights Issue Unaudited HK$’000 HK$’000 (Note 2) (Note 3) 2,505,685 8,093,598 HK$1.339

			HK$1.339

Notes:

The consolidated net tangible assets of the Group as at 31 December 2007 is calculated as follows:

Audited consolidated net assets of the Group as at 31 December 2007 Less: Intangible assets Consolidated net tangible assets of the Group as at 31 December 2007	HK$’000 6,071,463 (483,550) 5,587,913

The audited consolidated net assets and intangible assets of the Group are extracted from the audited consolidated financial statements of the Company as set out in its 2007 annual report. The consolidated net tangible assets per Share is calculated based on the consolidated net tangible assets of the Group of approximately HK$5,587,913,000 as at 31 December 2007 and the number of Shares in issue of 5,257,884,381 as at 31 December 2007.

The estimated net proceeds of HK$2,505,685,000 from the Rights Issue are based on 788,682,657 Rights Shares to be issued at the Subscription Price of HK$3.20 per Rights Share and after deducting the estimated expenses of approximately HK$18,100,000 which include legal and professional fees, and other related expenses.
The unaudited pro forma consolidated net tangible assets per Share is calculated based on the unaudited pro forma consolidated net tangible assets of the Group of approximately HK$8,093,598,000 upon completion of the Rights Issue and the number of Shares in issue of 6,046,567,038 upon completion of the Rights Issue.

– 140 –

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE GROUP

(B) LETTER FROM THE REPORTING ACCOUNTANTS

The following is the text of a report, prepared for the sole purpose of inclusion in this Prospectus, received from the independent reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong.

==> picture [151 x 39] intentionally omitted <==

18th Floor Two International Finance Centre 8 Finance Street, Central Hong Kong

20 June 2008

The Board of Directors CITIC Resources Holdings Limited Suites 3001-3006 30/F, One Pacific Place 88 Queensway Hong Kong

Dear Sirs,

CITIC Resources Holdings Limited (the “Company”) and its subsidiaries (collectively, the “Group”) — Unaudited Pro Forma Statement of the Adjusted Consolidated Net Tangible Assets

We report on the unaudited pro forma statement of the adjusted consolidated net tangible assets of the Group (the “ Unaudited Pro Forma Financial Information ”) in connection with the Company’s prospectus for the rights issue of 788,682,657 rights shares of the Company (the “ Rights Issue ”) for inclusion in Appendix II to the prospectus dated 20 June 2008 (the “ Prospectus ”) issued by the Company. The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Rights Issue might have affected the consolidated net tangible assets of the Group as at 31 December 2007. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on page 140 to the Prospectus.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”).

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APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE GROUP

It is our responsibility to form an opinion, as required by Rule 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Report on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 December 2007 or any future date.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

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GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This Prospectus includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this Prospectus and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this Prospectus by the Directors have been arrived at after due and careful consideration and there are no other facts not contained in this Prospectus, the omission of which would make any statement herein misleading.

The issue of this Prospectus has been approved by the Directors.

2. FURTHER INFORMATION ABOUT THE COMPANY

The Company was incorporated in Bermuda on 18 July 1997. Its registered office is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and its head office and principal place of business is at Suites 3001-3006, 30/F, One Pacific Place, 88 Queensway, Hong Kong.

Share capital:

The authorised and issued share capital of the Company as at the Latest Practicable Date were as follows:

Authorised share capital:

HK$500,000,000 divided into 10,000,000,000 Shares

Share capital issued as fully paid:

HK$262,894,219.05 divided into 5,257,884,381 Shares

Note: All of the existing issued Shares rank pari passu in all respects including as to, amongst other things, dividends, voting and interests in capital.

