Xinjiang Xinxin Mining Industry Co., Ltd. — Proxy Solicitation & Information Statement 2011

Jan 13, 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

If you have sold or transferred all your shares in Xinjiang Xinxin Mining Industry Co., Ltd. (the “Company”), you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or the transferee or to the bank or stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

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Xinjiang Xinxin Mining Industry Co., Ltd.[*] 新疆新鑫礦業股份有限公司

(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 3833)

CONNECTED TRANSACTION FURTHER INCREASE IN REGISTERED CAPITAL OF XINJIANG WUXIN

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

A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on pages 9 to 10 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 11 to 16 of this circular.

The Company will convene the AGM to consider and approve the Second Registered Capital Increase Agreement. The relevant notice of the AGM will be despatched by the Company to the Shareholders as soon as practicable.

• For identification purposes only

13 January 2011

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
**Letter from **	the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
**Letter from **	the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	9
**Letter from **	the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Appendix	– General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17

– i –

DEFINITIONS

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

• “AGM” the annual general meeting of the Company to be held on Monday, 16 May 2011 at 19th Level, Conference Room, Youse Building, No. 4 You Hao North Road, Urumqi, Xinjiang, the PRC for the approval of, among others, the Second Registered Capital Increase Agreement

• “Announcement” the announcement published by the Company on 5 January 2011

• “Associates” has the meaning ascribed to it under the Listing Rules

• “Board” or “Board of Directors” the board of directors of the Company

• “Company” Xinjiang Xinxin Mining Industry Co., Ltd.* (新疆新鑫礦 業股份有限公司), a joint stock limited company incorporated in the PRC with limited liability, the H Shares of which are listed on the Stock Exchange

• “connected person” has the meaning ascribed to it under the Listing Rules

• “Director(s)” one or all of the director(s) of the Company

• “Global Offering” the global offering of the shares of the Company in 2007

• “Group” the Company and its subsidiary

• “H Shares”

• overseas listed foreign shares in the Company’s ordinary share capital listed on the Stock Exchange

• “Hong Kong” the Hong Kong Special Administrative Region of the PRC

• “Independent Board Committee” an independent committee of the Board comprising the independent non-executive Directors, namely Mr. Chen Jianguo, Mr. Sun Baosheng and Mr. Ng Yuk Keung, to advise the Independent Shareholders in respect of the Second Registered Capital Increase Agreement

– 1 –

DEFINITIONS

• “Independent Financial Adviser”or “Hercules Capital”

• Hercules Capital Limited, a licensed corporation to carry out type 6 regulated activity (advising on corporate finance) under the SFO, and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Second Registered Capital Increase Agreement

• “Independent Shareholders” shareholders of the Company other than the Xinjiang Non-ferrous Group

• “Investment Agreement Announcement”

• the announcement issued by the Company on 11 June 2009 in relation to the investment agreement entered into between the Company and Xinjiang Asele on 11 June 2009

• “Latest Practicable Date”

• 12 January 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular

• “Listing Rules”

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

• “NDRC”

• the National Development and Reform Commission of the PRC (中華人民共和國國家發展和改革委員會)

• “PRC”

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

• “Project”

• the 100,000-ton copper smelting project to be carried out by Xinjiang Wuxin

• “Promoters”

• as defined in the Prospectus

• “Prospectus”

• the prospectus of the Company dated 27 September 2007

• “Registered Capital Increase Agreement”

• an agreement dated 29 March 2010 entered into between the Company and Xinjiang Asele in relation to the increase in the registered capital of Xinjiang Wuxin, details of which are set out in the announcement of the Company dated 29 March 2010

“RMB”

Renminbi, the lawful currency of the PRC

– 2 –

DEFINITIONS

• “Second Registered Capital Increase Agreement”

• “SFO”

• “Shareholder(s)”

• “Stock Exchange”

• “subsidiary”

• “Xinjiang Asele”

• “Xinjiang Non-ferrous”

• “Xinjiang Non-ferrous Group”

• “Xinjiang Wuxin”

• “%”

