2013 ANNUAL REPORT 2 0 1 3 A N N U A L R E P O R T JIAMA MINE Phase II Expansion Project THE COMPANY Overview China Gold International is a gold and base metal mining company based in Vancouver, Canada. The Company’s main business involves the acquisition, development and exploration of gold and base metal mineral properties. The Company’s principal mining operation are the Chang Shan Hao Gold Mine (“CSH Gold Mine” or “CSH Mine” or “CSH”), located in Inner Mongolia, China and the Jiama Copper-Gold Polymetallic Mine (“Jiama Mine” or “Jiama”), located in Tibet, China. China Gold International holds a 96.5% interest in the CSH Gold Mine, while its Chinese joint venture (“CJV”) partner holds the remaining 3.5% interest. China Gold International began its trial gold production at the CSH Gold Mine in July 2007 and commercial production commenced on July 1, 2008. The Company acquired 100% interest in the Jiama Mine on December 1, 2010. Jiama hosts a large scale copper-gold polymetallic deposit consisting of copper, gold, molybdenum, silver, lead and zinc. The Jiama Mine commenced commercial production in September 2010. The Company has adopted a growth strategy focused on strategic acquisitions sourced from the international project pipeline of its principal shareholder and the largest gold producer in China, China National Gold Group Corporation (“China National Gold”) and developing potential partnerships with other senior and junior mining companies. The Company also contemplates expanding resources and reserves at its existing properties through exploration programs. 1 Annual Report 2013COMPANY HIGHLIGHTS Xin Song Chairman of the Board Executive Director Dear Shareholders, Employees and Supporters of the Company, 2013 was a year of both successes and challenges for our company and the industry. Our business performed well in 2013, with strong production of 148,326 ounces of gold, revenues of US$303 million and profit of US$ 57 million. Although it is lower than last year, principally due to lower commodity prices, these results demonstrate the quality of our assets and our ability to deliver sustainable production and profit. Last year was difficult for most metals producers as profits and share values declined. We consider those to be a part of normal business cycle. Over last few years, our company has adopted a different vision: we are focusing on growth which incorporates a very stringent company-wide cost reduction and management policy. Consequently in 2013 we have seen a 14% reduction in cash production costs at Chang Shan Hao Gold Mine (“CSH Mine”) from US$825 to US$707 per oz. of gold and a 5% reduction in cash production costs at Jiama Copper-Gold Polymetallic Mine (“Jiama Mine”) from US$3.04 to US$2.90 per lbs. of copper. In our acquisition strategy we are being extremely selective and exercising highest degrees of caution. This strategy worked well for us in 2013 and helped us to avoid overpaying for assets and write-offs that many of our industry peers went through. Now we expect to see many more opportunities in our sector and we are prepared to act on those opportunities if we see that they offer great value to our business and to you – our shareholders. 2 China Gold International Resources Corp. Ltd.Message froM the ChairMan We have successfully upheld our promises to the shareholders about our expansion plans on both of our mines. The Company reached a monumental milestone in our history by completing the expansion construction at our Chang Shan Hao Gold Mine (“CSH Mine”) in line with the expected timeline. That doubled CSH Mine’s processing capacity is expected to double from 30,000 tpd to 60,000 tpd. Gold production is also expected to nearly double from its 2013 level of 130,000 ounces per annum to about 260,000 ounces per annum by 2015. We have successfully finished an updated NI 43-101 compliant independent feasibility study for Jiama Mine’s expansion and that indicated a 41% growth in measured and indicated resources and an NPV (9%) increases to over US$1.3 Billion. Our entire management team believes that earning respect of our host communities and governments is critical in insuring future success of our business. Not only does our company focus on its profitability, but it also interacts and communicates with local communities actively by advocating Corporate Social Responsibilities and involving in local charities. We focus on improving living and working standards on our mine sites as well. In 2010 CGG entered Tibet region with the highest standard of environmental stewardship and community relations. The company unveiled a robust economic plan for the surrounding communities. This included the development of infrastructure and schooling, greening, landscaping, water treatment, technological innovation and involvement and training of local labor. The average family income in the area grew approximately 12 times as individuals were hired and trained to the highest of standards. About 35% of Jiama’s operation is staffed by local labor; this number is increasing. Jiama Mine established a joint venture with Jiama Town. 655 households became shareholders of the joint venture and many of those are employed in construction, transportation and other labor. These substantial improvements and the conscious way in which the company operates resulted in the Jiama project becoming a benchmark for mining projects in Tibet and our company keeps receiving numerous recognitions and rewards for being an industry leader in harmonious mine development. 3 Annual Report 2013Message froM the ChairMan We are focused on bringing those highest standards of business ethics in any region where we choose to operate in the future and combine this philosophy with superb operational and financial performance and create a win-win-win situation for the communities, shareholders and our company. Organic growth, cost management and international expansion continue to be our main goals for 2014. We continue to work very close with China National Gold, the largest gold producer in China and a major shareholder of our company. We serve as the only international expansion vehicle for China National Gold and one of our mandates from them is to acquire and further develop accretive, top-quality assets. We continue to leverage their financial capabilities and technical expertise to facilitate financing of those acquisitions and to develop them into profitable producers. Finally, on behalf of the Board of Directors, I would like to extend my sincere gratitude to all of our employees and management worldwide. As a profitable and growing company, we realize that continuous strong financial performance is supported by our dedicated workforce of more than 1,600 employees around the world. Our deepest appreciation goes to our shareholders as well for your continuous support as we grow to become a highly successful and respected public company. Sincerely, Xin Song Chairman of the Board, Executive Director 4 China Gold International Resources Corp. Ltd.Message froM the ChairMan Bing Liu Chief Executive Officer, Executive Director Dear Valued Shareholders and Friends, The year 2013 was marked by many successes and challenges for our company and the industry. Metal markets go through cyclical changes, but one thing that always remains constant at our company is our continued focus on delivering top shareholder returns while optimizing operation and prioritizing safety, environment and social responsibility. We effectively respond to market challenges by adopting a stringent cost management policy and a disciplined and selective acquisition strategy. This year I am glad to report on another successful year of profit and growth. During 2013, we continued rapid expansion of both of our mines: the CSH Gold Mine located in Inner Mongolia, and the Jiama Copper Polymetallic Mine located in the Tibet Autonomous Region in China. On December 20, 2013, in accordance with the schedule, the Phase II Expansion Project NI 43-101 compliant feasibility study of Jiama was successfully completed by the Changchun Gold Design Institute in conjunction with independent consulting engineers and the Company’s management. The results of the study were very encouraging and showed copper measured and indicated mineral resources increased to 1,486 million tonnes at 0.41% Cu from 1,053 million tonnes at 0.44% Cu; and copper proved and probable mineral reserves increased to 441 million tonnes at a grade of 0.61% Cu from 363 million tonnes at 0.77% Cu. Contained copper in the resources increased to 6.138 million tonnes from 4.64 million tonnes. Even at very conservative long term metal prices assumptions we estimate that this project has an NPV (9%) of $1.3 billion and estimated to generate a nominal cash flow of $5.8 billion after tax. Jiama’s processing capacity is expected to grow nearly 8 times from 6,000 tpd in 2013 to 50,000 tpd in 2015. By 2016, copper production is expected to reach 176,000,000 pounds up from its 2013 level of 28,323,626 pounds. 5 Annual Report 2013Message froM the Ceo We acquired Jiama Mine in December 2010 and we are very pleased to watch it grow into a world class deposit and contribute to the amelioration of neighboring communities. Most importantly, is that over 35 years of the estimated life of mine Jiama Mine will provide jobs to our employees in local community and internationally, improve the infrastructure and education in the surrounding communities and generate significant returns to our shareholders. The Jiama Copper Polymetallic Mine achieved its third full year of increasing production of 28,323,626 pounds of copper and 16,908 ounces of gold. We are grateful to and proud of our strong team that has successfully overcome high-altitude, oxygen deficient, low-temperature environment to deliver this impressive growth. We have successfully delivered on our promises by finishing expansion of our CSH Mine ahead of the schedule. On August 1st, 2013 we have completed our new additional 30,000 tpd crushing and ADR system and finished the rest of the expansion construction in 2013. We are very pleased with rapid execution of our expansion plans on both of our mines. CSH mine has made a tremendous progress to complete the crushing facility by utilizing the talents of our people and the strengths of our major shareholder China National Gold. This expansion increased total capacity at CSH to 60,000 tpd and ramp-up of production is currently in progress. CSH is expected to produce 260,000 ounces of gold in 2016. Good production level of 131,418 ounces of gold was achieved at the CSH gold mine. Our recoveries grew from 43% in 2010, to 49% in 2011, to 53% by the end of 2012 and to 54% by the end of 2013. Cost management at all levels of our organization was our biggest priority this year and we have succeeded. Cash cost on our CSH Mine were reduced by US$118 per oz, from US$825 to US$707 per oz. Cash cost on our Jiama Mine were reduced by US$0.14 per lbs of copper, from US$3.04 to US$2.90 per lbs of copper. Strong production results and tight cost control on both mines translated into solid revenues of US$302.6 million and a net income of US$ 57.2 million in 2013. Even during challenging times in our industry, we spare no expense for sustaining the highest standards for health, safety, environmental, social heritage and culture protection. The company spends significant time and financial resources for reclamation, greening and landscaping, road and bridge construction, environmental improvements and creating educational programs. We employ local people and recruit minorities. We are involved in community activities and support charitable organizations. For 2014 we plan to increase both gold and copper production from the existing and newly build capacity. We are also ramping up operations on the newly completed crusher and ADR plant at CSH. At Jiama we plan to finish the first stage of Phase II expansion to 28,000 tpd by second half of 2014 and immediately commence working on stage 2 of the expansion to 50,000 tpd with expected completion date by second half of 2015. To fulfill our growth strategy we are working close with China National Gold on identifying potential mining opportunities in safe mining jurisdictions that can be quickly brought into profitable production with the possibility of further expansion through continued exploration. We enter 2014 with a positive and optimistic energy and we are hopeful about potential M&A opportunities. Our passionate and driven team, combined with solid operational portfolio and disciplined approach to investments, will assure the growth of shareholder value in 2014 and beyond. I would like to express my deepest appreciation for the commitment and excellence that radiates from our 1,600 plus employees and contractors. In addition, I want to thank our Board of Directors for their continuous and valuable guidance and support. I would like to assure you that our Board of Directors, management and employees will continue to strengthen and build our company in 2014 to ensure another year of successes. Sincerely, Bing Liu Chief Executive Officer, Executive Director 6 China Gold International Resources Corp. Ltd.MESSAGE FROM THE CEO BOARD OF DIRECTORS Xin Song CHAIRMAN OF THE BOARD, EXECUTIVE DIRECTOR Mr. Song, 51, was elected as Chairman of the Board on February 24, 2014 and joined the Company on October 9, 2009. From October 9, 2009 to February 24, 2014, Mr. Song served as the Chief Executive Officer and an executive director and was responsible for the Company’s strategic planning and business operations. Mr. Song serves as President of China National Gold Group Corporation (“China National Gold”), the Company’s principal shareholder and the largest gold producer in China, since December 2013. From 2003 to December 2013, Mr. Song served as Vice President of China National Gold, where he is responsible for resources development, geological exploration and international operations. Mr. Song serves as Chairman of the Board of Skyland Mining Limited, since December 2007 and serves as Chairman of the Board of Tibet Jia Ertong Mining Development Co., Ltd., since April 2008, which are subsidiaries that hold the Company’s Jiama Mine. Mr. Song serves as Chairman of the Board of Zhongjin Gold Corporation, a public company listed on the Shanghai Stock Exchange, since February 2014, for which he served as a director from March 2007 to February 2014 and Chairman of the Board from September 2003 to March 2007. Mr. Song serves as Chairman of the Board of China National Gold Group Hong Kong Limited since February 2014, for which he served as a director from March 2008 to February 2014. Mr. Song serves as a director of China Gold Hong Kong Holding Corp. Limited since August 2011. He serves as a director of Mundoro Mining Inc., a private British Columbia based junior natural resource company, since October 2011. Mr. Song holds a Ph.D. doctorate degree in resources economics and management from the University of Science and Technology Beijing, China, a master’s degree in business administration from the China Europe International Business School, a master’s degree in mining engineering from the University of Science and Technology in Beijing and a bachelor’s degree in mineral processing engineering from the Central-South Institute of Mining and Metallurgy. Bing Liu CHIEF EXECUTIVE OFFICER, EXECUTIVE DIRECTOR Mr. Liu, 51, was elected as Chief Executive Officer and an executive director on February 24, 2014 and joined the Company on May 12, 2008. From May 12, 2008 to February 24, 2014, Mr. Liu served as a non-executive director, and was responsible for the supervision of finance related matters and the Company’s overall strategic planning. Mr. Liu serves as Vice President and Chief Accountant of China National Gold, the Company’s principal shareholder and the largest gold producer in China, since November 1999 and serves as a director of China National Gold Group Hong Kong Limited, since March 2008 and serves as a director of China Gold Hong Kong Holding Corp. Limited, since August 2011. Mr. Liu has extensive experience in mine financing, construction and development and serves as a director of Zhongjin Gold Corporation, a public company listed on the Shanghai Stock Exchange, since March 2007. Mr. Liu serves as a director of Mundoro Mining Inc., a private British Columbia based junior natural resource company, since October 2011. Prior to joining China National Gold, Mr. Liu served as Senior Secretary of the China National Economy and Trade Commission from April 1992 to October 1997 and March 1998 to November 1999 and as Senior Secretary of the China Textile General Association from October 1997 to March 1998. He also served as a Accountant of China Automobile Industry Corporation from July 1987 to April 1992. Mr. Liu is a Senior Accountant and Senior Gold Investment Analyst in China. Mr. Liu holds a master’s degree in currency and banking from the Department of Business Administration, Asia International Open University in Macau and holds a bachelor’s degree in finance from the Department of Finance and Trade Economics, Chinese Academy of Social Science. 7 Annual Report 2013BOARD OF DIRECTORS AND SENIOR MANAGEMENT Lianzhong Sun NON-EXECUTIVE DIRECTOR Mr. Sun, 56, joined the Company on February 24, 2014 as a non-executive director and is responsible for the supervision of operation related matters and the Company’s overall strategic planning. Mr. Sun serves as Vice President of China National Gold, the Company’s principal shareholder, where he is mainly responsible for resources development. Mr. Sun served as chairman of the board of Tibet Huatailong Mining Development Co., Ltd., from June 2010 to February 2012, which holds the Company’s Jiama Mine. Mr. Sun served as a director of China National Gold Group Hong Kong Limited since February 2014. From March 2005 to January 2009, Mr. Sun served as Vice President of Zhongjin Gold Corporation, a public company listed on the Shanghai Stock Exchange. He served as chairman of the board of Kichi-chaarat Company, a mining company based in The Kyrgyz Republic, since February 2012. From December 2000 to July 2011, Mr. Sun served as Chairman of the Board of four other mining enterprises which are subsidiaries of China National Gold. Mr. Sun has nearly 40 years of experience in the mining industry. In addition to senior management experience, Mr. Sun also has rich management experience in on-site operation of mining enterprises. From March 1993 to December 2000, Mr. Sun served as head and general manager of three mining enterprises, through which he had first-hand insight of the operation and management of mine-site production and becoming an expert in cost-control and management enhancement. Since 2005, Mr. Sun has been responsible for resource development of China National Gold. He has made great achievements in resources development and M&A which inevitably contributed to the remarkable resource expansion in recent years of China National Gold. Mr. Sun graduated from Shenyang Gold Institute and majored in Mining Engineering. Zhanming Wu SENIOR EXECUTIVE VICE PRESIDENT, EXECUTIVE DIRECTOR Mr. Wu, 39, joined the Company on May 12, 2008 as an executive director and was appointed as Senior Executive Vice President in March 2013. Mr. Wu was vice president of Business Development from March 11 2010 to March 2013. Mr. Wu is responsible for overseeing the Company’s corporate finance and investment matters. Mr. Wu serves as head of the Overseas Operation Department of China National Gold, the Company’s principal shareholder and the largest gold producer in China, since September 2007. Mr. Wu serves as President of China National Gold Group Hong Kong Limited, since March 2008 and as a director of China Gold Hong Kong Holding Corp. Limited, since August 2011. Mr. Wu serves as a director of Skyland Mining Limited, since April 2008 and as a director of Tibet Jia Ertong Mining Development Co., Ltd., since April 2008, which are subsidiaries that hold the Company’s Jiama Mine. Mr. Wu serves as a director of Mundoro Mining Inc., a private British Columbia based junior natural resource company, since October 2011. Prior to joining China National Gold, Mr. Wu was an investment banker at Deutsche Bank Hong Kong, from May 2001 to January 2004. Mr. Wu holds a master’s degree in management science and engineering from Tsinghua University and a bachelor’s degree in management information systems from Tsinghua University. 8 China Gold International Resources Corp. Ltd.BOARD OF DIRECTORS AND SENIOR MANAGEMENT Xiangdong Jiang VICE PRESIDENT OF PRODUCTION, EXECUTIVE DIRECTOR Mr. Jiang, 55, was elected as an executive director of the Company on June 17, 2010 and serves as the Company’s Vice President of Production, since March 24, 2009. Mr. Jiang joined the Company in July 2002 as a manager in charge of projects in China and was responsible for the supervision of all exploration projects including the establishment of the gold exploration and drilling program at the CSH Gold Mine. Mr. Jiang served as Vice President of Business Development of the Company from May 20, 2004 to September 8, 2008 and was, during this time, primarily responsible for undertaking property review and evaluation and exploring business opportunities for the Company. Mr. Jiang served as Vice President of Production and Technology from September 8, 2008 to March 23, 2009 and was promoted to Vice President of Production on March 24, 2009. Mr. Jiang serves as a director of Inner Mongolia Pacific Mining Co. Ltd., since September 2008, which operates the Company’s CSH Gold Mine and as General Manager of the CSH Gold Mine since August 2007. Mr. Jiang has over 30 years of experience in the mining industry. Prior to joining the Company, Mr. Jiang worked on projects ranging from grass roots to bankable feasibility studies for global mining companies including Cyprus Amax Minerals, Placer Dome, Barrick Resources and First Quantum Minerals. Mr. Jiang holds a bachelor’s degree in Geology and Mineral Exploration from Changchun College of Geology. Ian He INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. He, 52, joined the Company on May 31, 2000 as a non-executive director and serves as an independent director. Mr. He has approximately 30 years of experience in the mining industry. Mr. He serves as President and a director of Tri-River Ventures Inc., a public company listed on the TSX Venture Exchange since October 2006, as a director of several TSX Venture Exchange listed companies including Jiulian Resources Inc. since October 2006, Huaxing Machinery Corp. since January 2011, and Dolly Verten Silver Corp since June 2013, as a director of Zhongrun Resources Investment Corporation, a public company listed on the Shenzhen Stock Exchange, since December 2010, as a director of Vatukoula Gold Mines, a public company listed on AIM of London Stock Exchange since February 2013. From August 1995 to June 2006, Mr. He served as President and a director of Spur Ventures Inc., a public company listed on the Toronto Stock Exchange with phosphate mining and fertilizer operations in China. Mr. He holds a Ph.D. degree and a M.A.Sc degree both in mineral process engineering from the University of British Columbia and a bachelor’s degree in coal preparation from the Heilongjiang University of Technology (formerly Heilongjiang Institute of Mining and Technology), China. Yunfei Chen INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Chen, 42, joined the Company on May 12, 2008 as a non-executive director and serves as an independent director. Mr. Chen is based in Hong Kong where he provides independent advisory services. Mr. Chen serves as an independent director of DongFeng Auto., a Hong Kong listed Chinese auto company since October 2013. Previously, Mr. Chen worked for Deutsche Bank Hong Kong from July 2001 to August 2007, where he served as a director and managing director in charge of general industries and mining for Asia at various times. Prior to joining Deutsche Bank, Mr. Chen was an attorney with Sullivan & Cromwell based in New York and Hong Kong, from March 1997 to July 2001. Mr. Chen graduated from Southern Illinois University, Carbondale, with a juris doctor degree and is qualified to practice law in New York. Mr. Chen obtained his bachelor of law degree in China. 9 Annual Report 2013BOARD OF DIRECTORS AND SENIOR MANAGEMENT Gregory Hall INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Hall, 64, joined the Company in October 9, 2009 as a non-executive director and serves as an independent director. Mr. Hall is a geologist with 40 years of experience in the mining industry and has extensive experience working with global mining companies. In his career, Mr. Hall has been involved in the discoveries of Gold Field’s Granny Smith and Keringal gold mines and Rio Tinto’s Yandi iron ore mine in Western Australia. Mr. Hall serves as a director of Laurentian Goldfields Ltd., a public company listed on the TSX Venture Exchange since May 2008, as a director of Montero Mining and Exploration Limited, a public company listed on the TSX Venture Exchange, since January 2010, as a director of Zeus Resources Ltd., a public company listed on the Australian Stock Exchange since August 2010 and as a director of Namibian Copper Limited a public company listed on the Australian Stock Exchange since June 2013. Mr. Hall serves as a director of three private companies including Oryx Mining and Exploration Limited, Golden Phoenix Resources Ltd., and Golden Phoenix International Pty. Ltd. From 2000 to 2006, Mr. Hall served as Chief Geologist of the Placer Dome Group. Mr. Hall holds a bachelor of science degree in applied geology from the University of New South Wales, Australia in 1973. John King Burns INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Burns, 63, joined the Company on October 27, 2009 as a non-executive director and serves as an independent director. Mr. Burns has extensive experience in the global resource sector. Mr. Burns serves as Chairman of Simba Energy Inc., a public company listed on the TSX Venture Exchange, since September 2009, as a director of Corazon Gold Corp., a public company listed on the TSX Venture Exchange, since January 2011, Chairman of Amana Copper, formerly Titan Goldworx Resources Inc., a public company listed on the CNSX Exchange since November 2011, and as Chairman of Dolly Varden Silver Corporation, a public company listed on the TSX Venture Exchange, since March 2011. Mr. Burns serves as senior advisor for Potomac Energy and Strategic Resources Fund, since September 2010 and as Chairman of the Advisory Board of Lockwood Financial Group, since September 2010. In his career, Mr. Burns has served as Vice President and Chief Financial Officer of the Drexel Burnham Lambert Commodity Group in New York, London and Chicago, managing director and global head of the Derivative Trading and Finance Group of Barclays Metals Group, Barclays Bank PLC in London and managing director of Frontier Risk Management LLC in Chicago and has served as lead director and an audit committee member for a number of public companies in the extractive natural resources and information technology spaces. Mr. Burns holds a bachelor of arts degree in economics from the University of Pennsylvania. 10 China Gold International Resources Corp. Ltd.BOARD OF DIRECTORS AND SENIOR MANAGEMENT SENIOR MANAGEMENT Jerry Xie EXECUTIVE VICE PRESIDENT AND CORPORATE SECRETARY Mr. Xie, 53, joined the Company on March 24, 2009 and serves as Executive Vice President and Corporate Secretary. Mr. Xie is responsible for overseeing corporate secretarial matters and daily operations at the Company’s Vancouver office under the supervision of the Chief Executive Officer. Mr. Xie served as Vice President and Secretary to the Board of the Company from March 24, 2009 to October 9, 2009 at which time he was promoted to Executive Vice President and Corporate Secretary. Mr. Xie has 25 years of experience of engineering and project management in the petro- chemical and oil-sand industry. Prior to joining the Company, Mr. Xie worked as project manager, project engineer and a senior piping stress analyst for LPEC/SINOPEC, Fluor, Bantrel, Tri-Ocean and WorleyParsons Canada Ltd., resource and energy engineering companies in China and Canada, from February 1982 to March 2009. Mr. Xie holds a master’s degree in engineering from the University of Calgary, a master’s degree in engineering from the Beijing University of Science & Technology and a diploma from the Mechanical Department of Shanghai Institute of Chemical Industry. Mr. Xie is a Professional Engineer with APEGGA. Derrick Zhang CHIEF FINANCIAL OFFICER Mr. Zhang, 44, joined the Company on January 4, 2010 and serves as Chief Financial Officer responsible for the planning and management of the Company’s accounting and financial reporting, since August 10, 2011. Mr. Zhang served as interim Chief Financial Officer of the Company from February 28, 2011 to August 10, 2011 and served as Controller of the Company from January 4, 2010 to February 28, 2011. Mr. Zhang has over 20 years of experience in financial reporting and engineering for public and private companies including experience leading financial reporting for mergers and acquisitions. Mr. Zhang was a financial and accounting supervisor and cost accountant for E-One Moli Energy (Canada) Ltd., an operating subsidiary of China Synthetic Rubber Corporation, a public company listed on the Taiwan Stock Exchange, from May 2008 to December 2009 and September 2006 to November 2007, respectively. Mr. Zhang was a Financial Analyst for Teleflex (Canada) Ltd., an operating subsidiary of Teleflex Incorporated, a public company listed on the New York Stock Exchange, from November 2007 to April 2008. Mr. Zhang was an accountant with Docuport Inc., a private technology company, from May 2005 to May 2006. From 1991 to 2001, Mr. Zhang worked as a mining and construction cost engineer in China and Singapore. Mr. Zhang is a Certified General Accountant in Canada and a member of the Association of Chartered Certified Accountants in the United Kingdom. Mr. Zhang is also a Member of the Society of Economic Geologists in United States. Mr. Zhang holds a Bachelor of Commerce degree with a major in Accountancy from Concordia University in Montreal, Quebec, Canada and a Bachelor of Engineering degree in Geology from Southwest University of Science and Technology in China. 11 Annual Report 2013BOARD OF DIRECTORS AND SENIOR MANAGEMENT Songlin Zhang VICE PRESIDENT AND CHIEF ENGINEER Mr. Zhang, 53, joined the Company on February 15, 2012 and serves as Chief Engineer. Mr. Zhang has over 22 years of experience in the mining industry in both North America and China and is experienced in mine project evaluation, reserve and resource estimation and mine economic analysis. Prior to joining the Company, Mr. Zhang served as a technical director for White Tiger Gold where he managed all aspects of reserve and resource evaluation activities for various projects. Mr. Zhang was formerly a consulting engineer for Newmont Gold Corp., where he was involved in valuating production drilling and developing mine planning and ore grade control protocols in Newmont Northern Nevada and Peru Yanacocha operations. He was formerly a senior mine engineer for Echo Bay Mines Ltd. (which merged with Kinross Gold Corporation) at the McCoy/Cove mine where he developed methodology for reserve and resource estimation, served as a member of the reserve committee for the company and conducted a full due diligence study of the Nevada Phoenix project. Mr. Zhang conducted various research projects for open-pit and underground mines in China while working as an assistant professor at the University of Science and Technology Beijing, China. Mr. Zhang holds a Master’s Degree in Mining Engineering from Mackay School of Mines, University of Nevada-Reno in Nevada, USA, a Master’s Degree in Mining Engineering from the University of Science and Technology Beijing, China and a Bachelor’s Degree in Mining Engineering from the University of Science and Technology Beijing, China. Mr. Zhang is a registered member of The Society for Mining, Metallurgy and Exploration and is a Qualified Person as defined in National Instrument 43-101 of the Canadian Securities Administrators. 12 China Gold International Resources Corp. Ltd.BOARD OF DIRECTORS AND SENIOR MANAGEMENT The Board of Directors (the “Board”) of the Company is pleased to present their report together with the audited consolidated financial statements (the “Financial Statements”) of the Company together with its subsidiaries for the financial year ended December 31, 2013 (the “Financial Year”). PRINCIPAL ACTIVITIES AND GEOGRAPHICAL ANALYSIS OF OPERATIONS The principal activities of the Company include the acquisition, exploration, development and production of gold and other non-ferrous metals properties. The Company’s principal subsidiaries are set out in Note 35 of the Financial Statements and the activities of the Company’s principal subsidiaries at December 31, 2013 are set out below: Name of subsidiary Country of incorporation paid share capital Principal activities Issued and fully Pacific PGM Inc. British Virgin Islands US$100 Holding company Pacific PGM (Barbados) Inc. Barbados US$130,000 Holding company Inner Mongolia Pacific Mining People’s Republic of US$37,500,000 Exploration, development Co., Ltd. China and mining of properties in China Skyland Mining Limited Barbados US$41,305,016 plus Holding company RMB182,992,800 Tibet Jia Ertong Mining People’s Republic of US$55,000,000 Exploration, development Development Co., Ltd. China and mining of properties in China and investment holding Tibet Huatailong Mining People’s Republic of RMB371,800,000 Exploration, development Development Co. Ltd. China and mining of properties in China Jiama Industry and Trade Co., People’s Republic of RMB5,000,000 Mining transport and Ltd. China logistics Skyland Mining (BVI) Limited British Virgin Islands US$1.00 Holding company RESULTS The results of the Company for the Financial Year are set out in the Consolidated Statement of Comprehensive Income on page 67 of the Financial Statements. DIVIDENDS The Board has not recommended, declared or paid any dividends for the Financial Year. PROPERTY, PLANT AND EQUIPMENT Details of the movement of the property, plant and equipment of the Company during the Financial Year are set out in Note 20 of the Financial Statements. 