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GENERAL INFORMATION

APPENDIX III

3. PARTIES INVOLVED IN THE RIGHTS ISSUE AND CORPORATE INFORMATION

Underwriters

Underwriters Keentech Group Limited P.O. Box 957 Offshore Incorporations Centre Road Town Tortola British Virgin Islands Ellington Investments Pte. Ltd. #06-18, Tower 2, 60B Orchard Road The Atrium@ Orchard Singapore Financial Adviser to the Company Morgan Stanley Asia Limited 26/F, Three Exchange Square Central Hong Kong Legal advisers to the Company On Hong Kong Law Jones Day 29/F, Edinburgh Tower The Landmark 15 Queen’s Road Central Hong Kong On Bermuda Law Conyers Dill & Pearman 2901, One Exchange Square 8 Connaught Place, Central Hong Kong Share registrar and transfer office Tricor Tengis Limited 26/F, Tesbury Centre 28 Queen’s Road East Wanchai Hong Kong Auditors Ernst & Young Certified Public Accountants 18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong

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GENERAL INFORMATION

APPENDIX III

Principal bankers

Principal bankers China Development Bank 12-15/F, CITIC Tower No.1093 Shennan Road Shenzhen 518031 The People’s Republic of China CITIC Ka Wah Bank Limited 232 Des Voeux Road Central Hong Kong Mizuho Corporate Bank, Ltd. 17th Floor, Two Pacific Place 88 Queensway Hong Kong Authorised representatives Ms. Li So Mui Mr. Sun Xinguo Company secretary Ms. Li So Mui Qualified accountant Mr. Chung Ka Fai, Alan

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GENERAL INFORMATION

APPENDIX III

4. DISCLOSURE OF INTERESTS

(a) Disclosure of interests of Directors

As at the Latest Practicable Date, the interests and short positions of the Directors and 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 were 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 pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) and which have been notified to the Company and the Stock Exchange were as follows:

Interests in the Shares and underlying Shares

				Interests in	Percentage of
				underlying Shares	the total issued
		Number of		pursuant to	share capital of
Name of Director	Nature of interest	Shares held		Share Options	the Company
Mr. Kong Dan	Directly beneficially owned	—		20,000,000	0.38
Mr. Mi Zengxin	Directly beneficially owned	—		10,000,000	0.19
Mr. Shou Xuancheng	Directly beneficially owned	7,000,000		—	0.13
Mr. Sun Xinguo	Directly beneficially owned	7,500,000		—	0.14
Ms. Li So Mui	Directly beneficially owned	1,000,000		4,000,000	0.10
Mr. Qiu Yiyong	Directly beneficially owned	8,500,000		—	0.16
Mr. Zeng Chen	Directly beneficially owned	—		10,000,000	0.19
Mr. Zhang Jijing	Family	28,000	(1)	—	—
Mr. Zhang Jijing	Directly beneficially owned	—		10,000,000	0.19
Mr. Ma Ting Hung	Directly beneficially owned	111,966,000		—	2.13

Note:

(1) The Shares disclosed above are held by the spouse of Mr. Zhang Jijing. Accordingly, Mr. Zhang Jijing is deemed to be interested in the 28,000 Shares.

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GENERAL INFORMATION

APPENDIX III

Long positions in share options of the Company

	Number of options
Name of Director	directly beneficially owned
Mr. Kong Dan	20,000,000
Mr. Mi Zengxin	10,000,000
Ms. Li So Mui	4,000,000
Mr. Zeng Chen	10,000,000
Mr. Zhang Jijing	10,000,000
	54,000,000

Interests in the ordinary shares and underlying shares of the associated corporations of the Company

						Percentage of
				Number of		the total
				shares/		issued share
	Name of	Relationship	Shares/	equity		capital of
	associated	with	equity	derivatives	Nature of	the associated
Name of Director	corporation	the Company	derivatives	held	interest	corporation
Mr. Kong Dan	CITIC	Associated	Share options	4,800,000	Directly	0.08
	International	corporation			beneficially
	Financial				owned
	Holdings
	Limited
Mr. Zeng Chen	CITIC Australia	Subsidiary	Ordinary shares	385,402 (1)	Family	0.45
	Trading Limited
Note:

(1) The shares disclosed above are held by the spouse of Mr. Zeng Chen. Accordingly, Mr. Zeng Chen is deemed to be interested in the 385,402 shares.