• an agreement dated 5 January 2011 entered into between the Company and Xinjiang Asele in relation to the further increase in the registered capital of Xinjiang Wuxin

• the Securities and Future Ordinance (cap 571 of the Laws of Hong Kong)

• shareholder(s) of the Company

The Stock Exchange of Hong Kong Limited

• has the meaning ascribed to it under section 2 of the Companies Ordinance (Chapter 32, Laws of Hong Kong)

Xinjiang Asele Copper Industry Company Limited* (新 疆阿舍勒銅業股份有限公司), a joint stock company established in the PRC with limited liability

Xinjiang Non-ferrous Metal Industry (Group) Ltd.* (新疆 有色金屬工業(集團)有限責任公司), a wholly stateowned enterprise with limited liability and incorporated in the PRC, being one of the Promoters and the controlling Shareholder of the Company

• Xinjiang Non-ferrous and its subsidiaries, excluding the Company

Xinjiang Wuxin Copper Company Limited* (新疆五鑫銅 業有限責任公司), a limited liability company incorporated in the PRC and a subsidiary of the Company

per cent.

– 3 –

LETTER FROM THE BOARD

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Xinjiang Xinxin Mining Industry Co., Ltd.[*] 新疆新鑫礦業股份有限公司

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

(Stock Code: 3833)

Executive Directors: Mr. Yuan Ze Mr. Shi Wenfeng Mr. Zhang Guohua Mr. Liu Jun

Statutory address and principal place of business in the PRC: 7/F Youse Building No. 4 You Hao North Road Urumqi, Xinjiang

Non-executive Directors: Mr. Zhou Chuanyou Mr. Niu Xuetao

Independent Non-executive Directors: Mr. Chen Jianguo Mr. Sun Baosheng Mr. Ng Yuk Keung

Registered office in Hong Kong: Unit 3102-3105, 31/F, Office Tower Convention Plaza 1 Harbour Road Wanchai, Hong Kong

13 January 2011

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION

FURTHER INCREASE IN REGISTERED CAPITAL OF XINJIANG WUXIN

BACKGROUND

Reference is made to the Announcement in relation to the Second Registered Capital Increase Agreement. Reference is also made to the announcement of the Company dated 29 March 2010 in relation to, among others, the Registered Capital Increase Agreement and the increase in registered capital of Xinjiang Wuxin, in which the Company and Xinjiang Asele have 66% and 34% equity interest, respectively.

On 5 January 2011, the Company and Xinjiang Asele entered into the Second Registered Capital Increase Agreement to further increase the registered capital of Xinjiang Wuxin from RMB600,000,000 to RMB790,000,000.

• For identification purposes only

– 4 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with further details of the Second Registered Capital Increase Agreement and other information in compliance with the requirements of the Listing Rules.

SECOND REGISTERED CAPITAL INCREASE AGREEMENT

Date

5 January 2011

Parties

1. The Company

2. Xinjiang Asele

Major Terms of the Second Registered Capital Increase Agreement

The Company and Xinjiang Asele entered into the Second Registered Capital Increase Agreement for the further increase in the registered capital of Xinjiang Wuxin, in which the Company and Xinjiang Asele have 66% and 34% equity interest, respectively.

Pursuant to the Second Registered Capital Increase Agreement, the registered capital of Xinjiang Wuxin will increase from RMB600,000,000 to RMB790,000,000. The Company and Xinjiang Asele will contribute RMB125,400,000 and RMB64,600,000, respectively, by way of cash to the registered capital of Xinjiang Wuxin in proportion to their respective equity interests in Xinjiang Wuxin.

The additional registered capital will be paid up within 15 days after the effective date of the Second Registered Capital Increase Agreement.

The Second Registered Capital Increase Agreement shall become effective on the date of approval by the relevant internal authority of the parties, including their respective board of directors and general meetings (if any).

Upon completion of the registered capital increase, the Company and Xinjiang Asele will maintain the same proportion of equity interests in Xinjiang Wuxin as in before such increase, with total contributions amounting to RMB521,400,000 and RMB268,600,000, respectively.