13 Annual Report 2013DIRECTORS’ REPORT SHARE CAPITAL Details of the movement in the share capital of the Company during the Financial Year are set out in Note 26 of the Financial Statements. RESERVES Details of the reserves available for distribution to the shareholders as at December 31, 2013 are set out in the Consolidated Statement of Changes in Equity on page 71 of the Financial Statements. DIRECTORS The directors during the Financial Year and up to the date of this report are as follows: Executive Directors Xin Song (Chairman) (Re-designated on February 24, 2014) Bing Liu (Chief Executive Officer) (Re-designated on February 24, 2014) Zhanming Wu Xiangdong Jiang Non-Executive Director Lianzhong Sun (Appointed on February 24, 2014) Independent Non-Executive Directors Ian He Yunfei Chen Gregory Hall John King Burns In accordance with article 14.1 of the Company’s articles, each of the directors are subject to retirement and re-election annually and the term of office for each of the directors will end immediately before the election of directors at the Company’s upcoming annual general meeting. Each of the directors offers himself for re-election at the Company’s upcoming annual general meeting schedule for June 18, 2014. INDEPENDENCE OF THE INDEPENDENT NON-EXECUTIVE DIRECTORS The Board has received from each of the independent non-executive directors, an annual confirmation of his independence pursuant to Rule 3.13 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Hong Kong Listing Rules”), and considers that all of the independent non-executive directors are independent. DIRECTORS’ SERVICE CONTRACTS None of the directors proposed for re-election at the Company’s upcoming annual general meeting has a service contract with the Company for his services as a director, which is not determinable by the Company within one year without payment of compensation, other than statutory compensation. DIRECTORS’ INTEREST IN CONTRACTS OF SIGNIFICANCE Mr. Xin Song, Mr. Bing Liu, Mr. Lianzhong Sun and Mr. Zhanming Wu are considered to have a conflict of interest in the transactions as set out in the section headed “Connected transactions and continuing connected transactions” below due to their senior management positions in China National Gold. 14 China Gold International Resources Corp. Ltd.DIRECTORS’ REPORT The 2012 Contract for Purchase and Sale of Dore (details as set out in the section headed “Connected transactions and continuing connected transactions” below) was entered into between the Company’s subsidiary and China National Gold, the ultimate controlling shareholder of the Company. Save as aforesaid, no contracts of significance to which the Company was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at December 31, 2013 or at any time during the Financial Year. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES To the best knowledge of the directors, during the Financial Year and up to the date of this report, save for the directorships and management roles of our directors in other gold mining companies, none of our directors had any interests in businesses that compete or are likely to compete, either directly or indirectly with the Company. Please refer to the biographies of our directors set out under the section of this report headed “Board of Directors and Senior Management” for details of such circumstances. DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS IN SHARES AND STOCK OPTIONS As of December 31, 2013, the interests of the directors and chief executive of the Company in the share capital, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO), as recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuer (the “Model Code”), were as follows: SHARES Name Position Company Approximate percentage of Number of shares held Nature of interest in the interest Company Ian He Director China Gold International 160,000 Personal 0.0404% Resources Corp. Ltd. Xiangdong Director and Vice China Gold International 38,800 Personal 0.0098% Jiang President of Production Resources Corp. Ltd. STOCK OPTIONS Name Ian He Yunfei Chen Gregory Hall John King Burns Position Director Director Director Director Company China Gold International Resources Corp. Ltd. China Gold International Resources Corp. Ltd. China Gold International Resources Corp. Ltd. China Gold International Resources Corp. Ltd. Xiangdong Jiang Director and Vice China Gold International Resources Corp. Ltd. President of Production Number of stock options held to purchase shares 100,000 100,000 100,000 100,000 0 Other than the holdings disclosed in the table above, none of the directors, chief executive or their associates had any interests or short positions in any shares, underlying shares or debentures of the Company or its associated corporations as at December 31, 2013. 15 Annual Report 2013DIRECTORS’ REPORT CONNECTED TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS Connected Transactions On September 3, 2012, Tibet Huatailong Mining Development Co. Ltd. (“Tibet Huatailong”) entered into a purchase agreement (the “Ball Mill Liners Purchase Agreement”) with Henan Jinyuan Gold Mining Co., Ltd. (“Henan Jinyuan”) whereby Henan Jinyuan would provide ball mill liners and spare parts for the ball mill liners for a period from September 3, 2012 to September 2, 2013 at a total consideration of RMB975,669.38 for use at the Jiama Mine. Details of the Ball Mill Liners Purchase Agreement are as stated in the Company’s announcement dated September 3, 2012. On October 18, 2012, Inner Mongolia Pacific Mining Co. Ltd. (“Inner Mongolia Pacific”) entered into an entrustment loan agreement (the “Entrustment Loan Agreement”) with China National Gold and the head office of Agricultural Bank of China (“Agricultural Bank”) pursuant to which Inner Mongolia Pacific agreed to provide a loan (“Loan”) in the sum of RMB100 million through the Agricultural Bank, the entrustee bank, to China National Gold for a six-month period ending April 17, 2013. Interest shall be payable at the benchmark lending interest rate announced by the People’s Bank of China for equivalent duration on the date of each particular draw down. The principal amount of the Loan shall be repaid at maturity and interest accrued shall be payable on a quarterly basis. China National Gold is permitted to repay the Loan prior to maturity. Details of the Entrustment Loan Agreement are as stated in the Company’s announcement dated October 18, 2012. On November 6, 2012, Inner Mongolia Pacific entered into an engineering, procurement and construction agreement (the “EPC Agreement”) with China Gold Construction Co. Ltd. (“China Gold Construction”) whereby China Gold Construction would provide general engineering, procurement and construction services at the CSH Gold Mine in order to expand the ore processing capacity at the CSH Gold Mine during the period from December 21, 2012 to August 31, 2013 for a service fee of RMB774,838,000 (approximately US$123,287,264). Details of the EPC Agreement are as stated in the Company’s announcement dated November 6, 2012. On November 6, 2012, Inner Mongolia Pacific, entered into a construction supervision agreement (the “Construction Supervision Agreement”) with Changchun Gold Design Institute (長春黃金設計院) (the “Changchun Institute”) whereby the Changchun Institute would provide mining supervision services and technical support at the CSH Gold Mine during the period from December 21, 2012 to August 31, 2013 for a service fee of RMB3,600,000 (approximately US$572,809). Details of the Construction Supervision Agreement are as stated in the Company’s announcement dated November 6, 2012. On November 6, 2012, Tibet Huatailong, entered into the Phase II Expansion of the Section IV Roadway Contract (the “Phase II Expansion of the Section IV Roadway Contract”) with China Tenth Metallurgy Group Limited Corporation (“CTMG”), to complete an underground roadway project of the 4450m north central section during the period from December 21, 2012 to May 20, 2014 for a fee of RMB27,618,320 (approximately US$4,394,450). Details of the Phase II Expansion of the Section IV Roadway Contract are as stated in the Company’s announcement dated November 6, 2012. On November 6, 2012, Tibet Huatailong entered into an exploitation contract for the North Area of the Jiama Mine with CTMG for excavation, tunneling, support and maintenance for the North Area Section of the Auxiliary Ramp (“North Section Exploitation Contract”) of the Jiama Mine during the period from December 21, 2012 to June 24, 2015 for a service fee of RMB70,054,000 (approximately US$11,146,544). Details of the North Section Exploitation Contract are as stated in the Company’s announcement dated November 6, 2012. On November 6, 2012, Tibet Huatailong, entered into a contract with CTMG to provide open pit ore mining and stripping service at Niumatang area of the Jiama Mine (the “Niumatang Open Pit Ore Mining & Stripping Service Contract”) during the period from December 21, 2012 to December 31, 2013 for a service fee of RMB56,000,000 (approximately US$8,910,361). Details of the Niumatang Open Pit Ore Mining & Stripping Service Contract are as stated in the Company’s announcement dated November 6, 2012. 16 China Gold International Resources Corp. Ltd.DIRECTORS’ REPORT On November 6, 2012, Tibet Huatailong, entered into a contract with CTMG to provide underground mining services at 4490 Auxiliary Ramp of the Niumatang area of the Jiama Mine (the “Niumatang Auxiliary Ramp Contract”) during the period from December 21, 2012 to December 31, 2013 for a service fee of RMB43,000,000 (approximately US$6,841,884). Details of the Niumatang Auxiliary Ramp Contract are as stated in the Company’s announcement dated November 6, 2012. On November 6, 2012, Tibet Huatailong, entered into a contract with Henan Zhongyuan Gold Machinery Factory (“Henan Zhongyuan”) to purchase Flotation Equipment (the “Flotation Equipment Contract”) for the Jiama Mine during the period from December 21, 2012 to December 31, 2013 for a fee of RMB11,200,000 (approximately US$1,782,072). Details of the Flotation Equipment Contract are as stated in the Company’s announcement dated November 6, 2012. On December 10, 2012, Inner Mongolia Pacific entered into a supplemental geological exploration technical service agreement (the “Supplemental Geological Exploration Technical Service Agreement”) with Beijing Jinyou whereby Beijing Jinyou would provide hydrogeological exploration and technical supervision services at the CSH Gold Mine for the period from December 10, 2012 to January 1, 2014 for a fee of RMB89,500. Details of the Supplemental Geological Exploration Technical Service Agreement are as stated in the Company’s announcement dated December 10, 2012. China National Gold is the substantial shareholder of the Company and is therefore a connected person of the Company under the Hong Kong Listing Rules. The Company, Tibet Huatailong, Henan Jinyuan, Inner Mongolia Pacific, China Gold Construction, CTMG, Henan Zhongyuan, Beijing Jinyou (the “Controlled Entities”) being ultimately controlled by China National Gold and therefore are connected persons of the Company by virtue of Rule 14A.11 of the Hong Kong Listing Rules. Continuing Connected Transaction (i) Contract for Purchase and Sale of Dore On January 27, 2012, China National Gold and Inner Mongolia Pacific entered into a non-exclusive contract for the purchase and sale of dore (the “2012 Contract for Purchase and Sale of Dore”) pursuant to which Inner Mongolia Pacific shall sell gold dore bars to China National Gold from time to time through to December 31, 2014, with pricing referenced to the daily average price of Au9995 gold ingot as quoted on the Shanghai Gold Exchange and the daily average price of No. 2 silver as quoted on the Shanghai Huatong Platinum & Silver Exchange prevailing at the time of each relevant purchase order during the contract period, pursuant to the terms and conditions of the 2012 Contract for Purchase and Sale of Dore. Details of the 2012 Contract for Purchase and Sale of Dore are as stated in the Company’s announcement dated February 14, 2012. On April 26, 2013, Inner Mongolia Pacific entered into a Supplemental Contract for Purchase and Sale of Dore (the “Supplemental Contract for Purchase and Sale of Dore”) with China National Gold to delete the original payment term of the 2012 Contract for Purchase and Sale of Dore and to revise the terms, pursuant to which Inner Mongolia Pacific would deliver to China National Gold an invoice for the resulting settlement weight, and China National Gold will have 30 calendar days to effect payment. Details of the Supplemental Contract for Purchase and Sale of Dore are as stated in the Company’s announcement dated May 21, 2013. China National Gold is the substantial shareholder of the Company and is therefore a connected person of the Company under the Hong Kong Listing Rules. As a result, the transactions under the 2012 Contract for Purchase and Sale of Dore (as amended by the Supplemental Contract for Purchase and Sale of Dore) constitute non- exempt continuing connected transactions which, based on the applicable percentage ratios, are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules. 17 Annual Report 2013DIRECTORS’ REPORT Annual monetary caps for the transactions stipulated under the 2012 Contract for Purchase and Sale of Dore (as amended by the Supplemental Contract for Purchase and Sale of Dore) pursuant to Chapter 14A of the Hong Kong Listing Rules are as follows: December 31, 2012: RMB1,782 million, December 31, 2013: RMB1,980 million and December 31, 2014: RMB3,168 million. Payments made by China National Gold pursuant to the 2012 Contract for Purchase and Sale of Dore (as amended by the Supplemental Contract for Purchase and Sale of Dore) were approximately RMB1.07 billion for year ended December 31, 2013 which accounted for 57.5% of the total sales of the Group for the year then ended. (ii) Jiama Framework Agreement On November 6, 2012, the Company entered into a development framework agreement (the “Jiama Framework Agreement”) with China National Gold pursuant to which China National Gold would provide mining development services to the Company at the Jiama Mine in order to implement the Phase II development plan for the Jiama Mine as set out in the prefeasibility study report produced by Minarco-Mine Consult (the “Prefeasibility Study”) during the period from December 21, 2012 to August 31, 2014. Please refer to the announcement of the Company dated October 25, 2012 for more details of the Prefeasibility Study. Details of the Jiama Framework Agreement are as stated in the Company’s announcement dated November 20, 2012. On April 26, 2013, the Company entered into a Supplemental Jiama Framework Agreement (the “Supplemental Jiama Framework Agreement”) with China National Gold for the purpose of extending the expiry date to December 31, 2015 and to revise the annual caps of the Jiama Framework Agreement for two years ending December 31, 2013 and December 31, 2014 and provide a new annual cap for December 31, 2015. Details of the Supplemental Jiama Framework Agreement are as stated in the Company’s announcement dated May 21, 2013. China National Gold is the substantial shareholder of the Company and is therefore a connected person of the Company under the Hong Kong Listing Rules. As a result, the transactions under the Jiama Framework Agreement (as revised by the Supplemental Jiama Framework Agreement) constitute non-exempt continuing connected transactions which, based on the applicable percentage ratios, are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules. Annual monetary caps for the transactions stipulated under the Jiama Framework Agreement (as revised by the Supplemental Jiama Framework Agreement) pursuant to Chapter 14A of the Hong Kong Listing Rules are as follows: December 31, 2012: RMB630 million (actual amount was RMB317,123 thousand), December 31, 2013: RMB1,167,500 thousand, December 31, 2014: RMB299,550 thousand and December 31, 2015: RMB95,827 thousand. Payments made to China National Gold pursuant to the Jiama Framework Agreement (as revised by the supplemental Jiama Framework Agreement) were approximately RMB844.01 million for year ended December 31, 2013 which accounted for 27.48% of the development work related to building, mineral asset and construction of the Group for the year then ended. (iii) Product and Service Framework Agreement On April 26, 2013, the Company entered into a Product and Service Framework Agreement (the “Product and Service Framework Agreement”) with China National Gold for the purpose of providing mining related services and products to the Company. Details of the Product and Service Framework Agreement are as stated in the Company’s announcement dated May 21, 2013. 18 China Gold International Resources Corp. Ltd.DIRECTORS’ REPORT China National Gold is the substantial shareholder of the Company and is therefore a connected person of the Company under the Hong Kong Listing Rules. As a result, the transactions under the Product and Service Framework Agreement constitute non-exempt continuing connected transactions which, based on the applicable percentage ratios, are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules. Annual monetary caps for the transactions stipulated under the Product and Service Framework Agreement pursuant to Chapter 14A of the Hong Kong Listing Rules are as follows: December 31, 2013: RMB870 million December 31, 2014: RMB780 million and December 31, 2015: RMB650 million. Payments made by China National Gold pursuant to the Product and Service Framework Agreement were approximately RMB401.10 million for year ended December 31, 2013 which accounted for 13.26% of the total development work related to building, mineral assets and construction of the Group for the year then ended. (iv) Contract for Purchase and Sale of Copper Concentrate On April 26, 2013, Tibet Huatailong entered into a Contract for Purchase and Sale of Copper Concentrate (the “Contract for Purchase and Sale of Copper Concentrate”) with CNGG International Trade Co., Ltd. (“CNGG”) for the sale and purchase of copper sulphide concentrates. Details of the Contract for Purchase and Sale of Copper Concentrate are as stated in the Company’s announcement dated May 21, 2013. CNGG is a company owned by China National Gold and its subsidiaries, being ultimately controlled by China National Gold and therefore is a connected entity of the Company by virtue of Rule 14A.11 of the Hong Kong Listing Rules. China National Gold is the substantial shareholder of the Company and is therefore a connected person of the Company under the Hong Kong Listing Rules. As a result, the transactions under the Contract for Purchase and Sale of Copper Concentrate constitute non-exempt continuing connected transactions which, based on the applicable percentage ratios, are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules. Annual monetary caps for the transactions stipulated under the Contract for Purchase and Sale of Copper Concentrate pursuant to Chapter 14A of the Hong Kong Listing Rules are as follows: December 31, 2013: RMB510 million and December 31, 2014: RMB3,400 million. Payments made by China National Gold pursuant to the Contract for Purchase and Sale of Copper Concentrate were approximately RMB343.19 million for year ended December 31, 2013 which accounted for 18.45% of the total sales of the Group for the year then ended. (v) Office Lease Contract On December 10, 2012, Inner Mongolia Pacific entered into a lease contract (the “2013 Lease Contract”) with China Gold Beijing Property Management Centre (北京中金物業管理中心) (“China Gold Beijing Property Management Centre”), a wholly-owned subsidiary of China National Gold. The 2013 Lease Contract was in relation to the lease of the office premises for use by the Beijing operating centre of the Group, for a term from January 1, 2013 to December 31, 2013 for an annual rental payment of RMB6,800,000. Details of the 2013 Lease Contract are as stated in the Company’s announcement dated December 10, 2012. Payment made by Inner Mongolia Pacific pursuant to the 2013 Lease Contract was RMB6,800,000 for the year ended December 31, 2013, representing 100% of the annual cap. 19 Annual Report 2013DIRECTORS’ REPORT On December 25, 2013, Inner Mongolia Pacific entered into a lease contract (the “2014 Lease Contract”) with China Gold Beijing Property Management Centre to renew the lease of the office premises for use by the Beijing operating centre of the Group, for a term from January 1, 2014 to December 31, 2014 for an annual rental payment of RMB6,800,000. As China Gold Beijing Property Management Centre is ultimately controlled by China National Gold, a substantial shareholder of the Company, China Gold Beijing Property Management Centre is a connected person of the Company by virtue of Rule 14A of the Hong Kong Listing Rules. Given that the highest applicable percentage ratio calculated with reference to the annual rental payable under the 2014 Lease Contract is less than 0.1%, the 2014 Lease Contract is exempt from the reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Company’s independent non-executive directors have confirmed that the continuing connected transactions carried out under the (i) 2012 Contract for Purchase and Sale of Dore (as amended by the Supplemental Contract for Purchase and Sale of Dore); (ii) Jiama Framework Agreement (as amended by the Supplemental Framework Agreement); (iii) Product and Service Framework Agreement; (iv) Contract for Purchase and Sale of Copper Concentrate and (v) 2013 Lease Contract for the year ended December 31, 2013 have been entered into: (a) in the ordinary and usual course of the Company’s business; (b) on terms no less favorable to the Company than terms available to or from (as appropriate) independent third parties; and (c) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole. The Company’s auditor, Deloitte Touche Tohmatsu, was engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The auditor’s letter containing his findings and conclusions in respect of the continuing connected transactions disclosed above by the Group in accordance with Rule 14A.38 of the Hong Kong Listing Rules has been provided to the directors of the Company, and was qualified in respect of the above matter. A copy of the auditor’s letter has been provided by the Company to the Hong Kong Stock Exchange. MANAGEMENT CONTRACTS No contracts concerning the management and administration of the Company were entered into or existed during the Financial Year. STOCK OPTION PLAN 2007 Stock Option Plan The Company adopted an incentive stock option plan with approval from its shareholders and pursuant to the policies of the Toronto Stock Exchange dated May 9, 2007 (the “2007 Stock Option Plan”). The 2007 Stock Option Plan was adopted to provide the Company’s directors, officers, employees and consultants with an opportunity to acquire a proprietary interest in the Company designed to enhance the long-term performance and profitability of the Company and to retain key directors, officers, employees and consultants. As of the end of the Financial Year, an aggregate of 400,000 common shares were issuable upon the exercise of outstanding stock options granted under the 2007 Stock Option Plan, representing approximately 0.10% of the Company’s outstanding common shares. 20 China Gold International Resources Corp. Ltd.DIRECTORS’ REPORT The principal terms of the 2007 Stock Option Plan are as follows: (a) the exercise price per share under the 2007 Stock Option Plan cannot be less than 100% of the trading price of the shares on the Toronto Stock Exchange for the five trading days immediately preceding the date of grant; (b) the total number of shares which may be issued upon the exercise of the stock options granted under the 2007 Stock Option Plan is 10% of the issued shares of the Company; (c) the stock options granted to former directors, senior management and employees expire (i) 12 months after the date of termination of such individual’s employment with the Company or (ii) another date approved by the Board; (d) the stock options granted are valid for five years commencing from the date of grant of such options or such greater or lesser duration as the Board may determine; and (e) the stock options may be exercised as determined from time to time by the Board or (i) at any time during the first year from the grant date for up to 20% of the total number of shares reserved for issuance pursuant to the stock options, and (ii) at any time during each additional year an additional 20% of the total number of shares reserved for issuance pursuant to the stock options plus any shares not purchased in accordance with (i) until, the fifth year from the grant date, at which time 100% of the stock options will be exercisable. The following table discloses movements in the Company’s stock options for the Financial Year: Options outstanding at Options beginning of the Options granted Options exercised Options forfeited Options expired outstanding at end year during the year during the year during the year during the year of the year 140,000 100,000 100,000 100,000 80,000 520,000 20,000 540,000 Nil Nil Nil Nil Nil Nil Nil Nil (40,000) Nil Nil Nil (40,000) Nil (15,000) (95,000) Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil (40,000) 100,000 (1) 100,000 (2) 100,000 (2) 100,000 (2) 0 (3) Nil 400,000 (5,000) 0 (4) Nil 400,000 Position Director Director Director Director Director and Vice President of Production Name Ian He Yunfei Chen Gregory Hall John King Burns Xiangdong Jiang Total for directors and senior executives Total for other option holders TOTAL Notes: 1. Consists of 100,000 stock options granted on June 1, 2010 pursuant to the 2007 Stock Option Plan and expiring on June 1, 2015 at an exercise price of CAD$4.35 from June 1, 2010 until June 1, 2011; CAD$4.78 from June 2, 2011 until June 1, 2012; CAD$5.21 from June 2, 2012 until June 1, 2013; CAD$5.64 from June 2, 2013 until June 1, 2014 and CAD$6.09 from June 2, 2014 until June 1, 2015 with 20% vesting immediately and an additional 20% vesting on June 2, 2011, June 2, 2012, June 2, 2013 and June 2, 2014 respectively. Mr. He exercised 40,000 options originally granted on July 20, 2007 which were to expire July 20, 2013. 2. Consists of 100,000 stock options granted on June 1, 2010 pursuant to the 2007 Stock Option Plan and expiring on June 1, 2015 at an exercise price of CAD$4.35 from June 1, 2010 until June 1, 2011; CAD$4.78 from June 2, 2011 until June 1, 2012; CAD$5.21 from June 2, 2012 until June 1, 2013; CAD$5.64 from June 2, 2013 until June 1, 2014 and CAD$6.09 from June 2, 2014 until June 1, 2015 with 20% vesting immediately and an additional 20% vesting on June 2, 2011, June 2, 2012, June 2, 2013 and June 2, 2014 respectively. 3. Mr. Jiang exercised 40,000 options in 2013, with the remaining 40,000 options having expired in July 2013. 21 Annual Report 2013DIRECTORS’ REPORT 4. All stock options granted on July 20, 2007 to various employees of the Company pursuant to the 2007 Stock Option Plan and expiring on July 20, 2013 at an exercise price of $2.20 with vesting as to 20% on the first anniversary of the date of grant and 20% each anniversary thereafter have now expired. DIRECTORS’ RIGHT TO PURCHASE SHARES Save as disclosed in the paragraph headed “directors’ and chief executive’s interests in shares and stock options” in this report, at no time during the year ended December 31, 2013 or the period following December 31, 2013 up to the date of this report, was the Company or any of its subsidiaries or its holding companies or any of the subsidiaries of the Company’s holding companies a party to any arrangement to enable the directors or the chief executive of the Company or their respective associates to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate and none of the directors and chief executive, or their spouse and children under the age of 18, had any right to subscribe for the securities of the Company, or had exercised any such right during such period. SUBSTANTIAL SHAREHOLDERS Save as disclosed below, as of December 31, 2013, the Company’s directors were not aware of any other person (other than a director or chief executive of the Company) who had an interest or short position in the shares or underlying shares of the Company as recorded in the register kept pursuant to Section 336 of the SFO: Name Nature of interest held outstanding shares China National Gold Group Corporation (1) China National Gold Group Hong Kong Limited Indirect Registered Owner 155,794,830(1) 155,794,830 39.31% 39.31% Number of Shares Approximate percentage of Note: 1. China National Gold Group Corporation directly and wholly owns China National Gold Group Hong Kong Limited therefore the interest attributable to China National Gold Group Corporation represents its indirect interest in the Company’s shares through its equity interest in China National Gold Group Hong Kong Limited. PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES During the year ended December 31, 2013, neither the Company, nor any of its subsidiaries purchased, sold and redeemed any of the Company’s listed securities. EMOLUMENT POLICY The Company’s executive emolument policy and compensation program is administered by the Compensation and Benefits Committee which consists solely of independent directors. The Compensation and Benefits Committee reviews levels of cash compensation as needed and at least annually, and makes recommendations to the Board to adjust cash compensation in light of merit, qualifications and competence. The Compensation and Benefits Committee also reviews the corporate goals and objectives relevant to the compensation of the senior executive officers as needed and at least annually and based on recommendations from the Chief Executive Officer and other members of the management team. The Compensation and Benefits Committee makes its determinations as to overall compensation levels on the basis of both available third party data regarding comparable compensation at similar size companies as well as their own industry experience and the Company’s hiring and retention needs. Decisions relating to executive compensation are reported by the Compensation and Benefits Committee to the Board for approval. 22 China Gold International Resources Corp. Ltd.DIRECTORS’ REPORT The Company’s director emolument policy is administered by the Compensation and Benefits Committee with regard to comparable market statistics. Decisions relating to the compensation of directors are reported by the Compensation and Benefits Committee to the Board for approval. The emolument policy for the Company’s employees is determined on a department by department basis with the Chief Executive Officer determining the emoluments for employees and managers based on merit, qualifications and the Company’s hiring and retention needs. The Company has also adopted stock option plans to provide an incentive to the directors, officers and eligible employees for future services to further the Company’s objectives. The details of the Company’s stock option plan are set out in Note 26(b) of the Financial Statements. PRE-EMPTIVE RIGHTS There are no provisions for pre-emptive rights under the Company’s articles or under the laws of Canada which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders. SUFFICIENCY OF PUBLIC FLOAT The Hong Kong Listing Rules require that at least 25% of the Company’s outstanding shares be at all times held by the public to ensure the sufficiency of the Company’s public float. As at December 31, 2013, the Company had 396,413,753 shares outstanding of which 240,460,123 shares were included in the public float, representing 60.66% of the Company’s outstanding common shares. MAJOR CUSTOMERS AND SUPPLIERS Details of the Company’s transactions with its major suppliers and customers during the Financial Year are set out below: CUSTOMERS The largest customer accounted for 59% of the Company’s sales. The five largest customers accounted for 100% of the Company’s sales. The Company’s principal shareholder, China National Gold, purchases gold dore bars from the CSH Gold Mine at prevailing market prices pursuant to a contract for the purchase and sale of dore dated January 27, 2012. Please refer to the section of this report headed “Connected transactions and continuing connected transactions” above for further details. Mr. Sun, Mr. Song, Mr. Liu and Mr. Wu are executive officers of China National Gold. Save as disclosed above, at no time during the Financial Year did a director, an associate of a director or any other shareholder (which to the knowledge of the Company’s directors owns more than 5% of the Company’s issued share capital) hold an interest in the Company’s five largest customers. SUPPLIERS The largest supplier accounted for 35% of the Company’s purchases. The five largest suppliers accounted for 68% of the Company’s purchases. At no time during the Financial Year did a director, an associate of a director or any other shareholder (which to the knowledge of the Company’s directors owns more than 5% of the Company’s issued share capital) hold an interest in the Company’s five largest suppliers. 