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GENERAL INFORMATION

APPENDIX III

Save as disclosed herein and so far as is known to the Directors, as at the Latest Practicable Date:

(i) none of the Directors or 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 were 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 were deemed or taken to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange;
(ii) none of the Directors was a director or employee of a company which has an interest or a short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO;
(iii) 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; and
(iv) 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.

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GENERAL INFORMATION

APPENDIX III

(b) Disclosure of interests of substantial Shareholders

As at the Latest Practicable Date, according to the register kept by the Company pursuant to Section 336 of the SFO and, so far as is known to the Directors, the persons or entities who had an interest or a short position in the Shares or the underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company, or of any other company which is a member of the Group, or in any options in respect of such share capital were as follows:

			Percentage of
		Number of	the total issued
	Nature of	Shares held as	share capital of
Name of Shareholder	interest	long positions	the Company
CITIC Group	Corporate	2,740,594,381 (1)	52.12
CITIC Projects Management (HK) Limited	Corporate	1,990,180,588 (2)	37.85
Keentech	Corporate	1,990,180,588 (3)	37.85
CITIC Australia Pty Limited	Corporate	750,413,793 (4)	14.27
Temasek Holdings	Corporate	587,450,000 (5)	11.17
Temasek Capital (Private) Limited	Corporate	385,450,000 (6)	7.33
Seletar Investments Pte. Ltd.	Corporate	385,450,000 (7)	7.33
Baytree Investments (Mauritius) Pte. Ltd.	Corporate	385,450,000 (8)	7.33

Notes:

(1) The figure represents an attributable interest of CITIC Group through its interest in CITIC Projects Management (HK) Limited (“ CITIC Projects ”) and CITIC Australia Pty Limited (“ CA ”).
(2) The figure represents an attributable interest of CITIC Projects through its interest in Keentech. CITIC Projects, a company incorporated in the British Virgin Islands, is a direct wholly-owned subsidiary of CITIC Group.
(3) Keentech, a company incorporated in the British Virgin Islands, is a direct wholly-owned subsidiary of CITIC Projects.
(4) CA, a company incorporated in Australia, is a direct wholly-owned subsidiary of CITIC Group.
(5) The figure represents an attributable interest of Temasek Holdings through its interest in Temasek Capital (Private) Limited (“ Temasek Capital ”) and indirect interest in Ellington which holds 202,000,000 Shares representing 3.84% of the total issued share capital of the Company.
(6) The figure represents an attributable interest of Temasek Capital through its interest in Seletar Investments Pte. Ltd. (“ Seletar ”). Temasek Capital, a company incorporated in Singapore, is a direct wholly-owned subsidiary of Temasek Holdings.

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GENERAL INFORMATION

APPENDIX III

(7) The figure represents an attributable interest of Seletar through its interest in Baytree Investments (Mauritius) Pte. Ltd. (“ Baytree ”). Seletar, a company incorporated in Singapore, is a direct whollyowned subsidiary of Temasek Capital.
(8) Baytree, a company incorporated in Mauritius, is a direct wholly-owned subsidiary of Seletar.

(c) Disclosure of substantial shareholding in other members of the Group

Percentage of issued Name of shareholder Name of subsidiary share capital CITIC United Asia Investments Limited[(1)] CITIC Dameng Holdings Limited 20

Note:

(1) CITIC United Asia Investments Limited, a company incorporated in Hong Kong, is an indirect wholly-owned subsidiary of CITIC Group.

Save as disclosed herein and so far as is known to the Directors, as at the Latest Practicable Date, no person had an interest or a short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or no person was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company, or of any other company which is a member of the Group, or in any options in respect of such share capital.