Reasons and benefits for entering into the Second Registered Capital Increase Agreement

The Company and Xinjiang Asele entered into an investment agreement on 11 June 2009 to establish Xinjiang Wuxin, details of which are set out in the Investment Agreement Announcement.

– 5 –

LETTER FROM THE BOARD

According to the relevant requirements of “The Entry Requirements of Copper Smelting Business《銅冶煉行業准入條件》” promulgated by the NDRC, the ratio of capital injection to investment sum of the single copper smelting system projects with annual production capacity of more than 100,000-ton shall be at least 35% or above. Further, when commercial banks in the PRC provide financing to such projects, they also require that the relevant requirement of the minimum ratio of the capital injection under “The Entry Requirements of Copper Smelting Business” is complied with.

As at the Latest Practicable Date, the existing registered capital of Xinjiang Wuxin is RMB600,000,000 and the total investment amount of the Project is estimated to be approximately RMB2,229,280,000. The capital injected represents approximately 26.9% of the total investment amount of the Project.

In order to comply with the afore-mentioned requirements stipulated by the NDRC and the financing requirements of commercial banks, the Company and Xinjiang Asele entered into the Second Registered Capital Increase Agreement to increase the registered capital of Xinjiang Wuxin to RMB790,000,000, representing approximately 35.4% of the total investment amount of the Project.

The additional registered capital of Xinjiang Wuxin in the sum of RMB125,400,000 to be paid up by the Company, which is determined by reference to its shareholding in Xinjiang Wuxin, will be funded by the net proceeds from the Global Offering.

The amounts of contribution and the terms of the Second Registered Capital Increase Agreement were agreed between the Company and Xinjiang Asele after negotiations at an arm’s length basis and on normal commercial terms.

In view of the above, the Directors (including the independent non-executive Directors) consider that it is in the interest of the Company and its Shareholders to fund the additional registered capital requirement of Xinjiang Wuxin by entering into the Second Registered Capital Increase Agreement which are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors are of the view that there is no disadvantage to the Company and the Group as a whole in entering into the Second Registered Capital Increase Agreement.

LISTING RULES REQUIREMENTS

As at the Latest Practicable Date, Xinjiang Non-ferrous is the controlling Shareholder (as defined in the Listing Rules) of the Company and is beneficially interested in approximately 40.06% and approximately 34% of the entire issued share capital of the Company and Xinjiang Asele respectively. Accordingly, Xinjiang Asele is a connected person of the Company and the entering into the Second Registered Capital Increase Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

– 6 –

LETTER FROM THE BOARD

Given that both the Second Registered Capital Increase Agreement and the Registered Capital Increase Agreement were entered into between the Company and Xinjiang Asele and are related to each other, the transaction contemplated under the Second Registered Capital Increase Agreement would have to be aggregated with the transaction of the Registered Capital Increase Agreement pursuant to Rule 14A.25 of the Listing Rules. Since one or more of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the Second Registered Capital Increase Agreement after such aggregation exceed 5%, the Second Registered Capital Increase Agreement is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since Xinjiang Non-ferrous is the controlling Shareholder of the Company, it and its Associates will be abstained from voting in relation to the approval of the Second Registered Capital Increase Agreement at the AGM.

Since Mr. Yuan Ze, one of the Directors, is also a director of Xinjiang Non-ferrous, which is the controlling Shareholder of the Company, he will be abstained from voting on the relevant board resolutions. Other than Mr. Yuan Ze, none of the Directors had any material interest in the transactions contemplated under the Second Registered Capital Increase Agreement and therefore none of them are required to abstain from voting on the relevant board resolutions.

INFORMATION RELATING TO THE COMPANY

The Company is principally engaged in the mining, ore processing, smelting and refining of nickel, copper and other non-ferrous metals, which include cobalt and precious metals such as gold, silver, platinum and palladium.

INFORMATION RELATING TO XINJIANG ASELE

Xinjiang Asele is principally engaged in producing copper concentrate and is the largest copper concentrate producer in Xinjiang, the PRC.

INFORMATION RELATING TO XINJIANG WUXIN

Xinjiang Wuxin is a subsidiary of the Company and is principally engaged in the smelting and sale of copper, gold, silver and other non-ferrous metals.