23 Annual Report 2013DIRECTORS’ REPORT CHARITABLE DONATIONS The Company made charitable donations during the Financial Year amounting to US$14,152.50. EVENTS AFTER REPORTING PERIOD On February 24, 2014, the Company announced the Chairman, Mr. Zhaoxue Sun’s resignation from the Board following his recent appointment to another Chinese state-owned enterprise. With the resignation of Mr. Sun, the Company announced the appointment of current Director, Mr. Xin Song, as Chairman. Mr. Song has been a Director since October 9, 2009. In light of Mr. Song’s appointment and the demands placed on him from his new position, Mr. Song resigned as the Company’s chief executive officer. Mr. Bing Liu, a Non-Executive Director since May 12, 2008, has been appointed the Company’s chief executive officer. The Company further announced the appointment of Mr. Lianzhong Sun as a Non-Executive Director effective February 24, 2014. INDEPENDENT AUDITORS A resolution will be submitted at the Company’s upcoming annual general meeting to re-appoint Deloitte Touche Tohmatsu of Hong Kong as the Company’s auditors. On behalf of the Board, Xin Song Chairman of the Board March 25, 2014 24 China Gold International Resources Corp. Ltd.DIRECTORS’ REPORT The Board considers good corporate governance practices to be an important factor in the continued and long term success of the Company by helping to maximize shareholder value over time. To further this philosophy and to ensure that the Company follows good governance practices the Board has taken the following steps: • • • • • approved and adopted a mandate for the Board; appointed an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation and Benefits Committee consisting solely of independent directors; established a Health, Safety and Environmental Committee consisting solely of independent directors; approved charters for all of the Board committees to formalize the mandates of those committees; established a Disclosure Committee with a mandate to oversee the Company’s disclosure practices including the establishment of a sub-committee charged with overseeing the Company’s technical disclosure; • adopted a formal Corporate Disclosure, Confidentiality and Securities Trading Policy and formalized the Company’s disclosure controls and procedures; • adopted a formal Code of Business Conduct and Ethics that governs the behavior of directors, officers and employees and which is also distributed to consultants; • adopted formal written position descriptions for the Chief Executive Officer and Chief Financial Officer, clearly defining their roles and responsibilities; • • • • adopted a whistleblower policy administered by an independent third party; formalized a process for assessing the effectiveness of the Board as a whole, the Board committees and the contribution of individual directors on a regular basis; reviewing and approving the Company’s incentive compensation plans; and providing continuing education opportunities for all directors. COMPLIANCE WITH CORPORATE GOVERNANCE The Company has, throughout the Financial Year, applied the principles and complied with the requirements of its corporate governance practices as defined by the Board and all applicable statutory, regulatory and stock exchange listings standards, in particular, the code provisions set out in the Code on Corporate Governance Practices contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The Company’s current practices are reviewed and updated regularly to ensure that the latest developments in corporate governance are followed and observed. 25 Annual Report 2013CORPORATE GOVERNANCE REPORT BOARD COMPOSITION Corporate governance guidelines adopted by the Canadian Securities Administrators (“CSA”) recommend that a majority of the directors of a corporation be independent directors. Under the CSA corporate governance guidelines, an “independent director” is a director who has no direct or indirect material relationship with the Company, including as a partner, shareholder or officer of an organization that has a relationship with the Company. A “material relationship” is one that would, or in the view of the Board could be reasonably expected to, interfere with the exercise of a director’s independent judgment. As at December 31, 2013 and as at the date of this report, the Board has determined that it consists of four “independent directors” and five non-independent directors under the CSA corporate governance guidelines. The Board believes that its current size and composition and the composition of the Board committees consisting solely of independent directors, results in balanced representation. As at the date of this report, the Board has determined that it consists of four independent directors and five non- independent directors as follows: Independent Directors Non-independent Directors Ian He Yunfei Chen Gregory Hall John King Burns Notes: Xin Song (Chairman) (1) Bing Liu (Chief Executive Officer) (2) Lianzhong Sun (3) Zhanming Wu (Senior Executive Vice President) (4) Xiangdong Jiang (Vice President of Production) (5) 1. Mr. Song is a non-independent director in his capacity as an executive officer of China of China National Gold which has a material relationship with the Company. 2. Mr. Liu is a non-independent director in his capacity as a senior officer of the Company and in his capacity an executive officer of China National Gold which has a material relationship with the Company. 3. Mr. Sun is a non-independent director in his capacity as an executive officer of China National Gold which has a material relationship with the Company. 4. Mr. Wu is a non-independent director in his capacity as a senior officer of the Company and in his capacity as an executive officer of China National Gold which has a material relationship with the Company. 5. Mr. Jiang is a non-independent director in his capacity as a senior officer of the Company. As at the date of this report, China National Gold holds approximately 39.31% of the Company’s outstanding common shares. The Board has determined that five of its nine directors being Mr. He, Mr. Chen, Mr. Hall, Mr. Burns and Mr. Jiang are independent of China National Gold, which the Board believes fairly reflects the investment in the Company by shareholders other than the Company’s principal shareholder. The Board has further determined that four of its nine directors do not have an interest in the Company or relationship with the Company’s principal shareholder and satisfy all independence requirements under the applicable corporate governance rules and guidelines. The directors are satisfied that the size and composition of the Board results in a balanced representation on the Board among management and non-management directors and the Company’s principal shareholder. While the Board believes that it functions effectively given the Company’s stage of development and the size and complexity of its business, the Company, through its Nominating and Corporate Governance Committee, may in the future seek to add qualified candidates to augment its experience and expertise and to enhance the Company’s ability to develop its business interests. 26 China Gold International Resources Corp. Ltd.CORPORATE GOVERNANCE REPORT Mr. Zhaoxue Sun served as the Chairman of the Board from October 9, 2009 to February 24, 2014 and served as the Company’s Chief Executive Officer from September 8, 2008 to October 9, 2009. Mr. Song currently serves as the Chairman of the Board since February 24, 2014 and served as the Company’s Chief Executive Officer from October 9, 2009 to February 24, 2014. Mr. Liu serves as the Company’s Chief Executive Officer since February 24, 2014 and served as a non-executive director of the Company from October 9, 2009 to February 24, 2014. At present, Mr. He, the Chairman of the Board committees, acts as the de facto lead independent director and liaises with management and the directors regarding relevant matters. The Board is of the view that appropriate structures and procedures are in place to allow the Board to function independently of management while continuing to provide the Company with the benefit of having a Chairman with extensive experience in the mining industry. The Company has received from each of its independent directors, their confirmation of independence pursuant to listing rules in all applicable jurisdictions. To the best knowledge of the Company none of the directors of the Company are related. Relationships include financial, business or family relationships. The Company’s directors are free to exercise their independent judgment. Directors, including the current non-executive director and the independent non-executive directors of the Company, are elected at each annual general meeting and hold office until the next annual general meeting, unless a director’s office is earlier vacated in accordance with the provisions of the Business Corporations Act and the Company’s Articles. DIRECTORS’ PROFESSIONAL DEVELOPMENT The Board, through the Chairman of the Nominating and Corporate Governance Committee, ensures that all new directors receive a comprehensive orientation so that each new director fully understands the role of the Board and its committees, as well as the contribution individual directors are expected to make and to understand the nature and operation of the Company’s business. The Board provides continuing education opportunities for all directors, so that each individual director may maintain or enhance his skills and abilities as a director, as well as to ensure his knowledge and understanding of the Company’s business remains current. The Company updates its directors on the latest developments regarding applicable regulatory requirements from time to time, to ensure compliance and to enhance their awareness of good corporate governance practices. All Directors have participated in continuous professional development and provided a record of training they received for the fiscal year 2013 to the Company: 27 Annual Report 2013CORPORATE GOVERNANCE REPORT The individual professional development record of each Director for fiscal 2013 is set out below: Briefings and updates on Attend or participate the business, operations in seminars/workshops and corporate governance relevant to the business or matters directors’ duties Executive Directors Zhaoxue Sun (Chairman, Resigned on February 14, 2014) Xin Song Zhanming Wu Xiangdong Jiang Non-Executive Director Bing Liu (Appointed as Executive Director on February 14, 2014) Independent Non-Executive Directors Ian He Yunfei Chen Gregory Hall John King Burns MANDATE OF THE BOARD 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 Under the British Columbia Business Corporations Act (the “Business Corporations Act”), the directors of the Company are required to manage the Company’s business and affairs, and in doing so, to act honestly and in good faith with a view to furthering the best interests of the Company. In addition, each director must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The Board is responsible for supervising the conduct of the Company’s affairs and the management of its business. The Board’s mandate includes setting long term goals and objectives for the Company, formulating the plans and strategies necessary to achieve those objectives and supervising senior management in their implementation. Although the Board delegates the responsibility for managing the day-to-day affairs of the Company to senior management, the Board retains a supervisory role in respect of, and ultimate responsibility for, all matters relating to the Company and its business. The Board’s mandate requires that the Board be satisfied that the Company’s senior management will manage the affairs of the Company in the best interest of the shareholders, in accordance with the Company’s principles, and that the arrangements made for the management of the Company’s business and affairs are consistent with their duties described above. The Board is responsible for protecting shareholder interests and ensuring that the incentives of the shareholders and of management are aligned. The obligation of the Board must be performed continuously, and not merely from time to time, and in times of crisis or emergency the Board may have to assume a more direct role in managing the affairs of the Company. In discharging this responsibility, the Board’s mandate provides that the Board oversees and monitors significant corporate plans and strategic initiatives. The Board’s strategic planning process includes annual budget reviews and approvals and discussions with management relating to strategic and budgetary issues. As part of its ongoing review of business operations, the Board periodically reviews the principal risks inherent in the Company’s business, including financial risks, and assesses the systems established to manage those risks. Directly and through the Audit Committee, the Board also assesses the integrity of internal control over financial reporting and management information systems. 28 China Gold International Resources Corp. Ltd.CORPORATE GOVERNANCE REPORT In addition to those matters that must, by law, be approved by the Board, the Board is required under its mandate to approve annual operating and capital budgets, any material dispositions, acquisitions and investments outside of the ordinary course of business or not provided for in the approved budgets, long-term strategy, organizational development plans and the appointment of senior executive officers. Management is authorized to act, without Board approval on all ordinary course matters relating to the Company’s business. The Board’s mandate provides that the Board expects management to provide the directors, on a timely basis, with information concerning the business and affairs of the Company, including financial and operating information and information concerning industry developments as they occur, all with a view to enabling the Board to discharge its stewardship obligations effectively. The Board expects management to efficiently implement its strategic plans for the Company, to keep the Board fully apprised of its progress in doing so and to be fully accountable to the Board in respect to all matters for which it has been assigned responsibility. The Board has instructed management to maintain procedures to monitor and promptly address shareholder concerns and has directed and will continue to direct management to apprise the Board of any major concerns expressed by shareholders. Each Board committee is empowered to engage external advisors as it sees fit. Any individual director is entitled to engage an outside advisor at the expense of the Company provided such director has obtained the approval of the Nominating and Corporate Governance Committee to do so. In conjunction with its review of operations, the Board considers risk issues when appropriate and approves corporate policies addressing the management of the risk of the Company’s business. The Board takes ultimate responsibility for the appointment and monitoring of the Company’s senior management. The Board approves the appointment of senior management and reviews their performance on an ongoing basis. The Company has a corporate disclosure policy addressing, among other things, how the Company interacts with analysts and the public, and contains measures for the Company to avoid selective disclosure. The Company has a Disclosure Committee responsible for overseeing the Company’s disclosure practices. The Disclosure Committee consists of the Company’s Executive Vice President and Corporate Secretary, Chief Executive Officer, Chief Financial Officer and the Company’s senior communications and investor relations officers, or those individuals who act in equivalent positions for the Company, and receives advice from the Company’s external legal counsels. The Disclosure Committee assesses materiality and determines when developments justify public disclosure. The Disclosure Committee reviews the corporate disclosure policy annually and as otherwise needed to ensure compliance with regulatory requirements and reviews all documents which are reviewed by the Board and Audit Committee. The Board reviews and approves the Company’s material disclosure documents, including its annual report, annual information form and management proxy circular. The Company’s annual and quarterly financial statements, management’s discussion and analysis and other financial disclosure is reviewed by the Audit Committee and recommended to the Board for approval, prior to its release. COMMITTEES OF THE BOARD Audit Committee The Board has established an Audit Committee, which operates under a charter approved by the Board. It is the Board’s responsibility to ensure that the Company has an effective internal control framework. This includes internal controls to manage both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The Company’s Audit Committee consists of Mr. He, Mr. Chen, Mr. Burns and Mr. Hall. Mr. He serves as Chairman of the Audit Committee. 29 Annual Report 2013CORPORATE GOVERNANCE REPORT The primary objective of the Audit Committee of the Company is to act as a liaison between the Board and the Company’s independent auditors and to assist the Board in fulfilling its oversight responsibilities with respect to (a) the financial statements and other financial information provided by the Company to its shareholders, the public and others, (b) the Company’s compliance with legal and regulatory requirements, (c) the qualification, independence and performance of the auditors and (d) the Company’s risk management and internal financial and accounting controls, and management information systems. Although the Audit Committee has the powers and responsibilities set forth in its charter, the role of the Audit Committee is oversight. The members of the Audit Committee are not full-time employees of the Company and may or may not be accountants or auditors by profession or experts in the fields of accounting or auditing and, in any event, do not serve in such capacity. Consequently, it is not the duty of the Committee to conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with International Financial Reporting Standards (“IFRS”). These are the responsibilities of management and the auditors. All services to be performed by the auditors of the Company must be approved in advance by the Audit Committee. The Audit Committee held four meetings during the Financial Year. In performing its duties in accordance with its charter, the Audit Committee has: • • • • overseen the Company’s relationship with the auditors; reviewed the Company’s interim and annual financial statements; reviewed and assessed the effectiveness of systems of risk management and internal controls; and reported to the Board on the proceedings and deliberations of the Audit Committee. Nominating and Corporate Governance Committee The Board has established a Nominating and Corporate Governance Committee, which operates under a charter approved by the Board. The primary objective of the Nominating and Corporate Governance Committee is to assist the Board in fulfilling its oversight responsibilities by (a) identifying individuals qualified to become Board and Board committee members and recommending that the Board select director nominees for appointment or election to the Board; and (b) developing and recommending to the Board corporate governance guidelines for the Company and making recommendations to the Board with respect to corporate governance practices. The Nominating and Corporate Governance Committee monitors the disclosure of conflicts of interest to the Board and ensures that no director will vote in respect of a matter in which such director has a material interest. The members of the Nominating and Corporate Governance Committee are Mr. He, Mr. Chen, Mr. Hall and Mr. Burns. Mr. He serves as Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee met during the Financial Year to review its charter, to review the articles of the Company, to assess the competencies and characteristics represented on the Board, to review the results of a Board effectiveness survey and self-assessments and to confirm compliance with regulatory, corporate governance and disclosure requirements. The Nominating and Corporate Governance Committee is also responsible for reviewing and monitoring the training and continuous professional development of directors and senior management as required under Code Provision D.3.1(b) of Appendix 14 to the Hong Kong Listing Rules. 30 China Gold International Resources Corp. Ltd.CORPORATE GOVERNANCE REPORT During the year, the Nominating and Corporate Governance Committee adopted a diversity policy setting out the approach to diversity of members of the Board. The Company recognizes and embraces the benefits of diversity of Board members. The Nominating and Corporate Governance Committee works hard to ensure that the Board has a balance of skills, experience and diversity of perspectives appropriate to the requirements of the Company’s business. All Board appointments will continue to be made on a merit basis with due regard for the benefits of diversity of the Board members. Selection of candidates will be based on a range of diversity perspectives, including, but not limited to, (i) business experience; (ii) specialized skills and other experiences; (iii) race, ethnicity, international background, gender and age (iv) applicable regulatory requirements; and issues involving possible conflicts of interest. The ultimate decision will be made upon the merits and contribution that the selected candidates will bring to the Board. No measurable objectives for achieving diversity were specifically set by the Nominating and Corporate Governance Committee during the year, other than the recruitment of the most suitable candidate for a position. Compensation and Benefits Committee The Board has established a Compensation and Benefits Committee, which operates under a charter approved by the Board. The primary objective of the Compensation and Benefits Committee is to discharge the Board’s responsibilities relating to the compensation and benefits for senior executives and directors of the Company. This role includes reviewing the adequacy and form of compensation for senior executives and the directors, determining the recipients of and the nature and size of share compensation awards granted from time to time and determining any bonuses to be awarded. The members of the Compensation and Benefits Committee are Mr. He, Mr. Chen, Mr. Hall and Mr. Burns. Mr. He is the Chairman of the Compensation and Benefits Committee. The Compensation and Benefits Committee met during the Financial Year to review its charter, to assess the performance and compensation of the Chief Executive Officer, to review the compensation and benefits for senior executives and directors of the Company and to complete self-assessments. The Compensation and Benefits Committee made recommendations to the Board for adjustments to compensation for the Company’s senior executives on various occasions throughout the Financial Year. Health, Safety and Environmental Committee The Board has established a Health, Safety and Environmental Committee, which operates under a charter approved by the Board. The primary objective of the Health, Safety and Environmental Committee is to discharge the Board’s responsibilities relating to compliance with applicable health, safety and environmental rules and regulations. This role includes assisting the Board in its oversight of the development, implementation and evaluation by management of the Company’s health, safety and environmental objectives and for monitoring the Company’s compliance with applicable health, safety and environmental laws and regulations. The members of the Health, Safety and Environmental Committee are Mr. He, Mr. Chen, Mr. Hall and Mr. Burns. Mr. He is the Chairman of the Health, Safety and Environmental Committee. The Health, Safety and Environmental Committee met during the Financial Year to receive reports from the Chief Safety Officers from the CSH and Jiama mines, to review the findings of an independent safety audit, and to complete self-assessments. The Health, Safety and Environmental Committee made recommendations to the mine sites for continuous improvements. Ad Hoc and Special Committees In appropriate circumstances, the Board will establish a special committee to review a matter in which several directors or management may have a conflict of interest. 31 Annual Report 2013CORPORATE GOVERNANCE REPORT MEETINGS OF THE BOARD AND BOARD COMMITTEES The Board holds regular quarterly meetings by means of telephone conferencing facilities and meets as required between quarterly meetings to update the directors on corporate developments. During regular quarterly meetings, the non-executive and independent non-executive directors have an opportunity to meet separate from management. Management also communicates informally with the Board on a regular basis, and solicits the advice of the Board members on matters falling within their special knowledge or experience. In addition, the independent directors meet regularly on a formal and informal basis to facilitate the exercise of their independent judgment. During the Financial Year, four Board meetings, four Audit Committee meetings, one Nominating and Corporate Governance Committee meeting, one Compensation and Benefits Committee meeting, two Health, Safety and Environmental Committee meetings and three meetings of the Independent Directors was held. Attendance by the directors at the Board and Board committee meetings for the Financial Year was as follows: Attendance record for the Board and Board Committee meetings during the Nominating Health, and Corporate Compensation Safety and Meetings Audit Governance and Benefits Environmental of the Board Committee Committee Committee Committee Independent Financial Year AGM meetings meetings meetings meetings meetings Directors Number of Attendances/Number of Meetings Executive Directors Zhaoxue Sun (Chairman, Resigned on February 14, 2014) Xin Song Zhanming Wu Xiangdong Jiang Non-Executive Directors Bing Liu (Appointed as Executive Director on February 14, 2014) Independent Non-Executive Directors Ian He Yunfei Chen Gregory Hall John King Burns 1/1 0/1 1/1 0/1 0/1 1/1 1/1 0/1 1/1 3/4 4/4 4/4 4/4 4/4 4/4 4/4 4/4 4/4 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 4/4 4/4 4/4 4/4 2/2 2/2 2/2 2/2 2/2 2/2 2/2 2/2 6/6 6/6 6/6 6/6 5/5 5/5 5/5 5/5 CODE OF BUSINESS CONDUCT AND ETHICS The Company has adopted a Code of Business Conduct and Ethics applicable to all employees, consultants, executive officers and directors regardless of their position in the Company, at all times and everywhere the Company does business. The Code of Business Conduct and Ethics provides that the Company’s employees, consultants, executive officers and directors will uphold its commitment to a culture of honesty, integrity and accountability and the Company requires the highest standards of professional and ethical conduct from its employees, consultants, executive officers and directors. The Company’s employees, executive officers and directors are required to confirm, on an annual basis, that they have reviewed the Company’s Code of Business Conduct and Ethics and if they are aware of any actual or potential conflicts of interest. 32 China Gold International Resources Corp. Ltd.CORPORATE GOVERNANCE REPORT The Company’s Nominating and Corporate Governance Committee monitors compliance with the Code of Business Conduct and Ethics and the disclosure of conflicts of interest by directors with a view to ensuring that no director votes on a matter in respect of which he has a material interest. APPOINTMENT AND RE-ELECTION OF DIRECTORS The Board determines, in light of the opportunities and risks facing the Company, what competencies, skills and personal qualities it should seek in new directors in order to add value to the Company. Based on this framework, the Nominating and Corporate Governance Committee developed a skills matrix outlining the Company’s desired complement of competencies, skills and characteristics. The specific make-up of the matrix includes technical, geological and engineering knowledge, financial literacy, mining industry experience, public company experience and legal knowledge. The Nominating and Corporate Governance Committee assesses the competencies and characteristics represented on the Board annually and utilize the matrix to determine the Board’s strengths and to identify areas for improvement. This analysis assists the Nominating and Governance Committee in discharging its responsibility for approaching and proposing new nominees to the Board and for assessing directors on an ongoing basis. Unless a director dies, resigns or is removed from office in accordance with the Business Corporations Act, the term of office of each of the Company’s director’s ends at the conclusion of the next annual general meeting following his or her most recent election or appointment. At every annual general meeting the shareholders entitled to vote at the annual general meeting for the election of directors are entitled to elect a board consisting of the number of directors for the time being set under the Company’s articles and all the directors cease to hold office immediately before such election but are eligible for re-election. If the Company fails to hold an annual general meeting on or before the date by which the annual general meeting is required to be held under the Business Corporations Act or the shareholders fail, at the annual general meeting, to elect or appoint any directors then each director then in office continues to hold office until the earlier of the date on which his or her successor is elected or appointed, or the date on which he or she otherwise ceases to hold office under the Business Corporations Act or the Company’s articles. SECURITIES TRANSACTIONS BY DIRECTORS The Company has adopted policies in its Corporate Disclosure, Confidentiality and Securities Trading Policy that has terms which are no less exacting than those set out in Appendix 10 of the Hong Kong Listing Rules (“Model Code”). Having made specific enquiry of all the directors of the Company, all the directors confirmed that they have complied with the required standard of dealings as set out in the Model Code. Furthermore, if a director (a) enters into a transaction involving a security of the Company or, for any other reason, the direct or indirect beneficial ownership of, or control or direction over, securities of the Company changes from that shown or required to be shown in the latest insider report filed by the director, or (b) the director enters into a transaction involving a related financial instrument, the director must, within the prescribed period, file an insider report in the required form on the System for Electronic Disclosure by Insiders website at www.sedi.ca. A “related financial instrument” is defined as: (a) an instrument, agreement, security or exchange contract the value, market price or payment obligations of which are derived from, referenced to or based on the value, market price or payment obligations of a security, or (b) any other instrument, agreement or understanding that affects, directly or indirectly, a person’s economic interest in respect of a security or an exchange contract. 33 Annual Report 2013CORPORATE GOVERNANCE REPORT REMUNERATION OF DIRECTORS The Company’s director emolument policy is administered by the Compensation and Benefits Committee with regard to comparable market statistics. Decisions relating to the compensation of directors are reported by the Compensation and Benefits Committee to the Board for approval. The Company pays its independent directors a cash retainer for acting as independent directors and for their roles on various Board committees. The amount was increased from of CAD$1,000 per month to CAD$4,000 per month in May, 2013. For the Financial Year, the Company paid additional cash compensation of AUD33,335 to Mr. Hall, in his capacity as an independent director, as consulting fees for geological advice on planning exploration programs and project generation activity. The Company paid Mr. He, the defacto lead independent director and Chairman of the Board committees, a cash retainer of CAD$1,500 per month which was increased to CAD$4,500 per month in May, 2013. On June 1, 2010, the Company granted 100,000 stock options to each of its independent directors pursuant to the 2007 Stock Option Plan, with such stock options having a five-year term and vesting as to 20% immediately with an additional 20% vesting on June 2, 2011, June 2, 2012, June 2, 2013 and June 2, 2014 at the following exercise prices: from June 1, 2010 until June 1, 2011, CAD$4.35 per share; from June 2, 2011 until June 1, 2012, CAD$4.78 per share; from June 2, 2012 until June 1, 2013, CAD$5.21 per share; from June 2, 2013 until June 1, 2014, CAD$5.64 per share; and from June 2, 2014 until June 1, 2015, CAD$6.09 per share. Currently no other compensation is paid to the directors of the Company for acting as directors, although the directors have been granted and will continue to receive stock options from time to time. The directors are reimbursed for actual expenses reasonably incurred in connection with the performance of their duties as directors. Details regarding the remuneration of directors of the Company are set out in Note 10 of the Financial Statements. INTERNAL CONTROLS The Board is responsible for overseeing the internal controls of the Company. Internal controls are used by the Board to facilitate the effectiveness and efficiency of operations, to safeguard the investment of shareholders and assets of the Company and to ensure compliance with relevant statutory and regulatory requirements. The Company’s internal control policies are designed to provide reasonable, but not absolute, assurance against material misstatements and to help the Board identify and mitigate, but not eliminate, risk exposure. The Audit Committee and the Board have conducted a review and are of the view that the Company’s current internal control system is effective in safeguarding the investment of shareholders and assets of the Company. AUDITORS The Company’s auditor is Deloitte Touche Tohmatsu of Hong Kong. Deloitte Touche Tohmatsu were first appointed as auditor of China Gold International on April 1, 2010. The appointment of Deloitte Touche Tohmatsu was approved by ordinary resolution of the shareholders at the Company’s annual and special meeting held on June 17, 2010. Deloitte Touche Tohmatsu will be nominated for re-appointment as auditors of the Company for the fiscal year 2013 at the Company’s upcoming annual general meeting, at a remuneration to be fixed by the Board. Deloitte Touche Tohmatsu is independent of the Company in accordance with Section 290 “Independence – Assurance Engagements” of the Code of Ethics for Professional Accountants issued by the Hong Kong Institute of Certified Public Accountants. The financial reporting responsibilities and audit report of Deloitte Touche Tohmatsu are set out on page 65 of this Report. 34 China Gold International Resources Corp. Ltd.CORPORATE GOVERNANCE REPORT Deloitte & Touche LLP of Canada served as auditor of China Gold International until April 1, 2010. The Company continues to use the services of Deloitte & Touche LLP from time to time for tax compliance advice relating to transactions and proposed transactions of the Company and its subsidiaries. The fees paid/payable to Deloitte Touche Tohmatsu and Deloitte & Touche LLP in respect of audit and non-audit services provided during the Financial Year were as follows: Nature of services rendered Audit fees (1) Non-audit fees (2) Total Notes: Fees paid/payable (US$) $714,000.00 $3,116.19 $717,116.19 1. Fees for audit services consisted of fees paid to Deloitte Touche Tohmatsu (US$714,000) in connection with the audit of the Company’s annual financial statements, review of the Company’s interim financial statements and other services related to securities regulatory matters. 