5. LITIGATION

Save as disclosed below and so far as is known to the Directors, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or claims of material importance and no litigation or claim of material importance was pending or threatened against the Company or any of its subsidiaries:

(a) In January 1999, Dongguan Xinlian Wood Products Company Limited (“ Dongguan Xinlian ”), a wholly-owned subsidiary of the Company held through Wing Lam (International) Timber Limited (“ Wing Lam ”), received a writ of summons (the “ Claim ”) from China Foreign Trade Development Company (the “ Plaintiff ”) claiming US$6,362,000 (HK$49,624,000) and related interest in respect of six re-export contracts purported to have been entered into by Dongguan Xinlian prior to it becoming a Group subsidiary. A judgment (the “ First Judgment ”) was issued by the Shenzhen Intermediate People’s Court in February 2000 against Dongguan Xinlian for a sum of US$3,448,000 (HK$26,894,000). In response, Dongguan Xinlian filed an appeal against the First Judgment with the People’s High Court of Guangdong Province (the “ Guangdong High Court ”).

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APPENDIX III

GENERAL INFORMATION

In August 2003, certain members of the Plaintiff’s management team were sentenced to imprisonment for creating forged documents, including those presented by them in relation to the Claim. Despite this, the Guangdong High Court issued a judgment (the “ Second Judgment ”) in December 2003 against Dongguan Xinlian for US$4,800,000 (HK$37,440,000) with related interest. In January 2004, Dongguan Xinlian filed a further appeal to the State Supreme Court requesting the withdrawal of the Second Judgment and a decision that Dongguan Xinlian was not liable to the Plaintiff in respect of the Second Judgment. In December 2004, the Guangdong High Court overturned the Second Judgment and issued a decision that it would re-hear the case.

In December 2005, the Guangdong High Court issued a judgment whereby the validity of the Second Judgment against Dongguan Xinlian was maintained (the “ Third Judgment ”).

As advised by the Group’s legal advisers, there were a number of conflicts and discrepancies with regard to the Second Judgment and the Third Judgment. The Second Judgment and the Third Judgment were not supported by valid evidence. Although the Guangdong High Court acknowledged the criminal liabilities of certain members of the Plaintiff’s management team (including forging the contracts connected to the Claim), the Guangdong High Court did not, contrary to normal legal procedures, take these factors into account when it gave the Third Judgment.

In February 2006, Dongguan Xinlian commenced an appeal process to the State Supreme Court against the Third Judgment. In the meantime, the Shenzhen Intermediate People’s Court has frozen the assets and machinery of Dongguan Xinlian and the Group has also taken steps to apply for a suspension of the auction of the assets and machinery of Dongguan Xinlian.

In March 2007, the Group’s legal advisers re-confirmed the conflicts and discrepancies with regard to the Second Judgment and the Third Judgment.

In light of the indemnity from the Ex-shareholders and the advice of the Group’s legal advisers, the Directors believe that the outcome of the Claim will not have a material adverse impact on the financial results of the Group.

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GENERAL INFORMATION

APPENDIX III

(b) In September 2005, Thomas de Shazo (“ de Shazo ”) filed a summons and complaint in the Southern District of Texas in the United States District Court against CITIC Canada Petroleum Limited (“ CCPL ”), Ecolo Investments Limited, Aequitas Energy, S.A., Novomundo Trading Ltd., Hashim Djojohadikusumo, Philip Hirschler and Patrick O’Mara. De Shazo is claiming an amount of US$200,000,000 (HK$1,560,000,000) and an additional punitive damage. The United States Federal Court dismissed de Shazo’s claim in March 2007 and de Shazo appealed in April 2007. Oral argument in respect of the appeal was heard by the United States Court of Appeals in March 2008. The United States Court of Appeals affirmed the dismissal of de Shazo’s claim on 29 May 2008. As at the Latest Practicable Date, CCPL has not received notice of the filing of any motion for rehearing by de Shazo.

The Directors believe that there are no grounds for such claim to succeed.