Since Xinjiang Wuxin has not yet commenced production and the Project is still under construction as at the Latest Practicable Date and is only expected to complete in 2012, no net profit (both before and after taxation and extraordinary items) was generated by Xinjiang Wuxin for the two financial years ended 31 December 2009 and 31 December 2010, respectively.

INFORMATION RELATING TO XINJIANG NON-FERROUS GROUP

Xinjiang Non-ferrous is the controlling Shareholder of the Company and therefore a connected person of the Company under the Listing Rules.

– 7 –

LETTER FROM THE BOARD

AGM

The AGM will be held to consider and, if thought fit, approve, among other matters, the Second Registered Capital Increase Agreement. The relevant notice of the AGM will be despatched by the Company to the Shareholders as soon as practicable.

PROCEDURES FOR VOTING AT THE AGM

According to Rule 13.39(4) of the Listing Rules, any vote at a general meeting must be taken by poll.

RECOMMENDATION

The Directors consider that all resolutions proposed for consideration and approval by the Shareholders at the AGM are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the AGM to approve, if thought fit, among other matters, the Second Registered Capital Increase Agreement.

GENERAL

Your attention is drawn to the letter from the Independent Board Committee, the letter from the Independent Financial Adviser and the additional information set out in the appendix to this circular.

By Order of the Board Zhang Junjie, Lam Cheuk Fai Joint Company Secretaries

– 8 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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Xinjiang Xinxin Mining Industry Co., Ltd.[*] 新疆新鑫礦業股份有限公司 (a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 3833)

13 January 2011

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION

FURTHER INCREASE IN REGISTERED CAPITAL OF XINJIANG WUXIN

We refer to the circular dated 13 January 2011 (the “Circular”) of Xinjiang Xinxin Mining Industry Co., Ltd. (the “Company”) of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless otherwise specified.

We, being the independent non-executive Directors, have been appointed by the Board as members of the Independent Board Committee to advise the Independent Shareholders of the Company on the Second Registered Capital Increase Agreement. Hercules Capital has been appointed as the Independent Financial Adviser to advise the Independent Shareholders and us on the fairness and reasonableness of, among other things, the Second Registered Capital Increase Agreement. Details of Hercules Capital’s advice, together with the principal factors and reasons it has taken into consideration in giving such advice, are set out in the “Letter from the Independent Financial Adviser” on pages 11 to 16 of the Circular.

The Independent Shareholders’ attention is drawn to the “Letter from the Board”, the advice of Hercules Capital in its capacity as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of whether the Second Registered Capital Increase Agreement are fair and reasonable and in the interest of the Company and the Independent Shareholders as a whole, as set out in the “Letter from the Independent Financial Adviser” as well as other additional information set out in other parts of the Circular.

• For identification purposes only

– 9 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the independent advice of Hercules Capital, in particular the principal factors, reasons and recommendations set out in the “Letter from the Independent Financial Adviser” on pages 11 to 16 of the Circular and having considered the terms of the Second Registered Capital Increase Agreement, we consider the Second Registered Capital Increase Agreement to be fair and reasonable and are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the AGM to approve the Second Registered Capital Increase Agreement.

Yours faithfully,

Independent Board Committee

Mr. Chen Jianguo, Mr. Sun Baosheng and Mr. Ng Yuk Keung Independent Non-executive Directors

– 10 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from the Independent Financial Adviser prepared for the purpose of inclusion in this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Second Registered Capital Increase Agreement.

==> picture [74 x 32] intentionally omitted <==

1503 Ruttonjee House 11 Duddell Street Central Hong Kong

13 January 2011

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

FURTHER INCREASE IN REGISTERED CAPITAL OF XINJIANG WUXIN

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders with respect to the further increase in registered capital of Xinjiang Wuxin, details of which are set out in the letter from the Board contained in the circular dated 13 January 2011 to the Shareholders (the “Circular”), of which this letter forms part. Terms used in this letter have the same meanings as defined elsewhere in the Circular unless the context requires otherwise.