2. Fees for non-audit services consisted of fees paid to Deloitte Touche Tohmatsu (US$3,116.19) in connection with tax planning and advice relating to transactions and proposed transactions of the Company and its subsidiaries, corporate tax return and income tax matters and matters arising from the British Columbia Securities Commission enquiry. RESPONSIBILITIES IN RESPECT OF FINANCIAL STATEMENTS The directors acknowledge their responsibility in overseeing the preparation of financial statements that provide a true and fair view of the financial affairs of the Company. With the assistance of the Company’s management, the directors ensure that the financial statements are being prepared and published in a timely manner in accordance with the applicable accounting standards and statutory requirements. SHAREHOLDERS’ RIGHTS Right to convene a meeting of shareholders The general meetings of the Company provide an opportunity for communication between the shareholders and the Board. Every company having securities listed on the Toronto Stock Exchange must hold its annual meeting of shareholders within six months from the end of its fiscal year, or at such earlier time as is required by applicable legislation. Pursuant to Section 167 British Columbia Business Corporations Act (“BCBCA”), shareholders who hold in the aggregate at least one-twentieth of the issued shares of the Company that carry a right to vote at general meetings may requisition a general meeting by delivering a signed written requisition to the Board or the Company Secretary at the Company’s principal place of business at Suite 1030, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X 1M5 for the purpose of transacting any business that may be transacted at a general meeting. Right to put enquiries to the Board Shareholders have the right to put enquiries to the Board. All enquiries shall be in writing and sent by post to the principal place of business of the Company at Suite 1030, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X 1M5, or by email to info@chinagoldintl.com for the attention of the Company secretary. 35 Annual Report 2013CORPORATE GOVERNANCE REPORT Right to put forward proposals at general meetings There are no provisions allowing shareholders to propose new resolutions at general meetings under the BCBCA. However, qualified shareholders (as defined in section 187 of the BCBCA) may put forward a proposal for the next general meeting pursuant to Part 5, Division 7 of the BCBCA. INVESTOR RELATIONS AND COMMUNICATION WITH SHAREHOLDERS The Company follows a policy of disclosing relevant information to shareholders in a timely manner. Members of the Board meet and communicate with shareholders at the AGM of the Company. The Chairman proposes separate resolutions for each issue to be considered and puts each proposed resolution to the vote by way of a poll. Voting results are posted on the Company’s website on the day of the AGM. Our corporate website which contains corporate information, corporate governance practice, interim and annual reports, news releases, announcements and circulars issued by the Company to enable the Company’s shareholders to have timely and updated information of the Company. 36 China Gold International Resources Corp. Ltd.CORPORATE GOVERNANCE REPORT DIRECTORS Executive Directors Xin Song (Chairman) Bing Liu (Chief Executive Officer) Zhanming Wu Xiangdong Jiang Non-Executive Directors Lianzhong Sun Independent Non-Executive Directors Ian He Yunfei Chen Gregory Hall John King Burns AUDIT COMMITTEE Ian He (Chairman) Yunfei Chen Gregory Hall John King Burns NOMINATING AND CORPORATE GOVERNANCE COMMITTEE Ian He (Chairman) Yunfei Chen Gregory Hall John King Burns COMPANY SECRETARY (HONG KONG) Ngai Wai Fung REGISTERED OFFICE One Bentall Centre Suite 1030, 505 Burrard Street Vancouver, British Columbia Canada V7X 1M5 PRINCIPAL PLACE OF BUSINESS IN HONG KONG 18/F, Tesbury Centre 28 Queen’s Road East Wanchai, Hong Kong PRINCIPAL BANK (CANADA) BMO Bank of Montreal PRINCIPAL BANKS (HONG KONG) Bank of China Agricultural Bank of China Industrial and Commercial Bank of China (Asia) PRINCIPAL SHARE REGISTER Canadian Stock Transfer Company Inc. Suite 1600-1066 West Hastings Street Vancouver, British Columbia Canada V6E 3X1 HONG KONG SHARE REGISTER COMPENSATION AND BENEFITS COMMITTEE Computershare Hong Kong Investor Services Limited Ian He (Chairman) Yunfei Chen Gregory Hall John King Burns HEALTH, SAFETY AND ENVIRONMENTAL COMMITTEE Ian He (Chairman) Yunfei Chen Gregory Hall John King Burns CORPORATE SECRETARY (CANADA) Jerry Xie Shops 1712-1716, 17/F Hopewell Centre 183 Queen’s Road East Wanchai, Hong Kong INDEPENDENT AUDITOR Deloitte Touche Tohmatsu Certified Public Accountants One Pacific Place 35th Floor, 88 Queensway Hong Kong WEBSITE ADDRESS www.chinagoldintl.com 37 Annual Report 2013CORPORATE INFORMATION Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2013 (Stated in U.S. dollars, except as otherwise noted) FORWARD-LOOKING STATEMENTS THE COMPANY OVERVIEW PERFORMANCE HIGHLIGHTS SELECTED ANNUAL INFORMATION OUTLOOK RESULTS OF OPERATIONS SELECTED QUARTERLY FINANCIAL DATA SELECTED QUARTERLY AND ANNUAL PRODUCTION DATA AND ANALYSIS REVIEW OF QUARTERLY AND ANNUAL DATA NON-IFRS MEASURES MINERAL PROPERTIES THE CSH MINE THE JIAMA MINE LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS OPERATING CASH FLOW INVESTING CASH FLOW FINANCING CASH FLOW COMMITMENTS AND CONTINGENCIES RELATED PARTY TRANSACTIONS PROPOSED TRANSACTIONS CRITICAL ACCOUNTING ESTIMATES CHANGE IN ACCOUNTING POLICIES FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS OFF-BALANCE SHEET ARRANGEMENTS DIVIDEND AND DIVIDEND POLICY OUTSTANDING SHARES DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING RISK FACTORS QUALIFIED PERSON 40 41 41 42 43 43 44 44 44 46 48 50 50 52 58 59 59 59 59 60 61 62 62 62 62 62 63 63 63 64 64 MANAGEMENT’S DISCUSSION AND ANALYSIS The following Management Discussion and Analysis of financial condition and results of operations (“MD&A”) is prepared as of March 25, 2014. It should be read in conjunction with the consolidated financial statements and notes thereto of China Gold International Resources Corp. Ltd. (referred to herein as “China Gold International”, the “Company”, “we” or “our” as the context may require) for the year ended December 31, 2013 and the year ended December 31, 2012, respectively. Unless the context otherwise provides, references in this MD&A to China Gold International or the Company refer to China Gold International and each of its subsidiaries collectively on a consolidated basis. The following discussion contains certain forward-looking statements relating to the Company’s plans, objectives, expectations and intentions, which are based on the Company’s current expectations and are subject to risks, uncertainties and changes in circumstances. Readers should carefully consider all of the information set out in this MD&A, including the risks and uncertainties outlined further in the Company’s Annual Information Form (“Annual Information Form” or “AIF”) dated March 25, 2014 on SEDAR at www.sedar.com. For further information on risks and other factors that could affect the accuracy of forward-looking statements and the result of operations of the Company, please refer to the sections titled “Forward-Looking Statements” and “Risk Factors” and to discussions elsewhere within this MD&A. China Gold International’s business, financial condition or results of operations could be materially and adversely affected by any of these risks. FORWARD-LOOKING STATEMENTS Certain statements made herein, other than statements of historical fact relating to the Company, represent forward- looking information. In some cases, this forward-looking information can be identified by words or phrases such as “may”, “will”, “expect”, “anticipate”, “contemplates”, “aim”, “estimate”, “intend”, “plan”, “believe”, “potential”, “continue”, “is/ are likely to”, “should” or the negative of these terms, or other similar expressions intended to identify forward-looking information. This forward-looking information includes, among other things; China Gold International’s production estimates, business strategies and capital expenditure plans; the development and expansion plans and schedules for the CSH Gold Mine and the Jiama Mine; China Gold International’s financial condition; the regulatory environment as well as the general industry outlook; general economic trends in China; and statements respecting anticipated business activities, planned expenditures, corporate strategies, participation in projects and financing, and other statements that are not historical facts. By their nature, forward-looking information involves numerous assumptions, both general and specific, which may cause the actual results, performance or achievements of China Gold International and/or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Some of the key assumptions include, among others, the absence of any material change in China Gold International’s operations or in foreign exchange rates, the prevailing price of gold, copper and other non-ferrous metal products; the absence of lower-than-anticipated mineral recovery or other production problems; effective income and other tax rates and other assumptions underlying China Gold International’s financial performance as stated in the Company’s technical reports for its CSH Gold Mine and Jiama Mine; China Gold International’s ability to obtain regulatory confirmations and approvals on a timely basis; continuing positive labor relations; the absence of any material adverse effects as a result of political instability, terrorism, natural disasters, litigation or arbitration and adverse changes in government regulation; the availability and accessibility of financing to China Gold International; and the performance by counterparties of the terms and conditions of all contracts to which China Gold International and its subsidiaries are a party. The forward- looking information is also based on the assumption that none of the risk factors identified in this MD&A or in the AIF that could cause actual results to differ materially from the forward-looking information actually occurs. 40 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS Forward-looking information contained herein as of the date of this MD&A is based on the opinions, estimates and assumptions of management. There are a number of important risks, uncertainties and other factors that could cause actual actions, events or results to differ materially from those described as forward-looking information. China Gold International disclaims any obligation to update any forward-looking information, whether as a result of new information, estimates, opinions or assumptions, future events or results, or otherwise except to the extent required by law. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The forward-looking information in this MD&A is expressly qualified by this cautionary statement. The reader is cautioned not to place undue reliance on forward-looking information. THE COMPANY Overview China Gold International is a gold and base metal mining company based in Vancouver, Canada. The Company’s main business involves the acquisition, development and exploration of gold and base metal properties. The Company’s principal mining operations are the Chang Shan Hao Gold Mine (“CSH Gold Mine” or “CSH Mine” or “CSH”), located in Inner Mongolia, China and the Jiama Copper-Gold Polymetallic Mine (“Jiama Mine” or “Jiama”), located in Tibet, China. China Gold International holds a 96.5% interest in the CSH Gold Mine, while its Chinese joint venture (“CJV”) partner holds the remaining 3.5% interest. China Gold International commenced trial gold production at the CSH Gold Mine in July 2007 and commercial production on July 1, 2008. The Company acquired a 100% interest in the Jiama Mine on December 1, 2010. Jiama hosts a large scale copper-gold polymetallic deposit consisting of copper, gold, molybdenum, silver, lead and zinc. The Jiama Mine commenced commercial production in September 2010. 41 Annual Report 2013 China Gold International’s common shares are listed on the Toronto Stock Exchange (“TSX”) and The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange” or “HKSE”) under the symbol CGG and the stock code 2099, respectively. Additional information about the Company, including the Company’s Annual Information Form, is available on SEDAR atsedar.com as well as Hong Kong Exchange News at hkexnews.hk. Performance Highlights Three months ended December 31, 2013 • Revenue decreased by 27% to US$68.5 million from US$93.4 million for the same period in 2012; • Net profit after income taxes decreased by 68% to US$6.7 million from US $21.0 million for the same period in 2012. • Gold production from the CSH Mine decreased by 11% to 31,608 ounces from 35,403 ounces for the same period in 2012. • Copper production from the Jiama Mine decreased by 25% to 2,462 tonnes (approximately 5.4 million pounds from 3,293 tonnes (approximately 7.3 million pounds) for the same period in 2012. Year ended December 31, 2013 • Revenue decreased by 9% to US$302.6 million from US$332.4 million for the same period in 2012; • Net profit after income taxes decreased by 22% to US$57.2 million from US$73.5 million for the same period in 2012. • Gold production from the CSH Mine decreased by 6% to 131,418 ounces from 139,443 ounces for the same period in 2012. • Copper production from the Jiama Mine increased by 10% to 12,847 tonnes (approximately 28.3 million pounds) from 11,712 tonnes (approximately 25.8 million pounds) for the same period in 2012. • At CSH, the Company built a new 30,000 tonne per day (“tpd”) stand-alone crushing, heap leaching and ADR (Absorption, Desorption and Refining) plant system in addition to the existing 30,000 tpd facility. Expansion construction was fully completed at the end of November 2013 and followed by the commissioning stage. Gold output is expected in the second quarter of 2014. 42 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS • The Company completed the Jiama Mine’s Phase II Independent Feasibility Study and released an updated NI 43- 101 compliant report. The results showed copper measured and indicated mineral resources increased to 1,486 million tonnes at 0.41% Copper from 1,053 million tonnes at 0.44% Copper; and copper proved and probable mineral reserves increased to 441 million tonnes at a grade of 0.61% Copper from 363 million tonnes at 0.77% Copper. Contained copper in the resources increased to 6.14 million tonnes from 4.64 million tonnes. Selected Annual Information US$ Millions except for per share Total revenue Profit from continuing operations Net profit (loss) Basic earnings (loss) per share (cents) Diluted earnings (loss) per share (cents) Total assets Total non-current liabilities Distribution or cash dividends declared per share Outlook Year ended December 31 2013 2012 2011 2010 2009 303 76 57 13.88 13.88 2,219 431 – 332 99 74 17.90 17.90 1,806 279 – 311 110 82 20.04 20.04 1,745 321 – 133 58 27 13.82 13.76 1,656 322 – 81 19 (8) (5.58) (5.58) 175 89 – • • Expected production of 208,000 ounces of gold in 2014. The 2014 copper production for the Company was previously expected to be about 50 million pounds. At the present time, the Company is not able to provide definitive 2014 production guidance for Jiama Mine as the mine is dealing with reduced power supply that has affected the central Tibet region during the winter months. The Tibet government and the Central Government of China are currently progressing a power supply development plan. Current locally-generated power supply available to the Company is subject to seasonal interruptions during the winter months due to the harsh climate. • Jiama’s production capacity expansion will be implemented in two stages. Stage one, which is expected to be completed during the first half of 2014, includes completion of a new 22,000 tpd mill. Stage two is expected to be completed by the first half of 2015. By the end of 2015, Jiama anticipates reaching capacity of 50,000 tpd of ore. • The Company will continue to leverage the technical and operating experience of the Company’s controlling shareholder, China National Gold Group Corporation (“CNG”), to improve operations at its mines. In addition, the Company continues to focus its efforts on increasing production while minimizing costs at both mines. • To fulfill its growth strategy, the Company is continually working with CNG and other interested parties to identify potential international mining acquisition opportunities, namely projects outside of China, which can be readily and quickly brought into production with the possibility of further expansion through continued exploration. 43 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Selected Quarterly Financial Data QUARTER ENDED (US$ in thousands except per share) Revenues Cost of sales Mine operating earnings General and administrative expenses Exploration and evaluation expenses Income from operations Foreign exchange gain (loss) Finance costs Profit before income tax Income tax expense Net income Basic earnings per share (cents) Diluted earnings per share (cents) 31-Dec 30-Sep 68,507 50,990 17,517 5,471 83 75,733 48,478 27,255 7,410 45 2013 30-Jun 81,622 53,809 27,813 5,665 50 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar 2012 76,746 47,456 29,290 7,157 69 93,387 54,190 39,197 7,880 149 84,938 51,207 33,731 6,020 59 76,484 49,896 26,588 5,311 124 77,578 52,165 25,413 5,838 58 11,962 19,800 22,098 22,064 31,168 27,652 21,153 19,517 (216) 2,916 8,861 2,202 6,659 1.60 1.60 894 2,665 684 2,500 152 2,573 (844) 3,230 1,976 3,080 (1,125) 3,416 164 2,823 19,162 24,769 20,755 28,545 32,903 18,188 20,041 3,279 5,208 5,676 7,506 6,508 5,564 6,585 15,883 19,561 15,079 21,039 26,395 12,624 13,456 3.84 3.84 4.78 4.78 3.66 3.66 5.13 5.13 6.44 6.44 3.07 3.07 3.27 3.27 Selected Quarterly and Annual Production Data and Analysis Gold sales (US$ million) Realized average price* (US$) of gold per ounce Gold produced (ounces) Gold sold (ounces) Total production cost**(US$) of gold per ounce Cash production cost**(US$) of gold per ounce CSH Mine Three months ended December 31, 2013 41.41 1,242 31,608 33,340 854 664 2012 62.40 1,660 35,403 37593 987 887 Year ended December 31, 2013 2012 178.14 223.78 1,362 131,418 130,772 866 707 1,611 139,443 138,943 928 825 * Net of resource compensation fees that is based on revenue and paid to PRC government ** Non-IFRS measure. See ‘Non-IFRS measures’ section of this MD&A Gold production at the CSH Mine decreased by 11% from 35,403 ounces for the three months ended December 31, 2012 to 31,608 ounces for the three months ended December 31, 2013. The major reason for the decrease in production is the increased height of the leaching heap which led to a longer gold recovery period. The cash production cost of gold per ounce for the three months ended December 31, 2013 decreased compared with the same period in 2012, mainly because of lower waste rock expenditures in 2013, which are included in the cash production cost of gold per ounce. The decreased waste rock expenditure is also the major contributor to the lower total production cost of gold per ounce for the three months ended December 31, 2013 compared with 2012. 44 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS Copper sales* (US$ in millions) Realized average price**(US$) of copper per pound after smelting fee discount Copper produced (tonnes) Copper produced (pounds) Copper sold (tonnes) Copper sold (pounds) Gold produced (ounces) Gold sold (ounces) Silver produced (ounces) Silver sold (ounces) Total production cost*** (US$) of copper per pound Total production cost*** (US$) of copper per pound after by-products credits***** Cash production cost**** (US$) per pound of copper Cash production cost**** (US$) of copper per pound after by-products credits***** Jiama Mine Three months ended December 31, Year ended December 31, 2013 19.32 2.54 2,462 2012 17.99 2.77 3,293 2013 85.12 2.75 12,847 2012 69.64 2.82 11,712 5,427,554 7,259,351 28,323,626 25,820,417 3,452 2,941 14,035 11,186 7,610,436 6,483,437 30,941,765 24,660,574 3,893 4,494 197,231 302,868 3.36 2.37 2.74 1.75 3,447 3,623 239,506 247,531 3.67 2.10 3.08 1.51 16,908 17,600 1,010,966 1,118,311 3.55 2.30 2.90 1.65 13,487 13,496 874,577 862,497 4.13 2.58 3.04 1.49 * Net of resource compensation fees that is based on revenue and paid to PRC government ** a discount factor of 15-17% is applied to the copper bench mark price to compensate the refinery costs incurred by the buyers *** Production costs include expenditures incurred at the mine sites for the activities related to production including mining, processing, mine site G&A and royalties etc. **** Non-IFRS measure. See ‘Non-IFRS measures’ section of this MD&A ***** By-products credit refers to the sales of gold and silver during the corresponding period. During the three months ended December 31, 2013, the Jiama Mine produced 2,462 tonnes (approximately 5.4 million pounds) of copper, which decreased by 25% compared with the three months ended December 31, 2012 (3,293 tonnes, or 7.3 million pounds). The decrease in production was mainly due to a production interruption caused by a seasonal electricity shortage starting in December 2013. The cash production cost of copper per pound decreased due to a decrease in mining and processing costs during the current period. The decrease in total production cost was due to a lower amortization of mining rights with an increased ore reserve base in Jiama Mine. The Company is closely monitoring production costs at the Jiama Mine and continues to make efforts to reduce costs. 45 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS Review of Quarterly and Annual Data Three months ended December 31, 2013 compared to three months ended December 31, 2012 Revenue of US$68.5 million for the fourth quarter of 2013 decreased by US$24.9 million, from US$93.4 million for the same period in 2012. Revenue from the CSH Mine accounted for 60%, or US$41.4 million (2012: US$62.4 million), a decrease of US$21 million due to a 11% decrease in gold sales volume and significantly lower gold prices. Gold produced by the CSH Mine decreased from 35,403 ounces (gold sold: 37,593 ounces) in 2012 to 31,608 ounces (gold sold: 33,340) in 2013 due to the increased height of the leaching heap resulting to a longer gold recovery period. Revenue from the Jiama Mine accounted for 40% of total revenue, or US$27.1 million (2012: US$31 million), a decrease of US$3.9 million for 2013 compared to 2012. Total copper sold increased by 17% from 2,941 tonnes (6.5 million pounds) for the three months ended December 31, 2012 to 3,452 tonnes (7.6 million pounds) for the same period in 2013. The increase in sales volume was however offset by lower realized price per tonne which attributed to the overall decrease in Jiama’s revenue. Cost of sales of US$51 million for the quarter ended December 31, 2013, decreased by US$3.2 million, from US$54.2 million for the three months ended December 31, 2012. The decrease in cost of sales was primarily due to CSH’s lower sales volume and lower production costs during the three month period in 2013, partially offset by an increase in Jiama’s cost of sales due to higher sales volume. Cost of sales as a percentage of revenue for the Company increased to 74% from 58% for the three months ended December 31, 2013 compared to 2012. Mine operating earnings of US$17.5 million for the three months ended December 31, 2013 decreased by 55%, or US$21.7 million, from US$39.2 million for the comparative 2012 period. Mine operating earnings as a percentage of revenue decreased to 26% from 42% for the three months ended December 31, 2013 compared to 2012. General and administrative expenses decreased by US$2.4 million, from US$7.9 million for the quarter ended December 31, 2012 to US$5.5 million for the quarter ended December 31, 2013. The decrease is due to the Company’s implementation of an overall cost reduction program. Income from operations for the fourth quarter of 2013 of US$12 million decreased by US$19.2 million, from US$31.2 million for 2012. Finance costs of US$2.9 million for the three months ended December 31, 2013 decreased by 10%, from US$3.2 million for the same period in 2012, primarily due to interest capitalization for Jiama Phase II expansion borrowings. During the three months ended December 31, 2013 US$2.4 million (2012: Nil) of interest payments were capitalized for borrowing costs relating to the Phase II expansion project. Foreign exchange gain decreased by 74%, to a gain of US$0.2 million for the three months ended December 31, 2013 from a gain of US$0.8 million for the same 2012 period. The 2013 gain is related to the revaluation of monetary items held in Chinese RMB and Hong Kong Dollars, which was based on changes in the RMB/HKD/USD exchange rates. Interest and other income of US$31,000 for the three months ended December 31, 2013 decreased from US$1.4 million for the three months ended December 31, 2012, due to reduced interest income earned on term deposits which were utilized during 2013. 46 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS Income tax expense for the fourth quarter of 2013 decreased by 71%, to US$2.2 million from US$7.5 million for the three months ended December 31, 2012, primarily due to CSH’s reduced income tax expense. During the current quarter, the Company had US$5.9 million of deferred income tax credits (2012: US$3.0 million). Net income of the Company decreased by US$14.3 million from US$21 million for the three months ended December 31, 2012 to US$6.7 million for the three months ended December 31, 2013. Year ended December 31, 2013 compared to Year ended December 31, 2012 Revenue of US$302.6 million for the year ended December 31, 2013 decreased by US$29.8 million, from US$332.4 million for the same period in 2012. Revenue from the CSH Mine, which was significantly affected by the substantial drop in gold prices and lower production level, accounted for 59%, or US$178.1 million (2012: US$223.8 million), of total revenue for the twelve month period. The decrease in CSH’s production, due to longer recovery periods caused by the growing height of the leaching heap, contributed to the 6% decrease in gold sold from 138,943 ounces (gold produced: 139,443 ounces) in 2012 to 130,772 ounces (gold produced: 131,418 ounces) in 2013. Revenue from the Jiama Mine accounted for 41% of total revenue, or US$124.5 million (2012: US$108.6 million), an increase of US$15.9 million for 2013 compared to 2012. Total copper sold increased by 25% from 11,186 tonnes (24.7 million pounds) for the year ended December 31, 2012 to 14,035 tonnes (30.9 million pounds) for the same period in 2013 due to increased volumes of ore mined and processed, and to improved copper recovery rates. Cost of sales of US$200.7 million for the year ended December 31, 2013, decreased by US$6.8 million, from US$207.5 million for the comparative period in 2012. The decrease in cost of sales is primarily attributable to the increase in recovery rates, in addition to operation optimization of the ore processing facilities at both mines. Cost of sales as a percentage of revenue increased to 66% for the year ended December 31, 2013 compared to 62% for the year ended December 31, 2012. Mine operating earnings of US$101.9 million for the year ended December 31, 2013 decreased by 18%, or US$23 million, from US$124.9 million for the comparative 2012 period. Mine operating earnings as a percentage of revenue slightly decreased from 38% for the year ended December 31, 2012 to 34% for the 2013 year. General and administrative expenses of US$25.7 million, increased by US$0.6 million, from US$25.1 million for the year ended December 31, 2012. Income from operations for the year ended December 31, 2013 of US$75.9 million decreased by 24%, or US$23.6 million, from US$99.5 million for 2012. Finance costs of US$10.6 million for the year ended December 31, 2013 decreased by 15%, from US$12.5 million for the same period in 2012, primarily due to increased interest capitalization for Jiama Phase II expansion borrowings. During the year ended December 31, 2013 US$6.1 million (2012: Nil) of interest payments were capitalized for borrowing costs relating to Jiama’s Phase II expansion project. Foreign exchange gain increased to US$1.5 million for the year ended December 31, 2013 from a gain of US$0.17 million for the same 2012 period. The 2013 gain is related to the revaluation of monetary items held in Chinese RMB and Hong Kong Dollars, which is based on changes in the RMB/HKD/USD exchange rates. 47 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS Interest and other income of US$6.8 million for the year ended December 31, 2013 decreased from US$12.6 million for the year ended December 31, 2012. The decrease is primarily due to a reduction of interest income earned on term deposits held during the 2012 comparative period. Starting from September 30, 2012, a portion of the term deposits were used to fund phase II expansion costs incurred for Jiama. Income tax expense decreased by 37%, to US$16.4 million from US$26.2 million for the year ended December 31, 2012, primarily due to a 42% decrease in CSH’s income tax expense. During the current period, the Company had US$11.4 million of deferred income tax credits (2012: US$8.5 million). Net income of the Company decreased by US$16.4 million from US$73.5 million for the year ended December 31, 2012 to US$57.1 million for the year ended December 31, 2013. NON-IFRS MEASURES The following table provides certain unit cost information on a cash cost of production per ounce (non-IFRS) basis for the CSH Gold Mine for the three months and the year ended December 31, 2013 and 2012: Cost of mining per tonne of ore Cost of mining waste per tonne of ore Other mining costs per tonne of ore Total mining costs per tonne of ore Cost of reagents per tonne of ore Other processing costs per tonne of ore Total processing cost per tonne of ore CSH Mine Three months ended December 31, Year ended December 31, 2013 US$ 1.39 1.80 0.15 3.34 1.01 1.01 2.02 2012 US$ 1.40 4.42 0.46 6.28 2.35 1.52 3.87 2013 US$ 1.43 2.01 0.38 3.82 1.25 1.07 2.32 2012 US$ 1.32 4.38 0.48 6.18 1.37 1.23 2.60 The cash cost of production is a measure that is not in accordance with IFRS. The Company has included cash production cost per ounce gold data to supplement its consolidated financial statements, which are presented in accordance with IFRS. Non-IFRS measures do not have any standardized meaning prescribed under IFRS, and therefore they may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance, operating results or financial condition prepared in accordance with IFRS. The Company has included cash production cost per ounce data because it understands that certain investors use this information to determine the Company’s ability to generate earnings and cash flow. The measure is not necessarily indicative of operating results, cash flow from operations, or financial condition as determined under IFRS. Cash production costs are determined in accordance with the Gold Institute’s Production Cost Standard. 48 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS The following table provides a reconciliation of cost of sales to the cash costs of production in total dollars and in dollars per gold ounce for the CSH Mine or per copper pound for the Jiama Mine: CSH Mine (Gold) Three months ended December 31, 2012 2013 Year ended December 31, 2013 2012 US$ US$ US$ US$ US$ Per ounce US$ Per ounce US$ Per ounce US$ Per ounce Total production costs Adjustments 28,470,677 (6,329,451) 854 (190) 37,090,554 (3,737,495) 987 113,216,814 866 128,893,485 (100) (20,806,070) (159) (14,235,594) Total cash production costs 22,141,226 664 33,353,059 887 92,410,743 707 114,657,891 928 (103) 825 Jiama Mine (Copper) Three months ended December 31, 2012 2013 Year ended December 31, 2013 2012 US$ US$ US$ US$ US$ Per Pound US$ Per pound US$ Per pound US$ Per pound Total production costs Adjustments 25,541,823 (4,722,802) 3.36 23,763,154 3.67 109,716,739 3.55 101,762,676 (0.62) (3,789,850) (0.59) (20,020,753) (0.65) (26,873,888) 4.13 (1.09) Total cash production costs 20,819,020 2.74 19,973,304 3.08 89,695,986 2.90 74,888,788 3.04 By product credits (7,471,099) (0.98) (10,160,017) (1.57) (38,602,653) (1.25) (38,192,503) (1.55) Total cash production costs after by-products credits 13,347,922 1.75 9,813,287 1.51 51,093,334 1.65 36,696,285 1.49 Production costs above include expenditures incurred on the mine sites for activities related to production. The adjustments above include depreciation and depletion, amortization of intangible assets, and selling expenses included in total production costs. 