(c) (i) During 2007, the books and records of KBM were audited by the Kazakhstan tax authorities with regard to the calculation and accrual of withholding tax from the source of payment for the years 2002-2006. As a result, KBM received a claim from the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan to pay additional tax of 244,790,000 Tenge (HK$15,846,000) and penalty of 98,032,000 Tenge (HK$6,346,000).

In May 2008, KBM received a revised claim from Courts of Astana city to pay additional tax of 220,952,000 Tenge (HK$14,303,000) and penalty of 98,032,000 Tenge (HK$6,346,000). On 2 June 2008, KBM sent an appeal to the Supreme Court of the Republic of Kazakhstan.

(ii) In 2007, the books of KBM were also audited by the Kazakhstan tax authorities with regard to the calculation and accrual of excess profits tax for the years 2002-2004. As a result, KBM received a claim from the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan to pay additional tax of 11,781,577,000 Tenge (HK$762,637,000), fines of 5,890,789,000 Tenge (HK$381,318,000) and penalty of 6,891,013,000 Tenge (HK$446,064,000).

On 11 March 2008, KBM appealed against the excess profits tax claims to the Courts of Astana city. The outcome of this appeal remains uncertain as of the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX III

6. MATERIAL ADVERSE CHANGES

The Directors are not aware of any material adverse changes in the financial or trading position of the Group since 31 December 2007, being the date to which the latest published audited financial statements of the Group were made up.

7. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or proposed to enter, into any service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation other than statutory compensation.

8. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Group within the two years preceding the date of this Prospectus and are or may be material:

(i) the sale and purchase agreement dated 11 July 2006 between KUFPEC (Indonesia) Limited and CITIC Seram Energy Limited relating to the sale and purchase of a 51% participating interest in the Seram Island Non-Bula Block production sharing contract;
(ii) the placing and subscription agreement dated 9 February 2007 among United Star International Inc. (“ USI ”), the Company, Citigroup Global Markets Asia Limited and UBS AG in respect of the placing of 570,000,000 Shares by USI and the conditional topup subscription by USI for 570,000,000 Shares;
(iii) the subscription agreement dated 9 February 2007 between Keentech and the Company in respect of the subscription by Keentech for 130,000,000 Shares;
(iv) the sale and purchase agreement dated 30 April 2007 between CITIC Group and the Company in respect of, amongst other things, the entire issued share capital of Renowned Nation Limited;
(v) sale and purchase agreement dated 30 April 2007 between CITIC Group and the Company in respect of the benefit of certain indebtedness of KBM Energy Limited;
(vi) an option agreement dated 1 May 2007 between Far Great Investments Limited, CITIC Haiyue Energy Limited and certain shareholders of Far Great Investments Limited pursuant to which CITIC Haiyue Energy Limited has the right to acquire 90% of the issued shares of Tincy Group Energy Resources Limited;
(vii) a loan agreement dated 1 May 2007 between CITIC Haiyue Energy Limited, Far Great Investments Limited and Tincy Group Energy Resources Limited;

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GENERAL INFORMATION

APPENDIX III

(viii) an on-loan agreement dated 1 May 2007 between Far Great Investments Limited, Tincy Group Energy Resources Limited and CITIC Haiyue Energy Limited;
(ix) a pledge and further security dated 1 May 2007 between Far Great Investments Limited and CITIC Haiyue Energy Limited;
(x) a debenture dated 1 May 2007 between Far Great Investments Limited, Tincy Group Energy Resources Limited and CITIC Haiyue Energy Limited;
(xi) a charge over account dated 21 May 2007 between Far Great Investments Limited and CITIC Haiyue Energy Limited;
(xii) a charge over account dated 21 May 2007 between Tincy Group Energy Resources Limited and CITIC Haiyue Energy Limited;

(xiii) a guarantee dated 26 May 2007 by Lu Shi Tao in favour of CITIC Haiyue Energy Limited;