On 5 January 2011, the Company entered into the Second Registered Capital Increase Agreement with Xinjiang Asele to further increase the registered capital of Xinjiang Wuxin, in which the Company and Xinjiang Asele have 66% and 34% equity interest, respectively, from RMB600 million to RMB790 million (the “Further Capital Increase”). The Company and Xinjiang Asele will contribute RMB125.4 million and RMB64.6 million respectively, by way of cash, to the registered capital of Xinjiang Wuxin in proportion to their respective equity interests in Xinjiang Wuxin.

Xinjiang Non-ferrous is the controlling Shareholder beneficially interested in approximately 40.06% and approximately 34% of the entire issued share capital of the Company and Xinjiang Asele respectively as at the Latest Practicable Date. Accordingly, Xinjiang Asele is a connected person of the Company under Chapter 14A of the Listing Rules. Therefore, the entering into of the Second Registered Capital Increase Agreement constitutes a connected transaction for the Company.

– 11 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Given that both the Second Registered Capital Increase Agreement and the Registered Capital Increase Agreement were entered into between the Company and Xinjiang Asele within a 12-month period and are related to each other, the transaction contemplated under the Second Registered Capital Increase Agreement would have to be aggregated with the transaction of the Registered Capital Increase Agreement pursuant to Rule 14A.25 of the Listing Rules. Since the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the Second Registered Capital Increase Agreement after such aggregation exceed 5%, the Second Registered Capital Increase Agreement is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. Xinjiang Non-ferrous and its Associates will abstain from voting in relation to the approval of the Second Registered Capital Increase Agreement at the AGM.

The Independent Board Committee, comprising all independent non-executive Directors, namely Mr. Chen Jianguo, Mr. Sun Baosheng and Mr. Ng Yuk Keung, has been established to advise the Independent Shareholders in relation to the transactions contemplated under the Second Registered Capital Increase Agreement. We, Hercules Capital Limited, have been appointed to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to whether the Second Registered Capital Increase Agreement is on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole, and whether the Independent Shareholders should vote in favour of the resolution approving the Second Registered Capital Increase Agreement.

BASIS OF OUR OPINION

In formulating our opinion and recommendation, we have relied on the information and representations supplied, and the opinions expressed, by the Directors and management of the Company and have assumed that such information and statements, and representations made to us or referred to in the Circular are true, accurate and complete in all material respects as of the date hereof and will continue as such at the date of the AGM. The Directors have collectively and individually accepted full responsibility for the Circular, including particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group and having made all reasonable enquiries have confirmed that, to the best of their knowledge and belief, the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular misleading.

We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have no reasons to suspect that any material information has been withheld by the Directors or management of the Company, or is misleading, untrue or inaccurate, and consider that they may be relied upon in formulating our opinion. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the businesses or affairs or future prospects of the Group. Our opinion is necessarily based on the financial, economic, market and other conditions in

– 12 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change this opinion and that we do not have any obligation to update, revise or reaffirm this opinion.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion regarding the Further Capital Increase, we have considered the following principal factors and reasons:

1. Background and Reasons for the Further Capital Increase

The Group is principally engaged in the mining, ore processing, smelting and refining of nickel, copper and other non-ferrous metals, which include cobalt and precious metals such as gold, silver, platinum and palladium.

Xinjiang Non-ferrous, the controlling Shareholder, is principally engaged in mining, ore processing, smelting and refining of rare metals; the provision of research, design, mechanical processing and construction services for the mining and processing of non-ferrous metals; and sale of raw materials, transportation and real estate development.

On 7 August 2009, the Company and Xinjiang Asele, the largest copper concentrate producer in Xinjiang which is beneficially owned as to approximately 34% by Xinjiang Non-ferrous, established Xinjiang Wuxin for the purpose of engaging in the smelting and sale of copper, gold, silver and other non-ferrous metals. Given the absence of large-scale copper refineries in Xinjiang, where is rich in copper resources, Xinjiang Wuxin decided to construct a 100,000-ton copper smelting plant to facilitate its development in the copper refinery business and such Project is expected to be completed in 2012. The total investment of the Project is estimated to be approximately RMB2,229,280,000.