49 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS MINERAL PROPERTIES The CSH Mine The CSH Mine is located in the Inner Mongolia Autonomous Region of China (Inner Mongolia). The property hosts two low-grade, near surface gold deposits, along with other mineralized prospects. The main deposit is called the Northeast Zone (the “Northeast Zone”), while the second, smaller deposit is called the Southwest Zone (the “Southwest Zone”). The CSH Mine is owned and operated by Inner Mongolia Pacific Mining Co. Limited, a Chinese Joint Venture in which China Gold International holds a 96.5% interest and Ningxia Nuclear Industry Geological Exploration Institution (formerly known as Brigade 217) holds the remaining 3.5%. CSH Mine Expansion The CSH Mine is currently operating at a 30,000 tpd capacity, producing over 133,000 ounces of gold per annum. A NI 43-101 compliant Technical Report Expansion Feasibility Study for the CSH Gold Project (“CSH Technical Report”) has been completed by a group of Qualified Persons (“QP”). This report was prepared following the 2011 drilling campaign. The CSH Technical Report supports an expansion plan to increase the processing capacity from 30,000 tpd to 60,000 tpd with a mine life of 11 years. The CSH Technical Report delineates the open pit reserves at the CSH Mine at over 213 million tonnes of ore containing about 4.08 million ounces of gold. Gold production will be increased from the current 133,000 ounces per annum to about 260,000 ounces per annum by 2016. The estimated capital expenditure is US$212.9 million. The After-Tax Net Present Value (NPV) is US$642 million using a discount rate of 9% and an assumed gold price of $1,380/oz which is the middle price of sensitive analysis. The CSH Technical Report is available at sedar.com and hkexnews.hk. The expansion construction by the Company is completed. As of October 31, 2013, the expansion construction for the additional 30,000 tpd three stage closed circuit crushing system, the new heap leach pad and the new ADR plant were all completed. The new 80 kilometer long 110 kilovolt (“KV”) power line was also completed by the end of November 2013 and began providing power for testing in December 2013. The Company is currently performing test runs on the new 30,000 tpd crushing and processing system, from which gold output is expected in the second quarter of 2014. The capital expenditure incurred in the CSH Mine for the year ended December 31, 2013 was US$155.4 million. The major new contracts entered into during 2013 Item Contract period (effective day and No. Contract Name Counterpart Subject amount expiration date) Date of Contract 1 On-site mixed Bayannaoer Shengan RMB5,500 15 Oct. 2013 to 15 Oct. 2013 explosive contract Chemical Co., Ltd. (equivalent to 15 Oct. 2014 (Shengan) Wulatezhongqi US$902) per ton branch) with an estimated annual consumption of 10,000 ton 50 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS Production Update CSH Mine Three months ended December 31, Year ended December 31, 2013 2012 2013 2012 Ore mined and placed on pad (tonnes) 4,893,016 2,896,196 15,002,686 11,482,902 Average grade of ore (g/t) Recoverable gold (ounces) Ending ore inventory (ounces) Waste rock mined (tonnes) 0.50 46,142 61,386 0.47 39,614 36,939 0.47 155,219 61,386 0.48 138,742 36,939 14,592,377 15,403,048 74,203,141 48,603,889 For the three months ended December 31, 2013, the total amount of ore put on the leach pad was 4.9 million tonnes, with total contained gold of 46,142 ounces (1,435 kilograms). The accumulative project-to-date gold recovery rate has slightly decreased from approximately 54.39% at the end of September 2013 to 53.88% at the end of December 2013. Exploration The Company did not drill at CSH during 2013. The Company continues to conduct surface reconnaissance and exploration for expansion opportunities around the CSH Mine. Mineral Reserves Update A mine expansion plan for CSH to expand from its current 30,000 tpd to 60,000 tpd annual capacity has been prepared by the Changchun Gold Design Institute (“CGDI”). In support of this study a new mine development plan has been completed using the current resource model and a long term gold price estimate of US$1,380/ounce. Pit optimization and design was undertaken by CGDI using Micromine software. The pit limits and reserves were validated by Nilsson Mine Services Ltd. (“NMS”). Mining is carried out by the contractor China Railway 19th Bureau. Mineable reserves reported using the 2011-year end topographic surface and a cutoff grade of 0.28 g/t have increased to 213.5 million tonnes with an average diluted grade of 0.59 g/t Au. The strip ratio is 3.31 with a total of 707.4 million tonnes of waste stripped. Total material moved from the pit will be 920.9 million tonnes. CSH Mine Resources by category, Northeast and Southwest pits combined at December 31, 2013 under NI 43-101: Type Measured Indicated Measured + Indicated Inferred Quantity Mt Au g/t Au t Au Moz Metal 68.91 156.75 225.66 85.89 0.65 0.59 0.61 0.51 44.83 92.79 137.62 43.59 1.44 2.98 4.42 1.40 51 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS CSH Mine Reserves by category, Northeast and Southwest pits combined at December 31, 2013 under NI 43-101: Type Proven Probable Total The Jiama Mine Quantity Mt Au g/t Au t Au Moz Metal 67.83 115.75 183.58 0.64 0.59 0.61 43.09 68.02 111.12 1.39 2.19 3.57 The Company acquired the Jiama Mine on December 1, 2010. Jiama is a large copper-gold polymetallic deposit containing copper, gold, silver, molybdenum, and other metals located in the Gandise metallogenic belt in Tibet, Autonomous Region of China. The Jiama Mine has both underground mining and open-pit mining operations. The open-pit mining operation consists of the smaller Tongqianshan Pit and the larger Niumatang Pit. The underground mining operation consists of two shafts which will extend from an initial depth of 355 metres to a final depth of 600 metres. Phase I of the Jiama Mine commenced mining operations in the latter half of 2010 and reached its design capacity of 6,000 tpd in early 2011. Phase II Expansion The Company has retained the engineering firm Mining One Pty Ltd, in conjunction with independent consulting engineers and management to complete a feasibility study for the Jiama Mine Phase II expansion. On December 20, 2013, Mining One Pty Ltd completed a project review and, as part of its engagement, produced a NI 43-101 Technical report – Phase 2 Expansion Project based on the “Feasibility Study for the Phase II Expansion Project” as prepared by the Changchun Gold Design Institute (“Jiama Technical Report”) on the Jiama Mine. The Jiama Technical Report was filed at sedar.com and hkexnews.hk on February 4th, 2014. The Company plans to expand the Jiama Mine from its current mining and processing capacity of 6,000 tpd to 50,000 tpd of ore through the expansion of current open-pit operations and the development of new open-pit and underground mining operations. Phase II Expansion will include four open pits, one underground mine, and a new floatation plant with a processing capacity of 44,000 tpd. The annual mill processing capacity will be increased from the current 1.8 million tonnes of ore per year to 16.5 million tonnes of ore per year, producing an average of approximately 67,000 tonnes (148 million pounds) of copper, 2,400 tonnes (5.3 million pounds) of molybdenum, 42,000 ounces of gold, 2.8 million ounces of silver, 10,400 tonnes of lead and 4,000 tonnes of zinc annually over a 35 year mine life respectively. The estimated capital expenditure is US$716.2 million. The project has after-tax Net Present Value (NPV) of US$1.3 billion at a discount rate of 9% at metal price assumptions of US$2.90/lb copper, US$15.5/lb molybdenum, US$1,300/oz gold, and US$20/oz silver. The project has after-tax Internal Rate of Return (IRR) of 24% and payback period of 6.7 years. Since its commencement the advanced preparation, including the completion of some civil engineering and works and the procurement of long lead time items has progressed as scheduled. The first stage of construction including 220m x 20m ROM silo, pebble crusher, grinding and milling facility, SAG, milling and floatation circuits, high- efficiency concentrate thickener, power and water supply system, and tailings thickener to expand mining operations from 6,000 tpd to 28,000 tpd is expected to be completed by the first half of 2014. The pre-striping for open pits and transportation system to supply ore for first stage of production facility will be completed at first half of 2014 as well. Stage two construction of an additional 22,000 tpd capacity is expected to be completed by the first half of 2015. The capital expenditure incurred in the Jiama Mine for the year ended December 31, 2013 was US$351.6 million. 52 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS The major new contracts entered into during 2013 Item No Contract name Counterpart Contract period (effective day Subject amount (RMB) Subject Nature of and expiration Contract date) amount (US $) 1 Belt Conveyor Sichuan Zigong 41,900,000 6,868,852 Equipment 15 Jan. 2013 Equipment (1) Conveying Machine Purchase and Sales Group Co., Ltd. Contract procurement 2 Jiama Copper The Second 166,195,340 27,245,138 Open stripping 15 Jan. 2013 Polymetallic Deposit Engineering Co., LTD South Pit Infrastructure of China Railway 17th Open Stripping Engineering (4,500,280 m3) Group PRC engineering 31 July 2014 3 Jiama Copper Sichuan Weibo 28,518,600 4,675,180 Transmission 5 Mar. 2013 polymetallic Deposit Electric Power 110KV Transmission Engineering Co. Ltd. Line Project (Section 1) line project 14 June 2013 4 Gaze New District Dtaff Huadian Fourth 25,772,631 4,225,021 Building 15 April 2013 Dormitory Building Construction Installation Project Engineering Co., LTD installation 31 July 2013 project 5 Ore Processing Whole Dandong Dongfang 27,060,000 4,436,066 Equipment 30 May 2013 Flowsheet Automation Measurement And Control Information Control Technology System Purchase and Co., Ltd. sale Contract procurement 6 Ore Processing Plant Changsha Engineering 29,800,000 4,885,246 Engineering and Yailings Engneering & Research Institute Design of Jiama Phase Ltd. of Nonferrous II Expansion Metallurgy design 53 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS Item No Contract name Counterpart Contract period (effective day Subject amount (RMB) Subject Nature of and expiration Contract date) amount (US $) 7 2013 the Second The Second 40,000,000 6,557,377 Openings and 1 Oct. 2013 Engineering Co., LTD Engineering Co., LTD of China Railway 17th of China Railway 17th Group PRC undertaking Group PRC development 30 Sep. 2014 engineering Tibet Huatailong 4650 Openings and Development Engineering 8 Jiama Copper Jiangxi Weile 45,000,000 7,377,049 Copper 30 April 2013 Polymetallic Deposit Construction Group Mining and Processing Co. Ltd. exploring and 30 April 2015 mining project Technical Revolution Project – Niumatang Area 4535 Copper Exploring and Mining Project Production Update Ore mined (tonnes) Waste mined (tonnes) Average copper grade of ore Copper recovery rate Average gold grade of ore (g/t) Gold recovery rate Average silver grade of ore (g/t) Silver recovery rate Power Shortage Jiama Mine Three months ended December 31, Year ended December 31, 2013 2012 2013 2012 388,459 542,253 2,104,167 – 1,309,106 0.80% 91% 0.48 67% 22.33 65% 0.72% 89% 0.49 77% 22.10 75% 958,453 0.70% 90% 0.39 66% 21.30 64% 1,936,857 5,395,412 0.69% 87% 0.39 66% 21.90 62% Jiama Mine is currently dealing with reduced power supply that has affected the central Tibet region during the winter months. The copper production of fourth quarter 2013 decreased by 25% due to the power shortage. The output of first quarter 2014 got significant impact as the power shortage. 54 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS The Company has implemented counteractive measures to mitigate the effect of power shortages, such as accelerating previously scheduled equipment maintenance and time off for employees during this time. Production has slowed as a result of the power supply issues, and the Jiama Mine temporarily suspended operations around the Chinese holiday period in January 2014. Production has resumed with the assistance of the local government and hydro companies, but at less than the planned capacity. The Company anticipates that the Jiama Mine will be able to resume full production in April or May 2014 as seasonal power supply comes back online. Once the full power supply is restored, the Company expects to be able to increase productivity and efficiency in order to generate additional production to meet its previously expected and aforementioned 2014 guidance of approximately 50 million pounds of copper. However, any increase in productivity will depend on adequate power supply and the successful implementation of efficiency and mine planning being undertaken during the slowdown. Accordingly, the Company will need to confirm its 2014 guidance for the Jiama Mine in mid-2014. The construction of Phase II expansion is not expected to be significantly affected by the power shortage and is expected to be completed on time. Exploration By the end of December 2013, the Jiama Mine completed its 2013 drilling program for a total of 3,434 meters in the existing Tongqianshan open pit. The Company is currently evaluating the drilling results, which will be available in the first half of 2014. The major goals are to further define the main high grade ore body in the current open pit mining area and also to better understand the geological structural on controlling metallogenic regularity. The result of drilling will be used for further resource update. To identify potential mineral deposits, the Company is planning to have an approximately 12,280 meter drilling program at Jiama in 2014. The following table shows exploration expenditures expensed and capitalized during the years ended December 31, 2013 and December 31, 2012. Exploration expensed Exploration capitalized Mineral Resources Estimate Jiama Mine Year ended December 31 2013 2012 US$ in millions US$ in millions – 4.32 4.32 – 8.84 8.84 A Mineral Resource estimate, dated November 20, 2013, has been independently completed by Mining One Pty Ltd in accordance with the CIM Definitions Standards under NI 43-101. The Resource estimate is based on information collected up to November 12, 2012. Assaying and geological logging and testing of the core subsequent to November 2012 including an extensive drill program conducted in 2013 will be included in future updates of the Mineral Resources and Reserves. 55 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS During the review of the data, Mining One Pty Ltd noted that whilst the mineralization occurs within a single mineralized body, gold and silver mineralization within the ore body had a significantly higher spatial variability than the other elements. As a result Mining One Pty Ltd has classified the Au and Ag resource presented in Table 2 separately; this classification takes into account the proposed large scale mining techniques where Au and Ag will only be credits to the overall products from the operations. Mining One Pty Ltd has assumed that Au and Ag will not be assigned a single cut- off grade for a selected mining block and will be mined in conjunction with the other elements. The Mineral Resources are summarized in Tables 1 and 2. The Mineral Resources presented in Table 2 for Au and Ag are inclusive and not in addition to the Mineral Resources in Table 1 and occur within the same mineralized body. Table 1: Jiama Project – Cu, Mo, Pb and Zn Mineral Resources Reported at a 0.3% Cu Equivalent Cut Off Grade*, as of 20th of November, 2013 Rock Type Class Skarn Hornfels Porphyry Total Measured Indicated M+I Inferred Measured Indicated M+I Inferred Measured Indicated M+I Inferred Measured Indicated M+I Inferred Quantity (Mt) 42.8 453.0 495.8 125.5 54.9 852.9 907.8 276.6 2.6 79.9 82.4 4.0 100.2 1,385.8 1,486.0 406.0 Cu % 0.66 0.69 0.68 0.46 0.23 0.28 0.27 0.24 0.26 0.30 0.30 0.24 0.41 0.41 0.41 0.31 Mo % 0.041 0.040 0.040 0.038 0.031 0.030 0.030 0.026 0.049 0.039 0.040 0.085 0.035 0.034 0.034 0.030 Pb % 0.06 0.15 0.14 0.20 0.03 0.01 0.01 0.02 0.02 0.01 0.01 0.01 0.04 0.05 0.05 0.08 Zn % 0.04 0.09 0.08 0.10 0.01 0.01 0.01 0.02 0.01 0.01 0.01 0.02 0.02 0.03 0.03 0.04 Cu Metal (kt) 281 3,114 3,395 577 127 2,368 2,496 660 7 240 247 10 415 5,772 6,138 1,247 Mo Metal (kt) 17 183 200 47 17 253 270 73 1 31 33 3 36 468 503 124 Pb Metal (kt) 28 676 704 248 15 69 84 63 1 6 6 0 43 751 794 312 Zn Metal (kt) 19 399 417 125 5 64 69 49 0 8 8 1 24 470 495 174 56 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS Table 2: Jiama Project – Au and Ag Mineral Resources Reported at a 0.3% Cu Equivalent Cut Off Grade* as of 20th of November, 2013 Rock Type Class Skarn Hornfels Porphyry Total Measured Indicated M+I Inferred Measured Indicated M+I Inferred Measured Indicated M+I Inferred Measured Indicated M+I Inferred Quantity (Mt) 42.8 453.0 495.8 125.5 54.9 852.9 907.8 276.6 2.6 79.9 82.4 4.0 100.2 1,385.8 1,486.0 406.0 Au g/t Ag g/t Au Moz Ag Moz 0.22 0.27 0.26 0.19 0.02 0.03 0.03 0.06 0.06 0.07 0.07 0.04 0.11 0.11 0.11 0.10 13.39 15.59 15.40 11.90 1.32 1.38 1.37 2.10 3.42 2.93 2.94 2.25 6.53 6.11 6.14 5.13 0.304 3.901 4.205 0.750 0.041 0.909 0.950 0.562 0.005 0.174 0.179 0.006 0.349 4.985 5.334 1.317 18.429 227.094 245.523 47.995 2.330 37.733 40.063 18.644 0.281 7.522 7.803 0.287 21.040 272.349 293.389 66.926 Note: Figures reported are rounded which may result in small tabulation errors. The Copper Equivalent basis for the reporting of resources has been compiled on the following basis: CuEq Resources: = ( A g G r a d e * A g P r i c e + A u G r a d e * A u P r i c e + C u G r a d e * C u P r i c e + P b G r a d e * P b P r i c e + Zn Grade * Zn Price + Mo Grade * Mo Price)/Copper Price Mineral Reserves Estimate A Mineral Reserve estimate, dated November 20, 2013, has been independently verified by Mining One Pty Ltd in accordance with the CIM Definitions Standards under NI 43-101. The selected mining strategies developed by CGDI (Changchun Gold Design Institute) consider conventional truck shovel mining for the Jiaoyan and South open pits. Various mining methods have been examined for the Phase II Expansion Underground Mine with the primary method being Sub Level Stopping with fill (Primary/Secondary/Tertiary). The reserve estimate for the Jiama underground mine is based on a combination of Sub Level Open Stopping with Paste fill, Room and Pillar and Cut and Fill. Table 3 presents the Mineral Reserves estimate for the Project (Open pit and underground mines). 57 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS Table 3: Jiama Project Statement of NI 43-101 Mineral Reserve Estimate as of 20th of Nov., 2013 Type Proved Probable Subtotal Quantity (Mt) 24.96 415.87 440.83 Cu (%) 0.64 0.61 0.61 Mo (%) 0.04 0.03 0.03 Pb (%) 0.05 0.13 0.13 Zn (%) 0.03 0.08 0.07 Au g/t Au g/t 0.19 0.19 0.19 11.35 11.52 11.51 Cu (kt) 160 2,548 2,708 Mo (kt) 10 133 143 Metal Pb (kt) 12 551 563 Zn (kt) 8 319 327 Au (Moz) 0.2 2.5 2.7 Ag (Moz) 9.1 154.1 163.2 Notes: 1. 2. The Mineral Reserve as of 20th November 2013. All Mineral Reserves have been estimated in accordance with the JORC code and have been reconciled to CIM standards as prescribed by the National Instrument 43-101. 3. Mineral Reserves were estimated using the following mining and economic factors: Open Pits: a) b) c) d) 5% dilution factor and 95% recovery were applied to the mining method; overall slope angles of 43 degrees; a copper price of USD$2.9/lbs; an overall processing recovery of 88 – 90% for copper Underground: a) b) c) 10% dilution added to all Sub-Level Open Stopping; Stope recovery is 87% for Sub-Level Open Stopping; An overall processing recovery of 88 – 90% for copper. 4. The cut-off grade for Mineral Reserves has been estimated at copper equivalent grades of 0.3% Cu (NSR) for the open pits and 0.45% Cu (NSR) for the underground mine. 5. Mineral Reserve Estimates were prepared under the guidance of Anthony R. Cameron who is a sub-consultant to Mining One Pty Ltd. He is a Fellow of the Australasian Institute of Mining and Metallurgy and has over 26 years of relevant engineering experience and is the Qualified Person for Mineral Reserves. There is no significant change on reserve estimation of Jiama mine as of December 31 2013 compare with the reserve as of November 20 2013 as show in table 3. LIQUIDITY AND CAPITAL RESOURCES The Company operates in a capital intensive industry. The Company’s liquidity requirements arise principally from the need for working capital to finance the expansion of its mining and processing operations, exploration activities and acquisition of exploration and mining rights. The Company’s principal sources of funds have been proceeds from borrowing from commercial banks in China, equity financings, and cash generated from operations. The Company’s liquidity primarily depends on its ability to generate cash flow from its operations and to obtain external financing to meet its debt obligations as they become due, as well as the Company’s future operating and capital expenditure requirements. At December 31, 2013, the Company had an accumulated surplus of US$156 million, working capital deficit of US$171.8 million and bank borrowings of US$505 million. The Company’s cash balance at December 31, 2013 was US$106 million. 58 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS Management noted the working capital deficit, which is caused by the current year’s intensive capital investment to the expansion projects at the both mine sites. The following actions are being taken to ensure the liquidity requirements of the Company are met: (1) the management is negotiating with the banks to extend the term for repayment of loan principals maturing in 2014; (2) the management is in advanced discussions with the commercial banks in China to arrange permanent long term project debt financing; (3) the Jiama local management is negotiating with the key construction contractors to extend the terms of payment for amounts due; and (4) the management is examining a number of additional project financing options. As a result, management believes that its forecast operating cash flows are sufficient to cover the next twelve months of the Company’s operations including its planned capital expenditures and current debt repayments. CASH FLOWS The following table sets out selected cash flow data from the Company’s condensed consolidated interim cash flow statements for the periods ended December 31, 2013 and December 31, 2012. Net cash from operating activities Net cash used in investing activities Net cash from (used in) financing activities Net increase (decrease) in cash and cash equivalents Effect of foreign exchange rate changes on cash and cash equivalents Cash and cash equivalents, beginning of period Year ended December 31 2013 US$’000 93,793 (453,776) 286,077 (73,906) (1,947) 181,740 2012 US$’000 90,785 (251,192) (13,909) (174,316) 1,743 354,313 Cash and cash equivalents, end of period 105,887 181,740 Operating cash flow For the year ended December 31, 2013, the net cash inflow from operating activities was US$93.8 million which is primarily attributable to (i) profit before income tax of US$73.6 million, (ii) depreciation and depletion of US$33.8 million and (iii) finance cost of US$10.7 million, (iv) accounts payable and accrued liabilities US$34.8 million partially offset by (i) income tax paid of US$32.5 million, (ii) interest paid of US$16.0 million, and (iii) increase in inventory of US$14.4 million. Investing cash flow For the year ended December 31, 2013, the net cash outflow from investing activities was US$453.8 million, which is primarily attributable to payment for the acquisition of property, plant and equipment of US$458.7 million and deposits paid for acquisition of property, plant and equipment of US$ 11.7 million, partially offset by an entrusted loan repayment from CNG of US$16.5 million and receipt of government grants of US$2.9 million. Financing cash flow For the year ended December 31, 2013, the net cash inflow from financing activities was US$286.1 million, which is primarily attributable to proceeds from a bank loan of US$317.4 million, partially offset by repayments of borrowings of US$31.4 million. 59 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS Expenditures Incurred For the year ended December 31, 2013, the Company incurred mining costs of US$83.1 million, processing costs of US$59.5 million, transportation costs of US$8.0 million and resource compensation fee, which was paid to the PRC government, of US$9.7 million. Gearing ratio Gearing ratio is defined as the ratio of consolidated total debt to consolidated total equity. As at December 31, 2013, the Company’s total debt was US$505 million and the total equity was US$1,431 million. The Company’s gearing ratio was therefore 0.35 as at December 31, 2013 and 0.16 as at December 31, 2012. Restrictive covenants The Company is subject to various customary conditions and covenants under the terms of its financing agreements. Under the loan agreement between the CSH CJV and the Agricultural Bank of China (“ABC”), the CSH CJV is prohibited from distributing dividends before repaying amounts due under the loan agreement in the same fiscal year. In addition, the CSH CJV is required to obtain the lender’s consent prior to carrying out certain activities or entering into certain transactions such as a reduction of registered capital, disposal of assets, mergers and acquisitions and provision of guarantee or creating charges over its material assets in favor of third-parties. The ABC loan is secured by the relevant mining rights of the CSH Mine. Under the loan agreements between Jiama and the Bank of China (“BOC”) and between Jiama and the various banks providing the syndicated loan facility, Jiama is prohibited from distributing dividends before offsetting accumulated losses of the prior accounting year, repaying the principal, interest, and other expenses due under the loan agreement in the current fiscal year, and repaying the principal, interest and other expenses due under the loan agreement in the next fiscal year. In addition, Jiama is required to obtain the lender’s written approval prior to reducing registered capital, processing one or more transactions or a series of transactions in the form of a sale, lease, transfer or other way leading to the disposal of assets that together total over RMB5.0 million, entering into any merger or acquisition, providing a guarantee or creating charges over its material assets in favor of third parties. The BOC and Syndicate loan facility are secured by the relevant mining rights and assets of the Jiama Mine. New bank loans The Company entered into the following loan agreements during the three months ended December 31, 2013: On November 21, 2013, the Company signed an agreement with Postal Savings Bank of China. The loan of RMB100 million (equivalent to US$16 million) matures in twelve months and bears interest at 6.00% per annum. On November 29, 2013, the Company signed an agreement with Bank of China. The loan of RMB142.5 million (equivalent to US$23 million) matures in twelve months and bears interest at 2.85% per annum. On December 6, 2013, the Company signed an agreement with Bank of Communications. The loan of RMB30 million (equivalent to US$5 million) matures in twelve months and bears interest at 6% per annum. COMMITMENTS AND CONTINGENCIES Commitments and contingencies include principal payments on the Company’s bank loans and syndicated loan facility, material future aggregate minimum operating lease payments required under operating leases and capital commitments in respect of the future acquisition of property, plant and equipment and construction for both the CSH Mine and the Jiama Mine. 60 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS The Company has leased certain properties in China and Canada, which are all under operating lease arrangements and are negotiated for terms of between one and seventeen years. The Company is required to pay a fixed rental amount under the terms of these leases. The Company’s capital commitments relate primarily to the payments for purchase of equipment and machinery for both mines and payments to third-party contractors for the provision of mining and exploration engineering work and mine construction work for both mines. The Company has entered into contracts that prescribe such capital commitments; however, liabilities relating to them have not yet been incurred. Therefore, capital commitments are not included in the Company’s consolidated financial statements. The following table outlines payments for commitments for the periods indicated: Principal repayment of bank loans Operating lease commitments (a) Capital commitments (b) Total US$’000 504,506 1,716 202,860 Within Within two one year US$’000 to five years US$’000 Over 5 years US$’000 232,432 1,255 202,860 272,074 162 – – 299 – 299 Total 709,082 436,547 272,236 (a) Operating leases are primarily for premises and production. (b) Capital commitments relate to contracts signed for construction and equipment supply. In addition to the table set forth above, the Company has entered into service agreements with third-party contractors such as China Railway and China Metallurgical for the provision of mining and exploration engineering work and mine construction work for the CSH Mine. The fees for such work performed and to be performed each year varies depending on the amount of work performed. The Company has similar agreements with third party contractors for the Jiama Mine. RELATED PARTY TRANSACTIONS CNG owned 39.3 percent of the outstanding common shares of the Company as at December 31, 2013 and December 31, 2012. The Company had major related party transactions with the following companies related by way of shareholders and shareholder in common: On October 24, 2008, the Company’s subsidiary, Inner Mongolia Pacific entered into a non-exclusive contract for the purchase and sale of dore with CNG (the “2008 Contract”) pursuant to which Inner Mongolia Pacific occasionally sold gold dore bars to CNG through to December 31, 2011. The pricing was based on the daily average price of Au9995 gold ingot as quoted on the Shanghai Gold Exchange and the daily average price of No. 2 silver as quoted on the Shanghai Huatong Platinum & Silver Exchange prevailing at the time of each relevant purchase order during the contract period. On January 27, 2012, Inner Mongolia Pacific entered into a contract with CNG in order to regulate the sale and purchase of gold dore that was to be carried out between them for the three years ending December 31, 2012, 2013 and 2014, for the purpose of keeping the same pricing terms as the 2008 Contract. Revenue from sales of gold dore bars to CNG decreased from US$220 million for the year ended December 31, 2012 to US$174 million for the year ended December 31, 2013. 61 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS On April 26, 2013, Huatailong, an indirectly wholly-owned subsidiary of the Company, entered into the Contract for Purchase and Sale of Copper Concentrate with China National Gold Group International Trading Co. Ltd, which is ultimately controlled by CNG, for the purpose of governing the sale and purchase of copper sulphide concentrates produced at the Jiama Mine for the two years ending December 31, 2013 and 2014, with pricing referenced to the prescribed figures disclosed in the contract, based on the monthly average bench mark prices of copper, gold and silver. The first sales transaction under the contract occurred in July 2013. Revenue from sales of copper and other products to CNG was US$55.8 million for the year ended December 31, 2013, compared with nil in the same period in 2012. For the year ended December 31, 2013, construction services of US$237.8 million were provided to the Company by subsidiaries of CNG (US$77.0 million for the year ended December 31, 2012). In addition to the two aforementioned major related party transactions, the Company also obtains additional services from related parties in its normal course of business. Further detailed information regarding such services is disclosed in the Company’s annual directors’ report. PROPOSED TRANSACTIONS The Board of Directors has given the Company approval to conduct reviews of a number of projects that may qualify as acquisition targets through joint venture, merger and/or outright acquisitions. The Group did not have any material acquisition and disposal of subsidiaries and associated companies in the year ended December 31, 2013. CRITICAL ACCOUNTING ESTIMATES In the process of applying the Company’s accounting policies, the Directors of the Company have identified accounting judgments and key sources of estimation uncertainty that have a significant effect on the amounts recognized in the audited annual consolidated financial statements. Key assumptions concerning the future and other key sources of estimation uncertainty at the end of each reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next twelve months are described in Note 4 of the audited annual consolidated financial statements for the year ended December 31, 2013. CHANGE IN ACCOUNTING POLICIES A summary of new and revised IFRS standards and interpretations are outlined in Note 2 of the audited annual consolidated financial statements as at December 31, 2013. FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS The Company holds a number of financial instruments, the most significant of which are available-for-sale investments, accounts receivable, accounts payable, cash and loans. The financial instruments are recorded at either fair values or amortized amount on the balance sheet. The Company did not have any derivatives as at December 31, 2013. OFF-BALANCE SHEET ARRANGEMENTS As at December 31, 2013, the Company had not entered into any off-balance sheet arrangements. 62 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS DIVIDEND AND DIVIDEND POLICY The Company has not paid any dividends since incorporation and does not currently have a fixed dividend policy. The Board of Directors will determine any future dividend policy on the basis of, among others things, the results of operations, cash flows and financial conditions, operating and capital requirements, the rules promulgated by the regulators affecting dividends in both Canada and Hong Kong and at both the TSX and HKSE, and the amount of distributable profits and other relevant factors. Subject to the British Columbia Business Corporations Act, the Directors may from time to time declare and authorize payment of such dividends as they may deem advisable, including the amount thereof and the time and method of payment provided that the record date for the purpose of determining shareholders entitled to receive payment of the dividend must not precede the date on which the dividend is to be paid by more than two months. A dividend may be paid wholly or partly by the distribution of cash, specific assets or of fully paid shares or of bonds, debentures or other securities of the Company, or in any one or more of those ways. No dividend may be declared or paid in money or assets if there are reasonable grounds for believing that the Company is insolvent or the payment of the dividend would render the Company insolvent. OUTSTANDING SHARES As of December 31, 2013 the Company had 396,413,753 common shares issued and outstanding. DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for the design of disclosure controls and procedures (“DC&P”) and the design of internal control over financial reporting (“ICFR”) to provide reasonable assurance that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s certifying officers. The Company’s Chief Executive Officer and Chief Financial Officer have each evaluated the Company’s DC&P and ICFR as of December 31, 2013 and, in accordance with the requirements established under Canadian National Instrument 52-109 – Certification of Disclosure in Issuer’s Annual and Interim Filings, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures were effective as December 31, 2013, and provide reasonable assurance that material information relating to the Company is made known to them by others within the Company and that the information required to be disclosed in reports that are filed or submitted under Canadian securities legislation are recorded, processed, summarized and reported within the time period specified in those rules. The Company’s Chief Executive Officer and Chief Financial Officer have used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework of Year 2013 to evaluate the Company’s ICFR as of December 31, 2013 and have concluded that these controls and procedures were effective as of December 31, 2013 and provide reasonable assurance that financial information is recorded, processed, summarized and reported in a timely manner. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The result of the inherent limitations in all control systems means design of controls cannot provide absolute assurance that all control issues and instances of fraud will be detected. During the year ended December 31, 2013, there were no changes in the Company’s DC&P or ICFR that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 63 Annual Report 2013MANAGEMENT’S DISCUSSION AND ANALYSIS RISK FACTORS There are certain risks involved in the Company’s operations, some of which are beyond the Company’s control. Aside from risks relating to business and industry, the Company’s principal operations are located within the People’s Republic of China and are governed by a legal and regulatory environment that in some respects differs from that which prevails in other countries. Readers of this MD&A should give careful consideration to the information included in this document and the Company’s audited annual consolidated financial statements and related notes. Significant risk factors for the Company are metal prices, government regulations, foreign operations, environmental compliance, the ability to obtain additional financing, risk relating to recent acquisitions, dependence on management, title to the Company’s mineral properties, and litigation. China Gold International’s business, financial condition or results of operations could be materially and adversely affected by any of these risks. For details of risk factors, please refer to the Company’s annual audited consolidated financial statements, and Annual Information Form filed from time to time on SEDAR at www.sedar.com. QUALIFIED PERSON Disclosure of a scientific or technical nature in this section of the MD&A in respect of updates at the CSH Gold Project was prepared by or under the supervision of Mr. Songlin Zhang, a qualified person for the purposes of NI 43-101. Disclosure of a scientific or technical nature in this MD&A in respect of the Jiama Mine for the Mineral Resources, Mineral Reserves and Phase II Expansion was prepared by or under the supervision of Mr. Bin Guo and Anthony R Cameron, both qualified person for the purposes of NI 43-101; all remaining information in regards to the Jiama project contained in this MD&A was prepared by or under the supervision of Mr. Songlin Zhang, a qualified person for the purposes of NI 43-101. March 25, 2014 64 China Gold International Resources Corp. Ltd.MANAGEMENT’S DISCUSSION AND ANALYSIS TO THE MEMBERS OF CHINA GOLD INTERNATIONAL RESOURCES CORP. LTD. (incorporated in British Columbia, Canada with limited liability) We have audited the accompanying consolidated financial statements of China Gold International Resources Corp. Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 67 to 124, which comprise the consolidated statement of financial position as at December 31, 2013 and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. DIRECTORS’ RESPONSIbILITy fOR THE CONSOLIDATED fINANCIAL STATEmENTS The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR’S RESPONSIbILITy Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement, 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 International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 65 Annual Report 2013INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHINA GOLD INTERNATIONAL RESOURCES CORP. LTD. (Cont’d) (incorporated in British Columbia, Canada with limited liability) OPINION In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at December 31, 2013, and of the Group’s financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong March 25, 2014 66 China Gold International Resources Corp. Ltd.INDEPENDENT AUDITOR’S REPORT Revenues Cost of sales NOTES 28 2013 US$’000 302,608 (200,733) 2012 US$’000 332,387 (207,458) Mine operating earnings 101,875 124,929 Expenses General and administrative expenses Exploration and evaluation expenditure Income from operations Other income (expenses) Foreign exchange gain, net Interest and other income Finance costs Profit before income tax Income tax expense Profit for the year 5 6 7 8 9 Other comprehensive income for the year Items that may be reclassified subsequently to profit or loss: Exchange difference arising on translation Fair value (loss) gain on available-for-sale investment 19 (25,703) (247) (25,049) (390) (25,950) (25,439) 75,925 99,490 1,514 6,762 (10,654) 171 12,565 (12,549) (2,378) 187 73,547 (16,365) 99,677 (26,163) 57,182 73,514 6,882 (372) 2,931 559 Total comprehensive income for the year, net of income tax 63,692 77,004 Profit for the year attributable to: Non-controlling interests Owners of the Company 2,150 55,032 2,576 70,938 57,182 73,514 67 Annual Report 2013CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED DECEMBER 31, 2013 Total comprehensive income for the year attributable to: Non-controlling interests Owners of the Company Basic earnings per share Diluted earnings per share Basic weighted average number of common shares outstanding Diluted weighted average number of common shares outstanding NOTES 2013 US$’000 2012 US$’000 2,167 61,525 2,586 74,418 63,692 77,004 13.88 cents 17.90 cents 13.88 cents 17.90 cents 396,384,055 396,257,575 396,400,505 396,337,619 12 12 12 12 68 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Current assets Cash and cash equivalents Accounts receivable and other receivables Prepaid expenses and deposits Entrusted loan receivable Prepaid lease payments Inventory Non-current assets Prepaid expense and deposits Prepaid lease payments Inventory Deferred tax assets Available-for-sale investments Property, plant and equipment Mining rights Total assets Current liabilities Accounts payable and accrued expenses Borrowings Tax liabilities NOTES 13 14 15 16 17 18 15 17 18 8 19 20 21 22 23 2013 US$’000 105,887 9,714 6,987 – 235 61,245 2012 US$’000 181,740 3,380 10,270 16,052 194 38,450 184,068 250,086 16,706 8,425 2,001 14,501 21,850 1,027,393 943,557 45,727 6,626 10,005 7,100 21,373 517,115 948,232 2,034,433 1,556,178 2,218,501 1,806,264 115,952 232,432 7,487 75,073 72,234 12,193 355,871 159,500 Net current (liabilities) assets (171,803) 90,586 Total assets less current liabilities 1,862,630 1,646,764 69 Annual Report 2013CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAT DECEMBER 31, 2013 Non-current liabilities Deferred tax liabilities Deferred income Borrowings Environmental rehabilitation Total liabilities Owners’ equity Share capital Reserves Retained profits Non-controlling interests Total owners’ equity NOTES 8 24 23 25 26 2013 US$’000 126,687 2,518 272,074 29,826 2012 US$’000 130,659 803 140,695 6,813 431,105 278,970 786,976 438,470 1,229,061 36,304 156,066 1,421,431 10,094 1,228,731 23,761 107,166 1,359,658 8,136 1,431,525 1,367,794 Total liabilities and owners’ equity 2,218,501 1,806,264 The consolidated financial statements were approved and authorized for issue by the Board of Directors on March 25, 2014 and are signed on its behalf by: (Signed by) Xin Song Xin Song (Signed by) Bing Liu Bing Liu Director Director 70 China Gold International Resources Corp. Ltd.AT DECEMBER 31, 2013CONSOLIDATED STATEMENT OF FINANCIAL POSITION Notes Number of shares Investment revaluation reserve US$’000 Exchange reserve US$’000 Share capital US$’000 Equity reserve US$’000 note (a) 396,163,753 1,228,184 11,355 – – – – 26(b) 155,000 – – – – – – – 547 – – – – – – – (206) 102 – – 396,318,753 1,228,731 11,251 – – – – 26(b) 95,000 – – – – – – – 330 – – – – – – – (124) 42 – – – – 559 – 559 – – – – 559 – (372) – 5,097 – – 2,921 2,921 – – – – – – 6,865 (372) 6,865 – – – – – – – – Retained profits US$’000 Subtotal US$’000 Non– controlling interests US$’000 Total owners’ equity US$’000 40,161 1,284,797 5,735 1,290,532 70,938 – – 70,938 559 2,921 2,576 – 10 73,514 559 2,931 70,938 74,418 2,586 77,004 – – (3,933) – 107,166 55,032 – – 341 102 – – 1,359,658 55,032 (372) 6,865 – – – (185) 8,136 2,150 – 17 341 102 – (185) 1,367,794 57,182 (372) 6,882 55,032 61,525 2,167 63,692 – – (6,132) – 206 42 – – – – – (209) 206 42 – (209) Statutory reserve US$’000 note (b) – – – – – – – 3,933 – – – – – – – 6,132 – 8,018 3,933 396,413,753 1,229,061 11,169 187 14,883 10,065 156,066 1,421,431 10,094 1,431,525 At January 1, 2012 Profit for the year Fair value gain on available–for-sale investment Exchange difference arising on translation Total comprehensive income for the year Exercise of stock options (note a) Share-based compensation (note a) Transfer to statutory surplus reserve Dividend paid to a non-controlling shareholder At December 31, 2012 Profit for the year Fair value loss on available–for-sale investment Exchange difference arising on translation Total comprehensive income for the year Exercise of stock options (note a) Share-based compensation (note a) Transfer to statutory reserve Dividend paid to a non-controlling shareholder At December 31, 2013 Notes: (a) Amounts represent equity reserve arising from share-based compensation provided to employees under the stock option plan of the Company and deemed contribution from shareholders in previous years. (b) Statutory reserve which consists of appropriations from the profit after taxation of the subsidiaries established in the People’s Republic of China (“PRC”), forms part of the equity of PRC subsidiaries. In accordance with the PRC Company Law and the Articles of Association of the PRC subsidiaries, the PRC subsidiaries are required to appropriate an amount equal to a minimum of 10% of their profits after taxation each year to a statutory reserve until the reserve reaches 50% of the registered capital of the respective subsidiaries. 71 Annual Report 2013CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED DECEMBER 31, 2013 Operating activities Profit before income tax for the year Items not requiring use of cash and cash equivalents: Amortization of mining rights Depreciation Finance costs Foreign exchange gain Loss (gain) on disposal of property, plant and equipment Interest income from entrusted loan Release of prepaid lease payment Release of deferred lease inducement Release of deferred income Share-based compensation Change in non-cash operating working capital items: Accounts receivable and other receivables Prepaid expenses and deposits Inventory Accounts payable and accrued liabilities Cash generated from operations Interest paid Income taxes paid Environmental rehabilitation expenses paid 2013 US$’000 2012 US$’000 73,547 6,077 33,845 10,654 – 324 (455) 195 (33) (1,155) 42 (6,251) 5,161 (14,461) 34,811 142,301 (15,994) (32,514) – 99,677 14,252 24,920 12,549 (826) (6) – 168 (34) (145) 102 (1,655) (3,470) (6,994) 5,643 144,181 (11,921) (40,351) (1,124) Net cash from operating activities 93,793 90,785 Investing activities Acquisition of available-for-sale investment Deposit paid for acquisition of property, plant and equipment Payment for acquisition of property, plant and equipment Payment for acquisition of land use rights Proceeds from disposal of property, plant and equipment Receipt of asset-related government grants Receipt of deferred consideration from disposal of a mining project to a related company Repayment (advance) of entrusted loan to a substantial shareholder Settlement of deferred consideration from disposal of a mining (849) (11,728) (458,739) (1,821) 4 2,850 – 16,507 (20,814) (40,230) (174,865) – 42 – 1,398 (16,052) project to a related company – (671) Net cash used in investing activities (453,776) (251,192) 72 China Gold International Resources Corp. Ltd.CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2013 Financing activities Deemed capital contribution from a shareholder through settlement of listing fee Dividend paid to a non-controlling shareholder Issuance of common shares upon exercise of share options Proceeds from borrowings Repayments of borrowings 2013 US$’000 2012 US$’000 – (209) 206 317,449 (31,369) 2,736 (185) 341 27,534 (44,335) Net cash from (used in) financing activities 286,077 (13,909) Effect of foreign exchange rate changes on cash and cash equivalents (1,947) 1,743 Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of year (75,853) 181,740 (172,573) 354,313 Cash and cash equivalents, end of year 105,887 181,740 Cash and cash equivalents are comprised of Cash and bank deposits in bank 105,887 181,740 73 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013CONSOLIDATED STATEMENT OF CASH FLOWS 1. GENERAL AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS China Gold International Resources Corp. Ltd., formerly known as Jinshan Gold Mines Inc., (the “Company”) is a publicly listed company incorporated in British Columbia on May 31, 2000 with limited liability under the legislation of the Province of British Columbia and its shares are listed on the Toronto Stock Exchange (“TSX”) and The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The Company together with its subsidiaries (collectively referred to as the “Group”) is principally engaged in the acquisition, exploration, development and mining of mineral reserves in the PRC. Particulars of the subsidiaries of the Company are set out in Note 35. The Group considers that China National Gold Group Corporation (“CNG”), a state owned company registered in Beijing, PRC which is controlled by State-owned Assets Supervision and Administration Commission of the State Council of the PRC, is able to exercise significant influence over the Company. The head office, principal address and registered and records office of the Company are located at Suite 1030, One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X 1M5. The consolidated financial statements are presented in United States Dollars (“US$”) which is the functional currency of the Company. At December 31, 2013, the Group’s current liabilities exceeded its current assets by approximately US$171.8 million. In view of these circumstances, the directors of the Company have given consideration to the future liquidity and performance of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern. In addition, the Group is currently in the process of negotiating with various banks to obtain a new syndicated loan in order to improve the liquidity position. Taking into account the Group’s cash flow projection, including the Group’s unutilized bank facilities, ability to renew or refinance the banking facilities upon maturity and the Group’s future capital expenditure in respect of its non-cancellable capital commitments, the directors of the Company consider that it has sufficient working capital to meet in full its financial obligations as they fall due for at least the next twelve months from the end of the reporting period and accordingly, the financial statements have been prepared on a going concern basis. 2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) In the current year, the Group has applied the following new or amended IFRSs or interpretation issued by the International Accounting Standards Board and IFRS Interpretations Committee which are effective for the financial year beginning January 1, 2013: Amendments to IFRSs Amendments to IFRS 7 Annual Improvements to IFRSs 2009-2011 Cycle Disclosures – Offsetting Financial Assets and Financial Liabilities Amendments to IFRS 10, IFRS 11 and Consolidated Financial Statements, Joint Arrangements and Disclosure IFRS 12 IFRS 10 IFRS 11 IFRS 12 IFRS 13 IAS 19 (Revised 2011) IAS 27 (Revised 2011) IAS 28 (Revised 2011) Amendments to IAS 1 IFRIC 20 of Interests in Other Entities: Transition Guidance Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Fair Value Measurement Employee Benefits Separate Financial Statements Investments in Associates and Joint Ventures Presentation of Items of Other Comprehensive Income Stripping Costs in the Production Phase of a Surface Mine The application of the new or amended IFRSs or interpretation in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on disclosures set out in these consolidated financial statements. 74 China Gold International Resources Corp. Ltd.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2013 2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (Cont’d) The Group has not early applied the following new or amended IFRSs or interpretation that has been issued but is not yet effective: Amendments to IFRS 10, IFRS 12 and Investment Entities1 IAS 27 Amendments to IAS 19 Amendments to IFRS 9 and IFRS 7 Amendments to IAS 32 Amendments to IAS 36 Amendments to IAS 39 Amendments to IFRSs Amendments to IFRSs IFRS 9 IFRS 14 IFRIC 21 Defined Benefit Plans: Employee Contributions2 Mandatory Effective Date of IFRS 9 and Transition Disclosures3 Offsetting Financial Assets and Financial Liabilities1 Recoverable Amount Disclosures for Non-Financial Assets1 Novation of Derivatives and Continuation of Hedge Accounting1 Annual Improvements to IFRSs 2010-2012 Cycle4 Annual Improvements to IFRSs 2011-2013 Cycle2 Financial Instruments3 Regulatory Deferral Accounts5 Levies1 1 2 3 4 5 Effective for annual periods beginning on or after January 1, 2014 Effective for annual periods beginning on or after July 1, 2014 Available for application – the mandatory effective date will be determined when the outstanding phases of IFRS 9 are finalised Effective for annual periods beginning on or after July 1, 2014, with limited exceptions Effective for first annual IFRS financial statements beginning on or after January 1, 2016 The directors of the Company anticipate that the application of these new and revised standards, amendments and interpretations will have no material impact on the Group. 3. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance to IFRSs. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance. The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values. Historical cost is generally based on the fair value of the consideration given in exchange for goods. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36. 75 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and • Level 3 inputs are unobservable inputs for the asset or liability. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: • • • has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-company transactions, balances, income and expenses are eliminated in full on consolidation. Non-controlling interests in subsidiaries are presented separately from the Group’s equity therein. Allocation of total comprehensive income to non-controlling interests Total comprehensive income and expense of a subsidiary is attributed to the owners of the Company and to the non-controlling interests even if the results in the non-controlling interests having a deficit balance. 76 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Business combination Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognized in profit or loss as incurred. At the acquisition date, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognized at their fair values, except that: • deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and • assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after assessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non- controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period which cannot exceed one year from the acquisition date, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date. Interests in subsidiaries Investments in subsidiaries recorded at the Company level are stated at cost (including deemed capital contribution) less subsequent accumulated impairment losses, if any. 77 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of discounts and sales related taxes. Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied: • • • • • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. Foreign currencies In preparing the financial statements of each individual group entity, transactions in foreign currencies are initially recorded in the entity’s functional currency at the exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. All gains and losses on translation of these foreign currency transactions are included in profit or loss. For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. US$) at the rate of exchange prevailing at the end of the reporting period, and their income and expenses are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (the translation reserve). Share-based payments The Company grants stock options to directors and employees to acquire common shares of the Company. The Company grants such options for exercisable periods of up to six years, with vesting periods determined at its sole discretion and at prices equal to the weighted average price of the common shares for the five days immediately preceding the date the options were granted. The fair value of the options are measured at grant date, using the Black-Scholes option pricing model, and is recognized over the vesting period that the employees earn the options. The fair value is recognized as an expense over its vesting periods with a corresponding increase in equity. The amount recognized as expense in each period is adjusted to reflect the number of share options expected to vest. 78 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as 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 eligible for capitalization. All other borrowing costs are recognized in profit or loss in the period in which they are incurred. Taxation Income tax expense represents the sum of the current tax charge and the movement in deferred tax. The tax currently payable is based on taxable income for the period. Taxable profit differs from profit as reported in the consolidated statement of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognized on temporary differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor accounting profit. Deferred tax liabilities are recognized for taxable temporary differences associated with investment in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary difference and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized, based on tax rate (and tax laws) that have been enacted or substantially enacted by the end of the reporting period. Current and deferred tax is recognized in profit or loss, except when it relates to items recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 79 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Government grants Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognized as deferred income in the consolidated statement of financial position and transferred to profit or loss over the useful lives of the related assets. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in which they become receivable. Retirement benefit costs Payments made to state-managed retirement benefit scheme are charged as expenses when employees have rendered service entitling them to the contributions. Cash and cash equivalents Cash and cash equivalents comprise cash at banks and on hand, and short-term deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash. Prepaid lease payments Prepaid lease payments representing land use rights in the PRC are stated at cost and amortized on a straight-line basis over the lease terms. Prepaid lease payments which are to be amortized in the next twelve months or less are classified as current assets. Inventory Inventories are stated at the lower of cost and net realizable value. Cost is calculated using weighted average method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Gold in process inventory consists of gold contained in the ore on leach pads and in-circuit material within processing operations. Gold dore bar is gold awaiting refinement and gold refined and ready for sale. Gold in process inventory Production costs are capitalized and included in gold in process inventory based on the current mining and processing cost incurred up to the point prior to the refining process including the cost of raw materials and direct labour; mine-site overhead expenses; stripping costs; and allocated indirect costs, including depreciation and depletion of mining interests. 80 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Government grants (Cont’d) Gold dore bars inventory The recovery of gold from ore is achieved through a heap leaching process. Under this method, ore is placed on leach pads where it is treated with a chemical solution which dissolves the gold contained in the ore. The resulting “pregnant” solution is further processed in a plant where the gold is recovered. Costs are subsequently recycled from ore on leach pads as ounces of gold are recovered based on the average cost per recoverable ounce on the leach pad. Estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the leach pads (measured in tonnes added to the leach pads), the grade of the ore placed on the leach pads (based on assay data), and a recovery percentage (based on ore type). Copper inventory is copper concentrate after metallurgical processing and ready for sales. Consumables used in operations, such as fuel, chemicals, and reagents and spare parts inventory are valued at the lower of cost or net realizable value. Property, plant and equipment General Property, plant and equipment are recorded at cost less accumulated depreciation, depletion and impairment charges. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditures, are capitalized and the carrying amount of the component being replaced is derecognized. Directly attributable costs incurred for major capital projects and site preparation are capitalized until the asset is brought to a working condition for its intended use. These costs include dismantling and site restoration costs to the extent these are recognized as a provision. Management reviews the estimated useful lives, residual values and depreciation methods of the Group’s property, plant and equipment at the end of each reporting period and when events and circumstances indicate that such a review should be made. Changes to estimated useful lives, residual values or depreciation methods resulting from such review are accounted for prospectively. All direct costs related to the acquisition of mineral assets are capitalized, at their cost at the date of acquisition. 81 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Property, plant and equipment (Cont’d) Exploration and evaluation expenditure Drilling and related costs incurred on sites without an existing mine and on areas outside the boundary of a known mineral deposit which contains proven and probable reserves are exploration and evaluation expenditure and are expensed as incurred up to the date on which costs incurred are economically recoverable. Further exploration and evaluation expenditures, subsequent to the establishment of economic recoverability, are capitalized and included in the carrying amount of the mineral assets. Management evaluates the following criteria in its assessments of economic recoverability and probability of future economic benefit: • Geology – whether or not there is sufficient geologic and economic certainty of being able to convert a residual mineral deposit into a proven and probable reserve at a development stage or production stage mine, based on the known geology and metallurgy. A history of conversion of resources to reserves at operating mines to support the likelihood of conversion. • Scoping – there is a scoping study or preliminary feasibility study that demonstrates the additional resources will generate a positive commercial outcome. Known metallurgy provides a basis for concluding there is a significant likelihood of being able to recoup the incremental costs of extraction and production. • Accessible facilities – mining property can be processed economically at accessible mining and processing facilities where applicable. • Life of mine plans – an overall life of mine plan and economic model to support the mine and the economic extraction of resources/reserves exists. A long-term life of mine plan, and supporting geological model identifies the drilling and related development work required to expand or further define the existing orebody. • Authorizations – operating permits and feasible environmental programs exist or are obtainable. Therefore prior to capitalizing exploration drilling and related costs, Management determines that the following conditions have been met that will contribute to future cash flows: • • • • There is a probable future benefit that will contribute to future cash inflows; The Group can obtain the benefit and controls access to it; The transaction or event giving rise to the future benefit has already occurred; and Costs incurred can be measured reliably. Development expenditure Drilling and related costs incurred to define and delineate a mineral deposit are capitalized as part of mineral assets in the period incurred, when management determines that there is sufficient evidence that the expenditure will result in a probable future economic benefit to the Group. 82 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Property, plant and equipment (Cont’d) Production expenditure Capitalization of costs incurred ceases when the related mining property has reached the condition necessary for it to be capable of operating in the manner intended by management, therefore, such costs incurred are capitalized as part of the mineral assets and the proceeds from sales prior to commissioning are offset against costs capitalized. Mine development costs incurred to maintain current production are included in profit or loss. For those areas being developed which will be mined in future periods, the costs incurred are capitalized and depleted when the related mining area is mined. Depreciation Mineral assets are depreciated using the unit-of-production method based on the estimated total recoverable ounces contained in proven and probable reserves at the related mine when the production level intended by management has been reached. Management reviews the estimated total recoverable ounces contained in proven and probable reserves at the end of each reporting period and when events and circumstances indicate that such a review should be made. Changes to estimated total recoverable ounces contained in proven and probable reserves are accounted for prospectively. Assets under construction are not depreciated until they are substantially complete and available for their intended use. Leasehold improvements are depreciated over the shorter of the lease term and the estimated useful lives of the assets. Mining rights Mining rights are depreciated using the unit-of-production method based on the estimated total recoverable ounces contained in proven and probable reserves at the related mine. Mining rights acquired in a business combination Mining rights acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, mining rights with finite useful lives are carried at costs less accumulated amortization and any accumulated impairment losses. Amortization is provided using the unit of production method based on the actual production volume over the estimated total proven and probable reserves of the ore mines. 83 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Mining rights (Cont’d) Impairment of tangible assets and mining rights At the end of the reporting period, the Group reviews the carrying amounts of its tangible assets and mining rights to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or a cash- generating unit) in prior years. Financial instruments The Group’s financial assets and liabilities are recognized in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and liabilities (other than financial assets) are added to or deducted from the fair value of financial assets or financial liabilities, as appropriate, on initial recognition. Financial assets The Group’s financial assets are classified as available-for-sale (“AFS”) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method calculates the amortized cost of a financial asset and allocates interest income over the corresponding period. The effective interest rate is the rate that discounts estimated future cash receipts over the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Interest income is recognized on an effective interest basis for debt instruments. 84 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial assets (Cont’d) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than twelve months or those that are expected to be settled after twelve months from the end of the reporting period, which are classified as non-current assets. Assets in this category include “accounts receivable”, “entrusted loan receivable”, “cash and cash equivalents”, “amounts due from related companies” and “amount due from a non- controlling shareholder” (included in other receivables). Loans and receivables are initially recognized at fair value plus transaction costs and subsequently carried at amortized cost using the effective interest method, except for short-term receivables when the recognition of interest would be immaterial. Available-for-sale financial assets AFS financial assets are non-derivatives that are either designated as available-for-sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. Equity securities held by the Group that are classified as AFS financial assets and are traded in an active market are measured at fair value at the end of each reporting period. Dividends on AFS equity investments are recognised in profit or loss. Other changes in the carrying amount of AFS financial assets are recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss (see the accounting policy in respect of impairment loss on financial assets below). Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established. AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of each reporting period (see the accounting policy in respect of impairment loss on financial assets below). 85 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial assets (Cont’d) Impairment of financial assets Financial assets are assessed for indicators of impairment at the end of the reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For AFS equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For loans and receivables, objective evidence of impairment could include the following: • • • Significant financial difficulty of the issuer or counterparty; Default or delinquency in interest or principal payments; It has become probable that the borrower will enter bankruptcy or financial reorganization. Trade receivables (included in accounts receivable) assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 180 days, observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the financial asset’s original effective interest rate. Any impairment on financial assets that are measured at amortised costs, excluding trade receivables, is deducted directly to their carrying amounts. Any impairment on trade receivables is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss. For financial assets measured at amortized cost, 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 losses were recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. For an available-for-sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment. When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period in which the impairment takes place. Impairment losses on available-for-sale equity investments will not be reversed through profit or loss. Any increase in fair value subsequent to impairment loss is recognized directly in other comprehensive income and accumulated in investment revaluation reserve. 86 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial assets (Cont’d) Derecognition of financial assets Financial assets are derecognized when the rights to receive cash flows from the assets expire or the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable. Financial liabilities and equity instruments Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the group entities are recorded at the proceeds received, net of direct issue costs. Equity instruments issued in a business combination are recorded at their fair value at the acquisition date. Effective interest method The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expenses over the corresponding period. The effective interest rate is the rate that exactly discounts estimated future cash payments over the expected life of the financial liability, or, where appropriate, a shorter period. Financial liabilities Financial liabilities, including borrowings and accounts payable and accrued expenses excluding advance from customers, tax payables other than income tax payables and accruals, are initially measured at fair value, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. Derecognition of financial liabilities For financial liabilities, they are derecognized when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss. Environmental rehabilitation An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mining property. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalized as part of the related property, plant and equipment at the start of each project, as soon as the obligation to incur such costs arises. These costs are recognized in profit or loss over the life of the operation, through depreciation of the asset. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and recognized in profit or loss as extraction progresses. 87 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Environmental rehabilitation (Cont’d) Changes in the measurement of a liability relating to the decommissioning of plant or other site preparation work that result from changes in the estimated timing or amount of the cash flow, including the effects of inflation and movements in foreign exchange rates, revisions to estimated reserves, resources and lives of operations, or a change in the discount rate, are added to, or deducted from, the cost of the related asset in the period it occurred. The periodic unwinding of discount is recognised in profit or loss as a finance cost as it occurs. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in profit or loss. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the Group’s accounting policy. Leases Leases are classified as finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating lease. Operating lease payments are recognized as an expense on a straight-line basis over the lease term. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis. Leasehold land and building When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group unless it is clear that both elements are operating leases in which case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including any lump-sum upfront payments) are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease. To the extent the allocation of the lease payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as “prepaid lease payments” in the consolidated statement of financial position and is amortized over the lease term on a straight-line basis. 88 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. KEY SOURCES OF ESTIMATION UNCERTAINTY In the process of applying the Group’s accounting policies, which are described in Note 3, the Group has identified the following key sources of estimation uncertainty that have significant effect on the amounts recognized in the consolidated financial statements. The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of each reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next twelve months, are discussed below. (a) Inventories The Group records the cost of gold mining ore placed on its leach pads and in process at its mine as gold in process inventory, and values gold in process inventory at the lower of cost and estimated net realizable value. The assumptions used in the valuation of gold in process inventories include estimates of gold contained in the ore placed on leach pads, assumptions of the amount of gold that is expected to be recovered from the ore placed on leach pads, and the amount of gold in the process plant and an assumption of the gold price expected to be realized when the gold is recovered. If these estimates or assumptions prove inaccurate, the Group could be required to write down the recorded value of its gold in process inventories. Although the quantities of recoverable gold placed on the leach pad are reconciled by comparing the grades of ore placed on the leach pad to the quantities actually recovered, the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. The actual recovery of gold from the leach pad is not known until the leaching process has concluded at the end of the mine life. The management of the Group (the “Management”) periodically reassesses the assumptions used in the valuation of gold in process and the costing of production of gold dore bars, particularly the assumptions of the amount of gold that is expected to be recovered from the ore placed on leach pads (the “Estimated Recovery Rate”). As a result of such reassessments, an increase/decrease in the Estimated Recovery Rate led to a decrease/increase in the average production cost of gold dore bars. The carrying amount of gold in process and gold dore bars as at December 31, 2013 is disclosed in Note 18. (b) Mineral assets The Group’s mineral assets included in property, plant and equipment is depreciated and amortized on either a unit-of-production basis or straight-line method over their estimated useful lives. Under the unit- of-production method, the calculation of depreciation of mineral assets is based on the amount of reserves expected to be recovered from the mine, as included in the technical report prepared by an independent valuer and the assumption that the Group is able to be renew the mining rights without significant cost until the end of the mine’s life. If these estimates of reserves prove to be inaccurate, or if the Group revises its mining plan, due to reductions in the metal price forecasts or otherwise, to reduce the amount of reserves expected to be recovered, the Group could be required to write down the recorded value of its property, plant and equipment, or to increase the amount of future depreciation and depletion expense. The Group believes that it is able to renew the mining rights without significant cost until the end of the life of the mine. If the renewal of mining rights is unsuccessful, the Group could be required to write down the recorded value of its property, plant and equipment. The carrying amount of mineral assets as at December 31, 2013 is disclosed in Note 20. 89 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. KEY SOURCES OF ESTIMATION UNCERTAINTY (Cont’d) (c) Mining rights The Group’s mining rights in the Jiama polymetallic mineral property (“Jiama Mine”), are amortized on a unit-of-production basis. Under the unit-of-production method, the calculation of amortization of mining rights is based on the amount of reserves expected to be recovered from the Jiama Mine as included in the technical report prepared by an independent valuer and the assumption is that the mining rights are renewable by the Group without significant cost until the end of the mine’s life. If these estimates of reserves prove to be inaccurate, or if the Group revises its mining plan, due to reductions in the future prices of copper, lead and silver, or otherwise, to reduce the amount of reserves expected to be recovered, the Group could be required to write down the recorded value of its mining rights, or to increase the amount of future amortization expense. The Group believes that it is able to renew the mining rights without significant cost until the end of the life of the mine. If the renewal of mining rights is unsuccessful, the Group could be required to write down the recorded value of its mining rights. The carrying amount of mining rights as at December 31, 2013 is disclosed in Note 21. (d) Environmental rehabilitation Environmental rehabilitation costs have been estimated based on the Group’s interpretation of current regulatory requirements and have been measured at the net present value of expected future cash expenditure upon reclamation and closure. Environmental rehabilitation costs are capitalized as mineral assets costs and depreciated under unit-of-production method as disclosed above. Because the fair value measurement requires the input of subjective assumptions, including the environmental rehabilitation costs, changes in subjective input assumptions can materially affect the estimate of the obligation. During the year ended December 31, 2013, estimated environmental rehabilitation costs were increased by US$21,700,000 due to phase two expansion in both Jiama and CSH mine sites (2012: increase of US$3,003,000). The carrying amount of environmental rehabilitation costs as at December 31, 2013 is disclosed in Note 25. 5. GENERAL AND ADMINISTRATIVE EXPENSES Administration and office Professional fees Salaries and benefits (1) Depreciation of property, plant and equipment Others 2013 US$’000 8,641 4,041 10,259 1,301 1,461 2012 US$’000 11,500 3,181 6,836 1,070 2,462 Total general and administrative expenses 25,703 25,049 (1) Share-based compensation (a non-cash item) of approximately US$42,000 has been included in salaries and benefits for the year ended December 31, 2013 (2012: US$99,000). 90 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6. EXPLORATION AND EVALUATION EXPENDITURE CSH Gold Mine (Note 20(a)) Generative exploration Total exploration and evaluation expenditure 7. FINANCE COSTS Effective interests on borrowings: – wholly repayable within 5 years – Accretion on environmental rehabilitation (Note 25) 2013 US$’000 2012 US$’000 243 4 247 370 20 390 2013 US$’000 2012 US$’000 15,995 763 11,885 664 16,758 12,549 Less: Amounts capitalised to property, plant and equipment (6,104) – Total finance costs 10,654 12,549 Interest has been capitalised at the rate of interest applicable to the specific borrowings financing the assets under construction, or, where financed through general borrowings, at a capitalisation rate representing the average interest rate on such borrowings. Capitalisation rate 8. INCOME TAX EXPENSE 2013 % 4.32 2012 % n/a The Company was incorporated in Canada and is subject to Canadian federal and provincial tax requirements which are calculated at 25.75% (2012: 25%) of the estimated assessable profit for the year ended December 31, 2013. Since its incorporation, the Company had no assessable profit subject to Canadian federal and provincial tax requirements. PRC Enterprise Income Tax (“EIT”) is calculated at the prevailing tax rate of 25% on the estimated taxable profit of the group entities located in the PRC for the years ended December 31, 2013 (2012: 25%) except as described below. Tibet Huatailong Mining Development Co. Ltd. (“Huatailong”) and Metrorkongka County Jiama Industry and Trade Co. (“Jiama Industry and Trade”), subsidiaries acquired in December 2010, were established in the westward development area of the PRC and subject to preferential tax rate of 15% of taxable profit. 91 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. INCOME TAX EXPENSE (Cont’d) Under relevant PRC Tax Law, withholding tax is imposed on dividends declared in respect of profits earned by the PRC subsidiaries from January 1, 2008 onwards. Deferred taxation has not been provided for in the consolidated financial statements in respect of temporary differences attributable to accumulated distributable profits of the PRC subsidiaries amounting to approximately US$272,754,000 and US$212,032,000 at December 31, 2013 and 2012, respectively, as the Company is able to control the timing of the reversal of temporary differences and it is probable the temporary differences will not reverse in the foreseeable future. Taxation for other relevant jurisdictions is calculated at the rates prevailing in each of those jurisdictions respectively. Tax expense comprises: Current tax expense – PRC EIT Deferred tax expense 2013 US$’000 27,738 (11,373) 2012 US$’000 34,701 (8,538) 16,365 26,163 Per the consolidated statement of profit or loss and other comprehensive income, the tax expense for the Group can be reconciled to the profit before income tax for the year as follows: Profit before income tax PRC EIT tax rates 2013 US$’000 2012 US$’000 73,547 99,677 25% 25% Tax at the PRC EIT tax rates 18,387 24,919 Tax effect of different tax rates of subsidiaries operating in other jurisdictions Tax effect of concessionary tax rate Tax effect of tax losses not recognized Tax effect of non-deductible expenses Utilisation of deductible temporary differences previously not recognised Tax effect of non-taxable income Others (37) (2,066) 1,929 1,769 (3,617) – – – (564) 415 1,331 – – 62 16,365 26,163 92 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. INCOME TAX EXPENSE (Cont’d) The following are the major deferred tax (assets) liabilities recognized and movements thereon during the current and prior years: Property, Plant and equipment US$’000 Environmental rehabilitation Mining Rights (1) US$’000 US$’000 Inventory US$’000 Prepaid lease payment US$’000 At January 1, 2012 Charge (credit) to profit or loss At December 31, 2012 Charge (credit) to profit or loss (9,125) 717 (8,408) 123 (841) (609) (1,450) (3,947) 137,403 (2,047) 135,356 (4,698) 5,608 (7,033) (1,425) (2,881) At December 31, 2013 (8,285) (5,397) 130,658 (4,306) 101 (2) 99 (99) – Others US$’000 (1,049) 436 (613) 129 Total US$’000 132,097 (8,538) 123,559 (11,373) (484) 112,186 (1) Amount represents deferred tax liability arising from the fair value adjustment on mining rights during the business acquisition of Skyland in December 2010. For the purpose of presentation in the consolidated statement of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes: Deferred tax assets Deferred tax liabilities The Group’s unrecognized deferred income tax assets are as follows: Deferred income tax assets Tax loss carry forwards Other deductible temporary differences 2013 US$’000 14,501 (126,687) 2012 US$’000 7,100 (130,659) (112,186) (123,559) 2013 US$’000 14,351 283 2012 US$’000 12,422 872 Total unrecognized deferred income tax assets 14,634 13,294 No deferred tax asset has been recognized in respect of unused tax loss of US$14,351,000 (December 31, 2012: US$12,422,000) due to the unpredictability of future profit streams. Under Canadian tax laws, unused tax loss arising in a tax year ended between March 22, 2004 and December 31, 2005 can be carried forward for 10 years while the unused tax loss can be carried forward for 20 years if the loss is arising in tax years ended after December 31, 2005. Other deductible temporary differences primarily comprise of share issue costs and cumulative eligible capital expenditures that were incurred by the Company which are tax deductible according to the relevant tax law in Canada. No deferred tax asset has been recognized because the amount of future taxable profit that will be available to realize such assets is unpredictable and not probable. 93 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. PROFIT FOR THE YEAR Auditor’s remuneration Depreciation included in cost of sales and inventory Depreciation included in administrative expenses (Note 5) Total depreciation 2013 US$’000 2012 US$’000 714 714 32,544 1,301 23,850 1,070 33,845 24,920 Release of prepaid lease payment (included in cost of sales) 195 168 Amortization of mining rights (included in cost of sales) 6,077 14,252 Loss (gain) on disposal of property, plant and equipment Staff costs Directors’ and chief executive’s emoluments (Note 10) Retirement benefit contributions Staff salaries and benefits Total salaries and benefits included in administrative expenses (Note 5) Staff salaries and benefits Total salaries and benefits capitalised in construction in progress Staff costs included in cost of sales and inventory Total staff costs Operating lease payment Bank interest income Government subsidies (1) 324 505 1,127 8,627 10,259 2,800 2,800 12,170 (6) 496 647 5,693 6,836 – – 12,644 25,229 19,480 1,376 1,361 (1,688) (5,830) (5,074) (5,064) (1) Government subsidies of US$3,604,000 (2012: US$4,919,000) have been received from the local Finance Bureau of Tibet in the current year as a reward for the Group’s contribution to community development and environmental preservation in the local Tibet region. There is no condition attached to the subsidies and the entire amount is recognized as other income in 2013. 94 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. DIRECTORS’, CHIEF EXECUTIVE’S AND EMPLOYEES’ EMOLUMENTS (a) Directors’ and Chief Executive’s emoluments The emoluments paid or payable to each of the nine (2012: nine) directors and the Chief Executive were as follows: For the year ended December 31, 2013 Directors Zhaoxue Sun* Xin Song* Bing Liu Xiangdong Jiang Zhanming Wu* Yunfei Chen Ian He Gregory Hall John King Burns Retirement Salaries and benefit Share-based Fees other benefits contributions compensation US$’000 US$’000 US$’000 US$’000 Total US$’000 – – – – – 35 40 35 34 – – – 181 134 – – – – 144 315 – – – 2 – – 2 – – 4 – – – – – 10 10 11 11 42 – – – 183 134 45 52 46 45 505 For the year ended December 31, 2012 Retirement Salaries and benefit Stock-based Fees other benefits contributions compensation US$’000 US$’000 US$’000 US$’000 Total US$’000 Directors Zhaoxue Sun* Xin Song* Bing Liu Xiangdong Jiang Zhanming Wu* Yunfei Chen Ian He Gregory Hall John King Burns * Executive director – – – – – 12 18 12 12 54 – – – 234 104 – – – – 338 – – – 2 – – 2 – – 4 – – – 3 – 24 25 24 24 100 – – – 239 104 36 45 36 36 496 95 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. DIRECTORS’, CHIEF EXECUTIVE’S AND EMPLOYEES’ EMOLUMENTS (Cont’d) (a) Directors’ and Chief Executive’s emoluments (Cont’d) Mr. Xin Song is a director and Chief Executive of the Company. The emoluments disclosed above are inclusive of services rendered by him as the Chief Executive. For the years ended December 31, 2013 and 2012, none of the directors of the Company have waived or agreed to waive any emoluments. (b) Employees’ emoluments The five highest paid individuals included one (2012: one) director for the year ended December 31, 2013. The emoluments of the remaining four (2012: four) individuals for the year ended December 31, 2013, are as follows: Employees Salaries and other benefits Retirement benefit contributions Their emoluments were within the following bands: HK$1,000,001 to HK$1,500,000 (equivalent to approximately US$128,001 to US$193,000) 2013 US$’000 2012 US$’000 654 4 658 No. of individuals 2013 4 688 5 693 2012 4 During the years ended December 31, 2013 and 2012, no emoluments were paid by the Group to the directors of the Company or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office. 11. DIVIDEND No dividends were paid or proposed during 2013 and 2012, nor has any dividend been proposed since the end of reporting period. 96 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12. EARNINGS PER SHARE Earnings used in determining earnings per share are presented below: 2013 US$’000 2012 US$’000 Profits attributable to owners of the Company for the purposes of basic and diluted earnings per share 55,032 70,938 Weighted average number of shares, basic 396,384,055 396,257,575 Dilutive securities – Stock options 16,450 80,044 Weighted average number of shares, diluted 396,400,505 396,337,619 Basic earnings per share 13.88 cents 17.90 cents Diluted earnings per share 13.88 cents 17.90 cents 13. CASH AND CASH EQUIVALENTS Cash and cash equivalents of the Group are comprised of bank balances and bank deposits with an original maturity of three months or less. The Group’s bank balances and cash equivalents are denominated in the foreign currencies other than the respective group entities’ functional currencies are presented below: Denominated in: Canadian dollars (“CAD”) Renminbi (“RMB”) US$ Hong Kong dollars (“HK$”) 2013 US$’000 2012 US$’000 3,008 43,072 20 273 342 97,121 20 245 Total cash and cash equivalents 46,373 97,728 The bank balances and bank deposits carry interest rates ranging from 0.35% to 3.5% (2012: 0.5% to 3.5%) per annum for the year ended December 31, 2013. 97 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES The Group’s accounts receivable arise from the following sources: trade receivables and amounts due from related companies. These are broken down as follows: Trade receivables Less: allowance for doubtful debts Amounts due from related companies (Note 27(a))(1) Other receivables(2) Total accounts receivable and other receivables 2013 US$’000 2012 US$’000 740 (145) 595 3,354 5,765 9,714 1,234 (50) 1,184 1,354 842 3,380 (1) The outstanding balances represent service fee receivables arising from provision of transportation services to the subsidiaries of CNG during the year ended December 31, 2013 and December 31, 2012. The amount is unsecured, interest free and repayable on demand. (2) Included in the balance is approximately US$5,209,000 (2012: nil) PRC value-added-tax recoverable. The remaining balance mainly represents employee cash and travel advances, all of which are unsecured, interest free and repayable upon written notice from the Group. At December 31, 2013 and 2012, nil trade receivable is from gold dore bars sale to CNG (note 27(a)). The Group allows an average credit period of 90 days and 180 days to its external trade customers including CNG for gold dore bar sales and copper sales, respectively. Below is an aged analysis of trade receivables (net of allowance) presented based on invoice dates, which approximated the respective revenue recognition dates, at the end of the reporting period: Less than 30 days 31 to 90 days 91 to 180 days Over 180 days 2013 US$’000 2012 US$’000 40 480 45 30 595 372 343 249 220 1,184 In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The customers with balances that are neither past due nor impaired have good repayment history and thus no impairment is considered necessary. 98 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES (Cont’d) Included in the Group’s trade receivables balances are debtors with aggregate carrying amount of US$30,000 and US$220,000 at 31 December 2013 and 2012, respectively, which are past due over six months for which the Group has not provided for impairment loss as there has not been a significant change in credit quality and amounts are still considered recoverable based on historical experience. Movement in the allowance for doubtful debts: At January 1 Addition Exchange realignment At December 31 2013 US$’000 2012 US$’000 50 93 2 145 50 – – 50 The Group holds no collateral for any receivable amounts outstanding as at December 31, 2013 and 2012. 15. PREPAID EXPENSES AND DEPOSITS Deposits for mine supplies and services (note a) Deposits for spare parts Deposits for environmental protection (note b) Deposit for acquisition of property, plant and equipment (note c) Prepaid property and machinery insurance Amount due from a non-controlling shareholder (note d) Other prepayment and deposits 2013 US$’000 2,288 1,306 4,212 11,728 820 435 2,904 2012 US$’000 5,957 3,139 4,753 40,230 397 423 1,098 Total prepaid expenses, deposits and other receivables 23,693 55,997 Less: Amounts that are settled or utilized within one year shown under current assets (6,987) (10,270) Amounts that are settled or utilized for more than one year shown under non-current assets 16,706 45,727 99 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. PREPAID EXPENSES AND DEPOSITS (Cont’d) Notes: a. The amount represents deposits paid to third party vendors and related companies for purchasing of raw materials and inventory consumable. b. The amount represents deposits paid to the PRC local land administration bureau for undertaking the restoration of land when the lease term is expired. Such amount is receivable upon the end of the mine life and is expected to be repaid after one year and therefore it is shown as a non-current asset at both 2013 and 2012 year end. c. The amount represents deposits paid to third party contractors for the acquisition of property, plant and equipment to expand its mining capacity in Tibet, the PRC. The amount is shown as non-current asset. d. The amount represented the amount due from Metrorkonga Jiama Cooperatives (“Jiama Cooperatives”), a non-controlling shareholder of Jiama Industry and Trade, a 51% owned subsidiary of Huatailong. Huatailong, a wholly owned subsidiary of the Company, paid RMB2,450,000 (equivalent to approximately US$435,000) on behalf of Jiama Cooperatives as the 49% capital contribution to Jiama Industry and Trade. The amount is unsecured, interest-free and repayable on demand. As agreed between Huatailong and Jiama Cooperatives, Jiama Cooperatives can use future distribution of dividend by Jiama Industry and Trade to settle the amount. The Group considers that the amount due from Jiama Cooperatives will not be repayable within one year; therefore, it is classified as non-current asset. 16. ENTRUSTED LOAN RECEIVABLE On October 18, 2012, the Group entered into an entrusted loan agreement with CNG and Agricultural Bank of China (“ABC”) in which the Group provided a loan of RMB100 million (equivalent to approximately US$16,052,000) to CNG through ABC as the entrusted bank. The entrusted loan was unsecured and carried interest at floating rate based on the People’s Bank of China base rate. The principal loan amount and accrued interests thereon were fully repaid on April 17, 2013. 17. PREPAID LEASE PAYMENTS At January 1, 2012 Release to profit or loss Exchange realignment At December 31, 2012 and January 1, 2013 Additions Release to profit or loss Exchange realignment At December 31, 2013 Analyzed for reporting purpose: Current portion Non-current portion US$’000 6,924 (168) 64 6,820 1,821 (195) 214 8,660 2013 US$’000 2012 US$’000 235 8,425 8,660 194 6,626 6,820 Prepaid lease payments represent payments for medium-term leasehold land located in the PRC. The prepaid lease payments are released to profit or loss over the remaining lease terms. 100 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INVENTORY Gold in process Gold dore bars Consumables Copper Spare parts Total inventory Less: Amounts expected to be recovered after 12 months (note) (shown under non-current assets) 2013 US$’000 44,628 4,182 5,959 122 8,355 2012 US$’000 26,192 4,127 7,677 5,004 5,455 63,246 48,455 (2,001) (10,005) Amounts shown under current assets 61,245 38,450 Note: Management has taken into consideration the long-term process involved in recovering gold from a heap leaching system and has classified inventory, specifically, the gold in process, that are expected to be recovered more than twelve months after the end of the reporting period into non-current assets. Inventory totalling US$200,355,000 (2012: US$193,206,000) for the years ended December 31, 2013 was recognized in cost of sales. 19. AVAILABLE-FOR-SALE INVESTMENTS Listed investment: – Equity securities listed in Hong Kong (1) Unlisted investment: – Equity securities (2) December 31, December 31, 2013 US$’000 2012 US$’000 20,198 20,570 1,652 803 21,850 21,373 (1) On June 29, 2012, the Group acquired 70,545,000 shares of China Nonferrous Mining Corporation Limited (“CNMC”), a listed company in Hong Kong at HK$2.20 per share for a total consideration of US$20,011,000 which represents 2.03% equity interest in CNMC. On December 31, 2013, the investment was stated at fair value on quoted bid prices on December 31, 2013 and a fair value loss of US$372,000 (2012: gain of US$559,000) has been recognized in other comprehensive income. (2) As of December 31, 2013, the Group has invested RMB10,000,000 (approximately US$1,652,000, 2012: US$803,000) representing 10% share interest in Inner Mongolia Chengxin Yong’an Chemicals Co., Ltd. (“Yong’an Chemicals”). Yong’an Chemicals is incorporated in the PRC and principally engage in the development and manufacturing of chemicals. The investment is measured at cost less impairment at the end of the reporting period because the range of reasonable fair value estimates is so significant that the fair values cannot be measured reliably. 101 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20. PROPERTY, PLANT AND EQUIPMENT Furniture and office Machinery and Leasehold Buildings US$’000 Crusher US$’000 equipment US$’000 equipment Motor vehicles US$’000 US$’000 improvements Mineral assets US$’000 US$’000 141,403 1,216 – 4,797 – 13,589 1,553 162,558 3,037 – 30,678 – 4,685 72,283 – – – – – – 72,283 – – – – – 1,573 217 – – – (3) 7 1,794 654 – – – 79,032 5,860 – 16,104 – (13,586) 730 88,140 4,828 (418) – – 186 1,601 5,373 591 (119) – – – 45 5,890 1,986 (49) – – 145 100 – – – – – – 100 – – – – – 87,215 33,636 – – 3,003 – 951 124,805 72,510 – – 21,700 2,737 Construction in progress (“CIP”) US$’000 16,123 131,621 – (20,901) – – 2,020 128,863 423,939 – (30,678) – 7,534 Total US$’000 403,102 173,141 (119) – 3,003 – 5,306 584,433 506,954 (467) – 21,700 16,888 COST At January 1, 2012 Additions Disposals Transfer from CIP Environmental rehabilitation adjustment (Note 25) Reclassification Exchange realignment At December 31, 2012 Additions Disposals Transfer from CIP Environmental rehabilitation adjustment (Note 25) Exchange realignment At December 31, 2013 200,958 72,283 2,634 94,151 7,972 100 221,752 529,658 1,129,508 ACCUMULATED DEPRECIATION As at January 1, 2012 Provided for the year Eliminated on disposals Reclassification Exchange realignment At December 31, 2012 Provided for the year Eliminated on disposals Exchange realignment (4,488) (6,241) – (1,028) (184) (11,941) (7,917) – (395) (9,661) (5,549) – – – (15,210) (6,222) – – (866) (245) – – (5) (1,116) (176) – (100) (15,433) (6,606) – 1,028 (160) (21,171) (7,430) 94 (359) (1,285) (788) 83 – (22) (2,012) (922) 45 (52) (41) (15) – – – (56) (20) – – (10,267) (5,476) – – (69) (15,812) (11,158) – (185) At December 31, 2013 (20,253) (21,432) (1,392) (28,866) (2,941) (76) (27,155) – – – – – – – – – – (42,041) (24,920) 83 – (440) (67,318) (33,845) 139 (1,091) (102,115) CARRYING VALUE At December 31, 2013 180,705 50,851 1,242 65,285 5,031 At December 31, 2012 150,617 57,073 678 66,969 3,878 24 44 194,597 529,658 1,027,393 108,993 128,863 517,115 Included in the cost above is US$22,088,000 (2012: US$15,984,000) as at December 31, 2013 in relation to finance costs which have been capitalized as crusher and mineral assets. 102 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20. PROPERTY, PLANT AND EQUIPMENT (Cont’d) The above items of property, plant and equipment, except for mineral assets, are depreciated using the straight- line method over the estimated useful lives of the related assets as follows: Buildings Crusher Furniture and office equipment Machinery and equipment Motor vehicles Over the shorter of the term of lease, or 24 years 14 years 2 to 5 years 2 to 10 years 5 to 10 years Leasehold improvements Over the shorter of the term of lease, or 5.5 years Mineral assets mainly represent drilling and related costs incurred on sites with an existing mine and on areas within the boundary of a known mineral deposit which contains proven and probable reserves and are capitalized prior to the commencement of production at the mine site. Mineral assets are depreciated using the unit-of- production method based on the actual production volume over the estimated total proven and probable reserves of the mines. Mineral Assets (a) CSH Gold Mine CSH Gold Mine, in which our Group holds a 96.5% interest, consists of a licensed area of 36 square kilometers (“km2”) in the western part of Inner Mongolia, northern China. The site is centrally positioned within the east-west-trending Tian Shan Gold Belt and is approximately 650 kilometers (“km”) northwest of Beijing. The carrying value of mineral assets of the CSH Gold Mine is US$122,216,000 as at December 31, 2013 (December 31, 2012: US$60,547,000). (b) Jiama Mine The Jiama Mine, a large copper-gold polymetallic deposit consisting of skarn-type and hornfels-type mineralization located in Metrorkongka County in Tibet, in which the Group holds 100% interest through its wholly-owned subsidiary, Skyland. The Group acquired Skyland on December 1, 2010. The Jiama Mine holds two mining permits covering an area of approximately 76.9 km2 and 66.4 km2, respectively. The carrying value of the Jiama Mine in relation to mineral assets is US$72,381,000 as at December 31, 2013 (December 31, 2012: US$48,446,000). 