(xiv) a purchase agreement dated 14 May 2007 between CITIC Resources Finance (2007) Limited, Bear, Stearns & Co. Inc., Morgan Stanley & Co. International plc and the Company relating to the Notes;
(xv) an escrow agreement dated 17 May 2007 between CITIC Resources Finance (2007) Limited, the Company and Citibank, N.A., London Branch relating to the Notes;
(xvi) an indenture dated 17 May 2007 between CITIC Resources Finance (2007) Limited, the Company and Citibank, N.A., London Branch relating to the Notes;
(xvii) a subscription agreement dated 15 June 2007 between the Company and Ellington in respect of the subscription by Ellington for 101,000,000 Shares;
(xviii) the share purchase agreement dated 2 July 2007 between CITIC Australia Coal Pty Limited and Talbot Group Investments Pty Limited in respect of the acquisition of 8.37% of the total ordinary shares in the share capital of Macarthur Coal Limited in issue on 2 July 2007;
(xix) �� (the Gabon mining project cooperative exploration framework agreement) dated 10 September 2007 between�� (CITIC Dameng Mining Industries Limited), �� (Ningbo Huazhou Mining Investments Co., Ltd.) and �� (Ningbo Mining Investments Holdings Limited);
(xx) �� (the share purchase agreement) dated 23 November 2007 between�� (CITIC Dameng Mining Industries Limited) and Future Idea Investments Limited;

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GENERAL INFORMATION

APPENDIX III

(xxi) �� (the memorandum of the Gabon mining project) dated 23 November 2007 between �� (CITIC Dameng Mining Industries Limited), �� (Ningbo Huazhou Mining Investments Co., Ltd.), �� (Ningbo Mining Investments Holdings Limited), Future Idea Investments Limited and �� (Huazhou Mining Investment Limited);
(xxii) �� (the supplemental agreement to the memorandum of the Gabon mining project) dated 19 February 2008 between�� (CITIC Dameng Mining Industries Limited) and �� (Ningbo Huazhou Mining Investments Co., Ltd.); and

(xxiii) the Underwriting Agreement.

9. EXPERT

The following is the qualification of the expert who has given, or agreed to the inclusion of, its opinions or advice in this Prospectus:

Name Qualification

Ernst & Young Certified Public Accountants

Ernst & Young has confirmed that it has no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Ernst & Young has given and has not withdrawn its written consent to the issue of this Prospectus with the inclusion of its letter, report and/or reference to its name, as the case may be, in the form and context in which they respectively appear.

10. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors or Ernst & Young had any interest, direct or indirect, in any asset which has since 31 December 2007, being the date to which the latest published audited financial statements of the Group were made up, been acquired or disposed of by or leased to any member of the Group or is proposed to be acquired or disposed of by or leased to any member of the Group.

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GENERAL INFORMATION

APPENDIX III

11. MISCELLANEOUS

(a) The share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(b) The secretary of the Company is Ms. Li So Mui. She 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 30 years’ experience in the accounting and banking field.
(c) The qualified accountant of the Company is Mr. Chung Ka Fai, Alan. He is an associate member of the Australian Society of Certified Practising Accountants. Prior to joining the Company, he worked for various multinational companies. Mr. Chung has over 17 years’ experience in the accounting field.
(d) All references to times and dates in this Prospectus refer to Hong Kong times and dates.
(e) In the event of any inconsistency, the English language text of this Prospectus shall prevail over the Chinese language text.

12. EXPENSES

The expenses in connection with the Rights Issue, including the financial advisory fee, printing, registration, translation, legal and accounting charges are estimated to amount to approximately HK$18.1 million and will be payable by the Group.

13. DOCUMENTS REGISTERED WITH THE REGISTRARS OF COMPANIES

A copy of each of the Rights Issue Documents and the written consent given by Ernst & Young as referred to in this appendix, have been registered with the Registrar of Companies in Hong Kong. A copy of each of the Rights Issue Documents have been delivered to the Registrar of Companies in Bermuda for filing.