In order to provide additional funding for financing the Project, on 29 March 2010, the Company and Xinjiang Asele entered into the Registered Capital Increase Agreement, pursuant to which the Company and Xinjiang Asele contributed additional RMB330 million and RMB170 million respectively, by way of cash, to the registered capital of Xinjiang Wuxin in proportion to their respective equity interests in Xinjiang Wuxin so that the registered capital of Xinjiang Wuxin increased from RMB100 million to RMB600 million. As at the Latest Practicable Date, the registered capital of Xinjiang Wuxin was RMB600 million, representing approximately 26.9% of the total investment amount of the Project.

– 13 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the relevant requirements of “The Entry Requirements of Copper Smelting Business” promulgated by the NDRC, the ratio of capital injection to investment sum of any single copper smelting system project with an annual production capacity of 100,000 tons or above should be at least 35%. Furthermore, the NDRC requires the relevant authorities and financial institutions to treat the compliance of “The Entry Requirements of Copper Smelting Business” as a pre-condition for approving project investment registration, land supply, environmental impact assessment and credit financing in respect of single copper smelting system projects with an annual production capacity of 100,000 tons or above. Financial institutions in the PRC are not allowed to provide financing to such projects if they do not meet the requirements stipulated in “The Entry Requirements of Copper Smelting Business”.

In order to comply with the aforementioned requirements stipulated by the NDRC and obtain additional financing for the Project, the Company and Xinjiang Asele entered into the Second Registered Capital Increase Agreement to increase the registered capital of Xinjiang Wuxin to RMB 790 million, representing approximately 35.4% of the total investment amount of the Project. The increase in capital amount shall be contributed by the Company and Xinjiang Asele in proportion to their respective equity interests in Xinjiang Wuxin.

Given that (i) non-compliance of the capital ratio requirement may lead to discontinuation of the Project; (ii) the Project is essential for the development of Xinjiang Wuxin and it is carried out in the ordinary course of business of Xinjiang Wuxin; (iii) Xinjiang Wuxin will be unable to obtain any debt financing from financial institutions in the PRC for further development of the Project if the minimum capital ratio requirement is not complied with; and (iv) the additional capital raised under the Second Registered Capital Increase Agreement will be used for financing part of the Project and such amount shall be contributed by the Company and Xinjiang Asele in proportion to their respective equity interest in Xinjiang Wuxin, we consider that the Further Capital Increase is conducted in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

2. Terms of the Further Capital Increase

Pursuant to the Second Registered Capital Increase Agreement, the registered capital of Xinjiang Wuxin will increase from RMB600 million to RMB790 million by injection of additional capital of RMB190 million, which shall be used for financing the Project. The Company and Xinjiang Asele will contribute RMB125.4 million and RMB64.6 million respectively by way of cash to the registered capital of Xinjiang Wuxin in proportion to their respective equity interests in Xinjiang Wuxin. The additional registered capital will be paid up within 15 days after the effective date of the Second Registered Capital Increase Agreement. Upon completion of the Further Capital Increase, the shareholding in Xinxiang Wuxin held by the Company and Xinjiang Asele shall be maintained at 66% and 34% respectively.

Having considered that the Further Capital Increase shall be made by all shareholders of Xinjiang Wuxin in proportion to their respective shareholding in Xinjiang Wuxin and their equity interests in Xinjiang Wuxin shall remain unchanged after the Further Capital Increase, we are of the view that the terms of the Second Registered Capital Increase Agreement are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned.

– 14 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Outlook of Copper Refinery Industry in the PRC

Based on the statistics released by the National Bureau of Statistics of China, the gross domestic product (“GDP”) of the PRC for the nine months ended 30 September 2010 was approximately RMB26,866.0 billion, representing an increase of approximately 10.6% over the last corresponding period while the production volume of refined copper for the year ended 31 December 2009 and the eleven months ended 30 November 2010 were approximately 4.11 million tons and 4.37 million tons respectively, representing an increase of approximately 8.74% and 12.60% as compared to the previous corresponding year and period respectively. The OECD Economic Outlook No. 88 issued by the Organization for Economic Cooperation and Development in November 2010 revealed that the vigorous economic growth in the PRC had been slowed down during the first half of 2010 as the impact of the stimulus plan faded, but it has picked up since then and such renewed buoyancy is projected to be continued with an expected growth rate of 9.7% in the real GDP of the PRC in 2011 and 2012 as a result of the growth in domestic demand.