103 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. MINING RIGHTS COST At January 1, 2012 Exchange realignment At December 31, 2012 and January 1, 2013 Exchange realignment At December 31, 2013 ACCUMULATED AMORTIZATION At January 1, 2012 Additions Exchange realignment At December 31, 2012 and January 1, 2013 Additions Exchange realignment At December 31, 2013 CARRYING VALUE At December 31, 2013 At December 31, 2012 Mining rights US$’000 978,922 503 979,425 1,452 980,877 (16,918) (14,252) (23) (31,193) (6,077) (50) (37,320) 943,557 948,232 Mining rights represent two mining rights in the Jiama Mine, in relation to the copper concentrate and other by- products production, acquired through the acquisition of the Skyland Group. The mining rights will expire in 2014 and 2015, respectively, the Group considers that it will be able to renew the mining rights with the relevant government authority continuously at insignificant cost. Amortization on mining rights acquired is provided to write off the cost of the mining rights using the unit-of- production method based on the actual production volume over the estimated total proven and probable reserves of the mines. 104 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses of the Group are principally comprised of amounts outstanding for trade purchases relating to minerals production activities and construction activities. The average credit period taken for trade purchases is between 120 to 150 days. Accounts payables and accrued expenses comprise the following: Accounts payable Construction cost payables Advances from customers Mining cost accrual Other accruals Payroll and benefit accruals Other tax payables Other payables 2013 US$’000 33,053 57,010 513 2,872 4,253 4,551 4,526 9,174 2012 US$’000 18,837 27,697 6,221 3,747 1,643 4,631 6,803 5,494 115,952 75,073 The following is an aged analysis of the accounts payable presented based on the invoice date at the end of the reporting period: Less than 30 days 31 to 90 days 91 to 180 days Over 180 days 2013 US$’000 28,533 214 141 4,165 2012 US$’000 9,872 3,944 244 4,777 Total accounts payable 33,053 18,837 105 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. BORROWINGS The borrowings are repayable as follows: Carrying amount repayable within one year Carrying amount repayable within one to two years Carrying amount repayable within two to five years Less: Amounts due within one year (shown under current liabilities) December 31, December 31, 2013 US$’000 232,432 181,217 90,857 504,506 (232,432) 2012 US$’000 72,234 60,435 80,260 212,929 (72,234) Amounts shown under non-current liabilities 272,074 140,695 Analysed as: Secured Unsecured December 31, December 31, 2013 US$’000 188,734 315,772 2012 US$’000 192,623 20,306 504,506 212,929 Borrowings carry interest at effective interest rated ranging from 2.85% to 6.08% (December 31, 2012: 4.2% to 6.3%) per annum. The carrying values of the pledged assets to secure borrowings by the Group are as follows: December 31, December 31, 2013 US$’000 204,265 943,557 2012 US$’000 348,371 948,232 1,147,822 1,296,703 Property, plant and equipment Mining rights 106 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24. DEFERRED INCOME Deferred income – government grants Deferred lease inducement Total deferred income 2013 US$’000 2,476 42 2,518 2012 US$’000 728 75 803 Pursuant to the approval notices issued by the Environmental Protection Department of Tibet Autonomous Region in August 2012, Jiama received government grants in relation to the contamination control of heavy metal ion acidulated water project amounting to RMB9,840,000 (equivalent to approximately US$1,600,000) during the year ended December 31, 2013. The grants are recorded as deferred income in the consolidated statement of financial position and will be credited to profit or loss on a straight-line basis over the expected useful lives of the related assets. Movement in the deferred income – government grants: At January 1 Addition Charged to other income Exchange realignment At December 31 25. ENVIRONMENTAL REHABILITATION 2013 US$’000 2012 US$’000 728 2,972 (1,276) 52 2,476 865 – (145) 8 728 The environmental rehabilitation relates to reclamation and closure costs relating to the Group’s mine operations at the CSH Gold Mine and Jiama Mine. The environmental rehabilitation is calculated as the net present value of estimated future net cash flows of the reclamation and closure costs, which total US$87,368,000 (2012: US$41,890,000), discounted at 9.3% (2012: 11.2%) per annum at December 31, 2013. The following is an analysis of the environmental rehabilitation: At January 1 Additions to site reclamation Utilization during the year Additions (reductions) resulted from change in discount rate during the year Accretion incurred in the current year Exchange realignment 2013 US$’000 6,813 18,823 – 2,877 763 550 2012 US$’000 4,253 3,701 (1,124) (698) 664 17 At December 31 29,826 6,813 107 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26. SHARE CAPITAL AND OPTIONS (a) Common shares (i) Authorized – Unlimited common shares without par value (ii) Issued and outstanding Issued & fully paid: At January 1, 2012 Exercise of stock option Number of shares Amount US$’000 396,163,753 1,228,184 155,000 547 At December 31, 2012 and January 1, 2013 Exercise of stock option 396,318,753 95,000 1,228,731 330 At December 31, 2013 396,413,753 1,229,061 (b) Stock options The Group has a stock option plan which permits the board of directors of the Company to grant options to directors and employees to acquire common shares of the Company at the price approved by the board of directors. A portion of the stock options vest immediately on the grant date and the balance vests over a period of up to five years from the grant date. The stock options have a life of up to six years from grant date. The fair market value of the exercise price is the volume weighted average price of the common shares for the five days on which they were traded immediately preceding the date of approval by the board of directors. The following is a summary of option transactions under the Group’s stock option plan during the year: 2013 2012 Weighted Weighted Balance at January 1 Options exercised Options forfeited Options expired Number of average exercise options 540,000 (95,000) – (45,000) price CAD 4.62 2.20 – 2.20 695,000 (155,000) – – Number of options average exercise price Balance at December 31 400,000 5.56 540,000 CAD 3.98 2.18 – – 4.62 295,000 stock options were granted during the year ended December 31, 2007 at exercise price of CAD2.2. These options expired on July 20, 2013. 199,000 stock options were vested at December 31, 2011 while the remaining 96,000 stock options were vested on July 20, 2012. Approximately US$nil and US$8,000 were charged to the profit or loss for the year ended December 31, 2013 and 2012. 108 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26. SHARE CAPITAL AND OPTIONS (Cont’d) (b) Stock options (Cont’d) 400,000 stock options were granted during the year ended December 31, 2010. The options were granted on June 1, 2010 and expire on June 1, 2015. The exercise price was CAD4.35 per share from June 1, 2010 until June 1, 2011, CAD4.78 per share from June 2, 2011 until June 1, 2012, CAD5.21 per share from June 2, 2012 until June 1, 2013, CAD5.64 per share from June 2, 2013 until June 1, 2014, and CAD6.09 per share from June 2, 2014 until June 1, 2015 or such later termination date as may apply. 20% of the shares vested immediately, on June 2, 2011 and June 2, 2012, an additional 20% of the options vested on June 2, 2013 and will vest on June 2, 2014, respectively. The fair value of these options at date of grant was approximately US$860,000, of which approximately US$42,000 and US$94,000 were charged to the profit or loss for the year ended December 31, 2013 and 2012 respectively. No stock options were granted during the year ended December 31, 2013 and 2012. The following table summarizes information about stock options outstanding and exercisable at December 31, 2013: Options outstanding Options exercisable Remaining Weighted Weighted Number of contractual life average exercise Number of average exercise Expiring in stock options (years) stock options price CAD 2015 400,000 1.42 5.56 320,000 400,000 5.56 320,000 price CAD 5.43 5.43 The following table summarizes information about stock options outstanding and exercisable at December 31, 2012: Options outstanding Options exercisable Remaining Weighted Weighted Number of contractual life average exercise Number of average exercise Expiring in stock options (years) 2013 2015 0.55 2.42 140,000 400,000 540,000 price CAD 2.20 5.47 stock options 140,000 240,000 4.62 380,000 price CAD 2.20 5.21 4.10 The fair value of options granted was determined using the Black-Scholes option pricing model at the grant date. 109 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27. RELATED PARTY TRANSACTIONS The Group operates in an economic environment currently predominated by enterprises directly or indirectly owned or controlled or significantly influenced by the PRC government (hereinafter collectively referred to as “Government-related entities”). In addition, the Group itself is a Government-related entity. CNG, a substantial shareholder with significant influence over the Group, is a state owned company registered in Beijing, PRC, which is controlled by State-owned Assets Supervision and Administration Commission of the State Council of the PRC. During the year, except as disclosed below, the Group did not have any individually significant transactions with other Government-related entities in its ordinary and usual course of business. Name and relationship with related parties during the years are as follows: CNG owned the following percentages of outstanding common shares of the Company: CNG December 31, December 31, 2013 % 39.3 2012 % 39.3 (a) Transactions/balances with government-related entities in the PRC (i) Transactions/balance with CNG and its subsidiaries The Group had the following transactions with CNG and CNG’s subsidiaries: December 31, December 31, 2013 US$’000 2012 US$’000 Gold dore bars sales by the Group 173,985 220,142 Copper and other product sales by the Group 55,819 – Provision of transportation services by the Group 2,724 1,638 Construction services provided to the Group 237,794 77,032 110 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27. RELATED PARTY TRANSACTIONS (Cont’d) (a) Transactions/balances with government-related entities in the PRC (Cont’d) (i) Transactions/balance with CNG and its subsidiaries (Cont’d) The Group has the following significant balances with CNG and its subsidiaries at the end of each reporting period: Assets Entrusted loan receivable from CNG (Note 16) Amounts due from related companies (Note 14) Deposits (Note 15) Total amounts due from CNG and its subsidiaries December 31, December 31, 2013 US$’000 2012 US$’000 – 3,354 931 4,285 16,052 1,354 575 17,981 The amounts due from CNG and its subsidiaries which are included in accounts receivable and other receivables are non-interest bearing, with the exception of the entrusted loan, unsecured and repayable on demand. Liabilities Other payable to CNG’s subsidiaries Customer advance paid by CNG’s subsidiary Total amounts due to CNG and its subsidiaries December 31, 2013 December 31, 2012 US$’000 US$’000 2,185 6,595 8,780 – – – The amount due to CNG and its subsidiaries which are included in other payables, are non-interest bearing, unsecured and have no fixed terms of repayments. (ii) Transactions/balances with other government – related entities in the PRC Apart from the transactions with CNG and its subsidiaries disclosed above, the Group has also entered into transactions of bank deposits, borrowings and other general banking facilities with other government-related entities in its ordinary course of business. 111 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27. RELATED PARTY TRANSACTIONS (Cont’d) (b) Transactions/balances with other non-government related parties/entities The Group has the following significant balances with related parties at the end of each reporting period: Asset Amount due from a non-controlling shareholder of a subsidiary (included in other receivables) Total amount due from a related party 2013 US$’000 2012 US$’000 435 435 423 423 The amount due from the related party is non-interest bearing, unsecured and repayable on demand. Other than the directors’ emoluments disclosed in Note 10(a), the Group has the following compensation to other key management personnel during the years: Salaries and other benefits Post-employment benefits 28. SEGMENT INFORMATION 2013 US$’000 2012 US$’000 939 18 957 553 5 558 IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the chief operating decision-maker (“CODM”) to allocate resources to the segments and to assess their performance. The chief operating decision-maker, which is responsible for allocating resources and assessing performance of the operating segments, has been defined as the executive directors of the Company. The chief operating decision-maker has identified two operating segments as follows: (i) The mine-produced gold segment – the production of gold bullion through the Group’s integrated processes, i.e., mining, metallurgical processing, production and selling of gold dore bars to external clients. (ii) The mine-produced copper segment – the production of copper concentrate and other by-products through the Group’s integrated separation, i.e., mining, metallurgical processing, production and selling copper concentrate and other by-products to external clients. During the year ended December 31, 2013, for performance assessment and resources allocation, the CODM not just focused on mining operating earnings but also profit (loss) before income tax attributable to respective segment. The change in basis is to align with the Group’s long term strategy. Following the change, the segment information for the year ended December 31, 2012 has been represented to conform to the presentation of current year’s financial statements. 112 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28. SEGMENT INFORMATION (Cont’d) Information regarding the above segments is reported below. (a) Segment revenues and results The following is an analysis of the Group’s revenue and results by reportable and operating segment: For the year ended December 31, 2013 Mine – Mine – Produced produced gold copper Segment Total Unallocated Consolidated US$’000 US$’000 US$’000 US$’000 US$’000 Revenue – External Cost of sales 178,143 (113,217) 124,465 302,608 (87,516) (200,733) Mining operating earnings 64,926 36,949 101,875 – – – 302,608 (200,733) 101,875 Income from operations 64,683 21,338 86,021 (10,096) 75,925 Foreign exchange gain (loss), net Interest and other income Finance costs Profit (loss) before income tax For the year ended December 31, 2012 (411) 2,127 (2,667) 63,732 979 1,177 (7,987) 15,507 568 3,304 (10,654) 79,239 946 3,458 – (5,692) 1,514 6,762 (10,654) 73,547 Mine – Mine – Produced produced gold copper Segment Total Unallocated Consolidated US$’000 US$’000 US$’000 US$’000 US$’000 Revenue – External Cost of sales 223,775 (128,893) 108,612 332,387 (78,565) (207,458) Mining operating Earnings 94,882 30,047 124,929 – – – 332,387 (207,458) 124,929 Income from operations 94,511 13,907 108,418 (8,928) 99,490 Foreign exchange gain (loss), net Interest and other income Finance costs Profit (loss) before income tax 504 3,724 (2,486) 96,253 (1,177) 3,038 (10,063) 5,705 (673) 6,762 (12,549) 101,958 844 5,803 – (2,281) 171 12,565 (12,549) 99,677 113 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28. SEGMENT INFORMATION (Cont’d) (a) Segment revenues and results (Cont’d) The accounting policies of the operating segments are the same as the Group’s accounting policies described in note 3. Segment profit represents the mine operating earnings earned by each segment representing the revenues less direct cost of sales as shown on the consolidated statement of profit or loss and other comprehensive income. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and performance assessment. There are no inter-segment sales for the year ended December 31, 2013 and 2012. (b) Segment assets and liabilities The following is an analysis of the Group’s assets and liabilities by segment: As of December 31, 2013 Total assets Total liabilities As of December 31, 2012 Total assets Total liabilities (c) Other segment information Mine – produced gold US$’000 Mine – Produced copper US$’000 Segment Total US$’000 Unallocated US$’000 Consolidated US$’000 430,543 111,499 1,724,209 2,154,752 673,841 785,340 63,749 1,636 2,218,501 786,976 339,340 62,981 1,401,659 1,740,999 374,436 437,417 65,265 1,053 1,806,264 438,470 Mine – produced gold US$’000 Mine – Produced copper US$’000 Segment Total US$’000 Unallocated US$’000 Consolidated US$’000 For the year ended December 31, 2013 Additions of property, plant and equipment 155,397 351,557 506,954 Depreciation of property, plant and equipment Amortization of mining rights For the year ended December 31, 2012 Additions of property, plant and (20,379) – (13,466) (6,077) (33,845) (6,077) equipment 71,792 101,349 173,141 Depreciation of property, plant and equipment Amortization of mining rights (13,365) – (11,555) (14,252) (24,920) (14,252) – – – – – – 506,954 (33,845) (6,077) 173,141 (24,920) (14,252) 114 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28. SEGMENT INFORMATION (Cont’d) (d) Geographical information The Group operated in two geographical areas, Canada and the PRC. The Group’s corporate division located in Canada only earns revenue that is considered incidental to the activities of the Group and therefore does not meet the definition of an operating segment as defined in IFRS 8 Operating Segments. During the year ended December 31, 2013 and 2012, the Group’s revenue was generated from gold sales and copper multi products to customers in the PRC. (e) Information about major customers Revenue from major customers which accounts for 10% or more of the Group’s total revenue are sales of gold dore bars and copper and other product to CNG and its subsidiaries as disclosed in Note 27 (a) (i). 29. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash financing activities The Group incurred the following non-cash financing activities: 2013 US$’000 2012 US$’000 Transfer of share option reserve upon exercise of options 124 206 30. CAPITAL RISK MANAGEMENT The Group manages its common shares and stock options as capital. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to operate its mine, pursue the development of its mineral properties and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk. The Group’s overall strategy remains unchanged from prior years. The Group manages the capital structure and makes adjustments to it in light of operating results, changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may attempt to issue new shares or options, issue of new debt, redemption of existing debt or acquire or dispose of assets. In order to facilitate the Management of its capital requirements, the Group prepares annual expenditure budgets that are updated as necessary depending on various factors, including operating results, successful capital deployment and general industry conditions. The annual and updated budgets are approved by the board of directors of the Company. In order to maximize ongoing development efforts, the Group does not pay out dividends. The Group’s investment policy is to invest its short-term excess cash in fixed bank deposits with maturities of 90 days or less from the original date of acquisition, selected with regards to the expected timing of expenditures from its operations. 115 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS Financial instrument classification Loans and receivables Loans and receivables Loans and receivables Loans and receivables Available-for-sale 2013 US$’000 105,887 – 9,714 435 21,850 2012 US$’000 181,740 16,052 3,380 423 21,373 Other financial liabilities 99,237 52,028 Financial assets Cash and cash equivalents Entrusted loan receivable Accounts receivable Amount due from a non-controlling shareholder (included in other receivables) Available-for-sale investment Financial liabilities Accounts payable and accrued expenses* Borrowings – Loans, other than syndicated loan Other financial liabilities – Syndicated loan Other financial liabilities 397,130 107,376 92,540 120,389 * Excluded advances from customers, other tax payables and accruals. The fair values of the Group’s cash and cash equivalents, entrusted loan receivable, accounts receivable, accounts payable and current portion of long-term loan and syndicated loan approximate their carrying values due to their short-term nature. The Group’s financial instruments are exposed to certain financial risks including market risk (e.g. currency risk and interest rate risk), credit risk and liquidity risk. 116 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS (Cont’d) (a) Currency risk The Group is exposed to the financial risk related to the fluctuation of foreign exchange rates. Certain subsidiaries of the Company operate in the PRC and Canada with functional currency of US$. A significant change in the currency exchange rates between RMB relative to US$ could have a significant effect on the Group’s results of operations, financial position or cash flows. The Group has not hedged its exposure to currency fluctuations. However, the Management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise. RMB monetary assets and liabilities Cash and cash equivalents Entrusted loan receivable Accounts receivable Available-for-sale investments Accounts payable and accrued expenses Borrowings 2013 US$’000 43,072 – 348 1,652 (30,687) (62,774) 2012 US$’000 97,121 16,052 480 803 (19,246) (24,078) (48,389) 71,132 Based on the above net exposures, and assuming that all other variables remain constant, a 5% (2012: 5%) depreciation/appreciation of the RMB against the US$ would result in an increase/decrease in the Group’s profit for the year of approximately US$2,004,000 for the year ended December 31, 2013 and a decrease/ increase in the Group’s profit for the year of approximately US$2,637,000 for the year ended December 31, 2012. In Management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the exposure during the year. 117 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS (Cont’d) (b) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is exposed to cash flow interest rate risk on the variable rate bank balances and variable-rate bank borrowings (see note 23 for details of these borrowings). It is the Group’s policy to keep its borrowings at floating rate of interests so as to minimise the fair value interest rate risk. Sensitivity analysis The following analysis is prepared assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year and all other variables were held constant. A 25 basis point (2012: 25 basis points) increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. For bank balances, the analysis below reflects the sensitivity that the interest rate may drop by 25 basis points (2012: 25 basis points) or limit to 0%. 25 basis points (2012: 25 basis points) higher – decrease in profit for the year – addition in finance costs capitalized 25 basis points (2012: 25 basis points) lower – increase in profit for the year – reduction in finance costs capitalized 2013 US$’000 2012 US$’000 (206) 722 206 (722) (28) – 28 – The Group monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise. 118 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS (Cont’d) (c) Credit risk Credit risk is the risk of an unexpected loss if a customer or third party to a financial asset fails to meet its contractual obligations. The Group sells approximately 97.7% (2012: 98.4%) of its gold to one creditworthy customer, CNG, and approximately 44.8% (2012: Nil) of its copper concentrate and other by-product to a CNG’s subsidiary for the years ended December 31, 2013 and exposes the Group to concentration of credit risk. The failure of these customers to make required payments could have a negative impact on the Group’s results. The Group manages this risk by demanding upfront payment from CNG and set up monitoring procedures to ensure that follow-up action is taken for timely settlement of receivables from the CNG’s subsidiary. The Group’s cash and short-term bank deposits are held in limited number of large PRC and Canadian banks. These balance mature at various dates within three months. The exchange rate of RMB is determined by the Government of the PRC and the remittance of funds out of the PRC is subject to exchange restrictions imposed by the Government of the PRC. The Group had concentration of credit risk by geographical locations as the other receivables comprise various debtors which are located either in the PRC or Canada for the years ended December 31, 2013 and 2012. Other than the concentration of the credit risk on bank balances and accounts receivable, the Group does not have any other significant concentration of credit risk. (d) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk through the management of its capital structure and financial leverage as outlined in Note 30. As at December 31, 2013, the Group had net current liabilities of approximately US$171.8 million. This exposes the Group to liquidity risk if the Group could not fulfill its financial obligations. The directors of the Company are satisfied that the Group will have sufficient financial resources to meet its financial obligations as they fall due for the next twelve months from the issuance date of these consolidated financial statements after taking into consideration (i) available undrawn bank facilities amounting to approximately US$7,958,507 as at December 31, 2013 and (ii) internal generated funds. The following table details the Group’s remaining contractual maturities for its non-derivative financial liabilities (see Note 33 for other commitments). The table is based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to satisfy the liabilities. 119 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS (Cont’d) (d) Liquidity risk (Cont’d) To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate at the end of the reporting period: Within 1 year US$’000 1-2 years US$’000 2-5 years US$’000 cashflow US$’000 Total undiscounted Carrying Amount US$’000 At December 31, 2013 Trade and other payables Borrowings Interest payable on borrowings 99,237 232,432 19,946 – 181,217 10,323 – 90,857 1,489 99,237 504,506 31,758 99,237 504,506 – 351,615 191,540 92,346 635,501 603,743 Within 1 year US$’000 1-2 years US$’000 2-5 years US$’000 cashflow Carrying Total US$’000 US$’000 Total undiscounted At December 31, 2012 Trade and other payables Borrowings Interest payable on borrowings 52,029 72,233 9,832 – 60,436 6,208 – 80,259 4,369 52,029 212,928 20,409 52,029 212,929 – 134,094 66,644 84,628 285,366 264,958 (e) Fair value The fair value of other financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis. The Group considers that the carrying amounts of financial assets and financial liabilities recorded at amortized cost in the consolidated financial statements approximate their fair values. Fair value measurements recognized in the consolidated statement of financial position Subsequent to initial recognition at fair value, the available-for-sale investment – listed equity securities are measured from quoted prices (unadjusted) in active market (Level 1 fair value measurements). There was no transfer between Level 1 and 2 in the current year and prior years. 120 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. CONTINGENT LIABILITIES During the year ended December 31, 2012, the Company received a notice from China International Economic and Trade Arbitration Commission (the “Commission”) alleging that the Company breached the agreement with one of its construction suppliers. The Company filed a countersuit against the construction supplier to the Commission for the unsatisfactory result of the construction and the destruction of certain plant, property and equipment. As a result, the Commission assigned a third party expert for evaluation of the validity of the claims made by both parties. As of the date of the report, the evaluation is still in progress, and therefore, Management considers the arbitration to be in a preliminary stage and the potential loss cannot be measured reliably. 33. COMMITMENTS AND CONTINGENCIES Operating leases commitments At the end of each reporting period, the Group had commitments for future minimum lease payments under non- cancellable operating leases which fall due as follows: Within one year In the second to fifth year inclusive Over five years December 31, December, 31, 2013 US$’000 2012 US$’000 1,255 162 299 1,716 1,908 864 742 3,514 Operating lease payments represent rentals payable by the Group for its premises. Leases are negotiated for a term of one to five years. December 31, 2013 December, 31, 2012 US$’000 US$’000 Capital commitments Capital expenditure in respect of acquisition of property, plant and equipment in the consolidated financial statements – contracted but not provided for 202,860 171,024 Capital expenditure in respect of capital injection to an investee 4,130 4,816 Other commitments and contingencies existed at the end of each reporting period In October 2006, the Group signed a ten-year service contract with a third party to provide mining services to the Group commencing in the first quarter of 2007. The value of the mining service of each year will vary and is dependent upon the amount of mining work performed. 121 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 34. RETIREMENT BENEFITS SCHEMES The employees of the Group’s subsidiaries are members of a state-managed retirement benefits scheme operated by the PRC government. The subsidiaries are required to contribute a certain percentage of payroll cost to the retirement benefits scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefits scheme is to make the specified contributions. The total cost charged to the consolidated statement of profit or loss and other comprehensive income, as a cost of inventory, of approximately US$1,127,000 and US$1,221,000 for the years ended December 31, 2013 and 2012, respectively, represent contributions payable to the scheme by the Group. 35. PARTICULARS OF SUBSIDIARIES Details of the Company’s subsidiaries at December 31, 2013 and 2012 are as follows: Name of subsidiaries Place and date of incorporation/ establishment Issued and fully paid share capital/ registered capital Pacific PGM Inc. British Virgin Islands US$100 (“BVI”) May 17, 2001 Equity interest attributable to the Group as at December 31, Principal activities 2013 100% 2012 100% Investment holding Pacific PGM (Barbados) Inc. Barbados September 6, US$130,000 100% 100% Investment holding 2007 IMP Ningxia, PRC April 29, US$37,500,000 96.5% 2002 Gansu Mining Company (Barbados) Ltd.(1) Barbados September 7, US$119,000 2007 Gansu Pacific(1) Gansu, PRC September RMB30,365,345 18, 2006 nil nil 96.5% Engaged in exploration and development of mining properties in China 100% Investment holding 53% Engaged in exploration and development of mining properties in China Skyland Cayman Islands October 6, 2004 US$233,380,700 plus RMB1,510,549,032 100% 100% Investment holding Tibet Jia Ertong Minerals Exploration Ltd.(2) PRC October 31, 2003 US$273,920,000 100% 100% Exploration, development and Huatailong(2) PRC January 11, 2007 RMB1,760,000,000 100% mining of mineral properties and investment holding 100% Exploration, development and mining of mineral properties Jiama Industry and Trade(2) PRC December 1, 2011 RMB5,000,000 51% 51% Mining logistics and transport business Skyland Mining (BVI) Limited BVI October 26, 2012 US$1 100% 100% Inactive (1) (2) 122 Dissolved during the year ended December 31, 2013. Domestic limited liability company China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 36. FINANCIAL SUMMARY OF THE COMPANY Current assets Cash and cash equivalents Accounts receivable Prepaid expenses, deposits and other receivables Non-current assets Property, plant and equipment Loan receivables from subsidiaries Available-for-sale investment Investment in subsidiaries Amounts due from subsidiaries Total assets Current liability Accounts payable and accrued expenses Non-current liability Deferred income Total liabilities Net current assets 2013 US$’000 2012 US$’000 42,934 110 326 44,001 78 361 43,370 44,440 153 53,798 20,198 987,016 26,250 129 51,083 20,570 981,988 37,771 1,087,415 1,091,541 1,130,785 1,135,981 1,583 41 954 76 1,624 1,030 41,787 43,486 Total assets less current liabilities 1,129,202 1,135,027 Owners’ equity Share capital (Note 26) Reserves (Note 37) Deficits (Note 37) Total owners’ equity 1,229,061 2,972 (102,872) 1,228,731 3,426 (97,206) 1,129,161 1,134,951 Total liabilities and owners’ equity 1,130,785 1,135,981 123 Annual Report 2013FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 37. RESERVES AND DEFICITS OF THE COMPANY At January 1, 2012 Profit for the year Fair value gain on available- for-sale investment Total comprehensive income for the year Exercise of stock option Share-based compensation At December 31, 2012 and January 1, 2013 Loss for the year Fair value loss on available- for-sale investment Total comprehensive loss for the year Exercise of stock option Share-based compensation Reserve US$’000 2,971 559 559 (206) 102 3,426 – (372) (372) (124) 42 Accumulated losses US$’000 (97,474) 268 268 – – (97,206) (5,666) – Total US$’000 (94,503) 268 559 827 (206) 102 (93,780) (5,666) (372) (5,666) (6,038) – – (124) 42 At December 31, 2013 2,972 (102,872) (99,900) 124 China Gold International Resources Corp. Ltd.FOR THE YEAR ENDED DECEMBER 31, 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2013 ANNUAL REPORT 2 0 1 3 A N N U A L R E P O R T