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GENERAL INFORMATION

APPENDIX III

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the offices of the Company at Suites 3001-3006, 30/F, One Pacific Place, 88 Queensway, Hong Kong for the period of 14 days from the date of this Prospectus:

(a) the memorandum of association of the Company and the bye-laws of the Company;
(b) the report from Ernst & Young on the unaudited pro forma statement of the adjusted consolidated net tangible assets of the Group as set out in Appendix II to this Prospectus;
(c) the annual reports of the Company for the year ended 31 December 2006 and 31 December 2007 respectively;
(d) the consent letter of Ernst & Young referred to under the section headed “Expert” above;
(e) the material contracts referred to under the section headed “Material Contracts” above;
(f) the circular dated 1 February 2008 regarding the continuing connected transactions relating to CITIC Dameng Mining Industries Limited; and
(g) the circular dated 10 June 2008 regarding the continuing connected transactions with CITIC Metal Company Limited.

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AI assistant

Shanghai Able Digital Science&Tech Co., Ltd. — Capital/Financing Update 2008

50757_rns_2008-06-19_23a0ecda-5077-4236-94e2-282047fefb8c.pdf

THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

CITIC RESOURCES HOLDINGS LIMITED

Morgan Stanley Asia Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

Latest time for termination of

(b) there comes to the notice of the Underwriters:

LETTER FROM THE BOARD

CITIC RESOURCES HOLDINGS LIMITED

RIGHTS ISSUE OF 788,682,657 RIGHTS SHARES AT HK$3.20 EACH ON THE BASIS OF THREE (3) RIGHTS SHARES FOR EVERY TWENTY (20) SHARES HELD ON THE RECORD DATE

INTRODUCTION

RIGHTS ISSUE

Issue statistics

Qualifying Shareholders

TERMS OF THE RIGHTS ISSUE

Subscription Price

Basis of provisional allotments

Status of the Rights Shares

Certificates and refund cheques for the Rights Shares

Fractions of the Rights Shares and Rights Shares which would have been allotted to Excluded Shareholders had they been Qualifying Shareholders

Excluded Shareholders

Procedures for acceptance and payment or transfer

Application for excess Rights Shares

LETTER FROM THE BOARD

Application for listing

Conditions of the Rights Issue

UNDERWRITING ARRANGEMENT

Underwriting Agreement

Termination of the Underwriting Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

CHANGES IN THE SHAREHOLDING STRUCTURE OF THE COMPANY ARISING FROM THE RIGHTS ISSUE

WARNING OF THE RISKS OF DEALING IN THE SHARES AND THE NIL-PAID RIGHTS SHARES

REASONS FOR THE RIGHTS ISSUE AND USE OF PROCEEDS

ADJUSTMENT TO SHARE OPTIONS

INFORMATION ON THE COMPANY

ADDITIONAL INFORMATION

(A) SUMMARY OF AUDITED CONSOLIDATED FINANCIAL INFORMATION ON THE GROUP FOR THE THREE YEARS ENDED 31 DECEMBER 2007

Results

(B) AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE TWO YEARS ENDED 31 DECEMBER 2007

INDEPENDENT AUDITORS’ REPORT

To the shareholders of CITIC Resources Holdings Limited

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

AUDITORS’ RESPONSIBILITY

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

OPINION

Ernst & Young

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2007 HK$’000

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2007 HK$’000

Amounts net of deferred tax impact.

CONSOLIDATED CASH FLOW STATEMENT

BALANCE SHEET

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

1. CORPORATE INFORMATION

NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2007

2.1 BASIS OF PREPARATION

Basis of consolidation

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued)

(a) HKFRS 7 Financial Instruments: Disclosures

(b) Amendment to HKAS 1 Presentation of Financial Statements — Capital Disclosures

(c) HK(IFRIC)-Int 8 Scope of HKFRS 2

(d) HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives

(e) HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2007

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

Shanghai Able Digital Science&Tech Co., Ltd. Capital/Financing Update 2008