The researcher from the Resource Analysis Unit, Information Centre, the Ministry of Land and Resources of the PRC anticipated that the demand of refined copper in the PRC would reach 6.5 million tons, and the total consumption of copper would reach 8.0 million tons, by 2015. Currently, Jiangxi, Yunnan and Tibet, being the top three regions with the highest proved copper reserves, accounted for approximately 50.6% of the total proved copper reserves of the PRC. However, following further implementation of exploration projects, it is predicted that the proved copper reserves in Tibet would reach approximately 40 million tones, and the proved copper reserves in Xinjiang would exceed Jiangxi and Yunnan and become a new source of copper resources in the PRC, in the near future.

Given the anticipated increase in demand of refined copper in the PRC and the rich copper resources in Xinjiang, the management of the Company expects and we concur with its view that, in the absence of any unforeseeable adverse factors that may have a substantial negative impact on the economy of the PRC, the demand of refined copper in the PRC will continue to increase and the market outlook of the copper refinery industry in the PRC, in particular Xinjiang, shall remain positive in the foreseeable future. We also consider that it is in the interests of the Company and the Shareholders as a whole to continue the development of the Project.

4. Financial Effects of the Further Capital Increase

(i) Earnings

Xinjiang Wuxin is a subsidiary of the Company and its results are consolidated into the accounts of the Group. As the Company’s interest in Xinjiang Wuxin remains unchanged after the Further Capital Increase, the transactions contemplated under the Second Registered Capital Increase Agreement shall not have any material impact on the profit or loss of the Group.

– 15 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (ii) Net asset value and gearing ratio

The consolidated net assets attributable to the Shareholders shall not be materially affected while the Group’s gearing, as expressed in the ratio of total liabilities to total assets, shall decrease as the total assets of the Group shall increase and total liabilities of the Group shall remain unchanged.

(iii) Cash flow

The Further Capital Increase shall increase the consolidated cashflow of the Group.

Concluding from the above, the Further Capital Increase shall have a positive impact on the Group’s total assets and cashflow while there will be no significant effects on the Group’s earnings and net asset value. Therefore, we consider that the Further Capital Increase is fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION

Having considered the principal factors and reasons described in the previous sections, we consider that the Further Capital Increase is conducted in the ordinary and usual course of business of the Group and on normal commercial terms, and the terms of the Second Registered Capital Increase Agreement are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Board Committee to advise the Independent Shareholders, as well as the Independent Shareholders, to vote in favour of the resolution to approve the Second Registered Capital Increase Agreement and transactions contemplated thereunder at the upcoming AGM.

Yours faithfully, For and on behalf of Hercules Capital Limited Louis Koo Amilia Tsang Managing Director Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

Directors, supervisors and chief executive of the Company

As at the Latest Practicable Date, save and except for Mr. Zhou Chuanyou, being a Director, who has interest in the H Shares and Domestic Shares of the Company as set out in the section headed “Substantial shareholders of the Company” at page 18 of this circular, none of the Directors, supervisors and chief executive of the Company had any interests and short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of the SFO) which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest and short position which any such Director, chief executive or supervisor is taken or deemed to have under such provisions of the SFO) or which was required to be entered into the register required to be kept by the Company under section 352 of the SFO or which was otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules.

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GENERAL INFORMATION

APPENDIX

Substantial shareholders of the Company

As at the Latest Practicable Date, so far as the Directors are aware, each of the following persons, not being a Director, chief executive or supervisor of the Company, had an interest in the Shares which falls to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

			Approximate
			percentage of
			shareholding	Approximate
			on relevant	percentage of
	Number of		class of shares	the total share
Name	shares held	Class of share	(%)	capital (%)
Xinjiang Non-ferrous Metal Industry
(Group) Ltd.* (新疆有色金屬工業
(集團) 有限公司)	885,204,000 (L)	Domestic share	61.01	40.06
Shanghai Yilian Kuangneng Co. Ltd.*
(上海怡聯礦能實業有限公司) (Note)	282,896,000 (L)	Domestic share	19.50	12.80
Zhongjin Investment (Group) Ltd.*
中金投資(集團)有限公司) (Note)	198,028,000 (L)	Domestic share	13.65	8.96
The National Council for Social Security
Fund of the PRC
(中國全國社會保障基金理事會)	69,000,000 (L)	H share	9.09	3.12
The Hamon Investment Group Pte
Limited	46,661,000 (L)	H share	6.15	2.11
The Dreyfus Corporation	38,068,000 (L)	H share	5.02	1.72

• =

• (L) Long positions

• Note: The entire shareholdings/equity interests of Shanghai Yilian Kuangneng Co. Ltd. (上海怡聯礦 能實業有限公司)(“Shanghai Yilian”) and Zhongjin Investment (Group) Ltd. (中金投資 (集團) 有限公司) (“Zhongjin Investment”) are beneficially owned by Mr. Zhou Chuanyou (周傳有) (“Mr. Zhou”). In addition, Hong Kong CCIG International Industrial Co., Ltd.(“HKCCIG”), which is also beneficially owned by Mr. Zhou, held 4,027,000 (L) H shares of the Company as at the Latest Practicable Date. Accordingly, as at the Latest Practicable Date, 484,951,000 shares of the Company are beneficially owned by Mr. Zhou, representing 21.94% of the total share capital of the Company. The interest attributable to Mr. Zhou represents his indirect deemed interest in the Company’s issued capital via his equity interests in Shanghai Yilian, Zhongjin Investment and HKCCIG.

• The English name is a translation of the Chinese name and provided for reference only.

Save as disclosed above, as at the Latest Practicable Date, there was no other person (other than a Director, supervisor or chief executive of the Company), who had an interest or 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 who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

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GENERAL INFORMATION

APPENDIX

3. SERVICE AGREEMENTS

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

4. INTEREST IN THE GROUP’S ASSETS OR CONTRACTS

As at the Latest Practicable Date, none of the Directors had any interest in any assets which have been, since 31 December 2009, the date to which the latest published consolidated audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement, subsisting at the date of this circular, which is significant in relation to the business of the Group.

5. NO MATERIAL ADVERSE CHANGES

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2009, the date to which the latest published consolidated audited accounts of the Company were made up.

6. COMPETING INTEREST

As at the Latest Practicable Date, none of the directors of the Company and its subsidiary, or their respective associates (as defined in the Listing Rules) had interests in a business which competes or is likely to compete, either directly or indirectly, with the businesses of the Group.

7. EXPERT AND CONSENT

• (a) The following is the qualifications of the expert who has given opinions and advice which are included in this circular:

Name

Qualification

Hercules Capital A licensed corporation to carry out type 6 regulated activity (advising on corporate finance) under the SFO

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GENERAL INFORMATION

APPENDIX

• (b) Hercules Capital does not have any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) Hercules Capital has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of the references to its name and/or its opinion in the form and context in which they are included.

• (d) Hercules Capital did not have any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 December 2009, the date to which the latest published audited financial statements of the Group were made up.

8. MISCELLANEOUS

• (a) The English text of this circular shall prevail over the Chinese text.

• (b) The statutory address and principal place of business of the Company in the PRC is situated at 7/F Youse Building, No. 4 You Hao North Road, Urumqi, Xinjiang, the PRC 830000.

• (c) The registered office of the Company in Hong Kong is Unit 3102-3105, 31/F, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.

• (d) The Hong Kong share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the registered office of the Company in Hong Kong at Unit 3102-3105, 31/F, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong, up to and including the date of the AGM:

• (a) the letter of advice from Hercules Capital, the text of which is set out in this circular;

• (b) the letter of consent referred to under the paragraph headed “Expert and Consent” in this appendix; and

• (c) copies of the Second Registered Capital Increase Agreement.

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