2018 ANNUAL REPORT 2 0 1 8 A n n u a l R e p o r t (Incorporated in British Columbia, Canada with limited liability) HK Stock Exchange Stock Code: 2099 Toronto Stock Exchange Stock Code: CGG THE COMPANY Overview China Gold International Resources Corp Ltd. (“China Gold International” or “The Company”) and its subsidiaries (collectively referred to as the “Group”) is a gold and base metal mining company based in Vancouver, Canada. The Company’s main business involves the operation, 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 China National Gold Group Co., Ltd. (formerly known as 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. JIAMA MINE Annual Report 2018 1 COMPANY HIGHLIGHTS XIN SONG XIN SONG Chairman of the Board Chairman of the Board Executive Director Executive Director There is an old saying in China: make the plans for the year in spring. Spring is a time of renewal and is also the best time to summarize our past and look to the future. In 2018, the world faced challenging uncertainties and the global market changed rapidly. We adhered to the principle of sustaining growth through steady progress and outstanding performance. Our response to these changing times was to promote the company’s high-quality development and accelerate internationalization through a higher standard of social responsibility. We grew production and focused on quality assurance. Safe and profitable production is the foundation of our value-added mine sites. We attach great importance to corporate social responsibility and ecological protection. Green development and harmonious communities are our consistent development objectives. For many years our mines have been widely praised and recognized for our green initiatives by the local residents and various levels of government. We have gained an excellent reputation through our year after year significant investments in education, environmental protection research and community public welfare. We care about our employees, adhere to a diverse and considerate management style, provide employees with excellent working environment, balanced working atmosphere and comfortable living conditions. Our practices stimulate a strong sense of belonging among employees and greatly enhance team spirit, work ethic and a resulting efficiency. 2 China Gold International Resources Corp. Ltd. MESSAGE FROM THE CHAIRMAN In 2018, the company successfully entered the Shenzhen-Hong Kong Stock Connect and was selected into the Hang Seng Index, realizing trading on three main boards being the Toronto Stock Exchange, Shenzhen Stock Exchange and the Hong Kong Stock Exchange. This highlights the company’s standing as a strong international capital operation. We believe this is an important milestone in the company’s development and has greatly enhanced our position in the global capital market. Our development can’t be separated from the support and assistance of our shareholders, directors, consultants, experts, contractors and suppliers. With the development of the company in 2019, in your consistent support and trust, we will try our best to make further progress. We express our heartfelt gratitude and most sincere respect to you! Sincerely, Xin Song Chairman of the Board, Executive Director Annual Report 2018 3 MESSAGE FROM THE CHAIRMAN LIANGYOU JIANG LIANGYOU JIANG Chief Executive Officer, Chief Executive Officer, Executive Director Executive Director Dear friends, Hello everyone! We bid farewell to 2018 with full of challenges and steady development. In 2018, we overcame significant foreign exchange fluctuations, saw a decrease in product prices and achieved profitability in mine operations for the 11th consecutive year. The Company also almost reached a pre-tax net profit, which was adversely effected by the depreciation of RMB exchange rates causing a realized foreign exchange loss of US$15.82 million. The Jiama Mine’s Phase II expansion achieved full commercial production, which resulted in copper production reaching a record high and production capacity to continually increase. The CSH Mine completed the optimization of pit wall slope parameters, achieving pit wall stabilization and sustainable development. The CSH Mine is currently working on a study of inferred resources development. We enter 2019 with hope and progress. 4 China Gold International Resources Corp. Ltd. MESSAGE FROM THE CEO In 2019, we will continue to put more effort on production and operation at our Jiama Mine and CSH Mine. We will continue to improve the efficiency of our equipment and increase our recovery rate, maintaining the year-on-year growth of performance through increased production capacity records of copper. We will strengthen our efforts on resource exploration and environmental protection at the two mines and fully promote the sustainable development of the company. We are hopeful and optimistic about potential M&A opportunities. We will carefully evaluate potential projects and strive to inject new assets as soon as possible. Thanks to the support of shareholders and directors! Thanks to all the members of the team for their contribution! With your strong support, and with the hard work and dedication of all employees, we will continue to move forward by successfully completing the goals of 2019 and creating better all around performance. Thank you all! Sincerely, LIANGYOU JIANG Chief Executive Officer, Executive Director Annual Report 2018 5 MESSAGE FROM THE CEO BOARD OF DIRECTORS Xin Song CHAIRMAN OF THE BOARD, EXECUTIVE DIRECTOR Mr. Song, age 56, was elected as Chairman of the Board in February 2014 having joined the Company in October 2009. From October 2009 to February 2014, Mr. Song served as the Chief Executive Officer and was responsible for the Company’s strategic planning and business operations. He also serves as an Executive Director from October 2009 to present. Mr. Song was elected as the first President of the China Committee of the World Gold Council in September 2018. He also serves as President of the Third Council of China Gold Associate from 2014 to present. Since January 2017 to present, Mr Song has served as Chairman of China National Gold Group Co., Ltd. (“China National Gold”), the Company’s principal shareholder. Mr. Song previously served as the President of China National Gold from December 2013 to January 2017. From 2003 to December 2013, Mr. Song served as Vice President of China National Gold, where he was responsible for resources development, geological exploration and international operations. Mr. Song has served as a Director of China National Gold Group Hong Kong Limited (“China Gold Hong Kong”), since March 2008. He was elected as Chairman and Corporate Representative of China Gold Hong Kong from February 2014 to present. Mr. Song served as Chairman of the Board of Skyland Mining Limited (“Skyland”) from April 2008 to May 2015 and served as the Chairman of the Board of Tibet Jia Ertong Mining Development Co., Ltd. (“Tibet Jia Ertong”) from April 2008 to February 2014. Mr. Song served as the Chairman of the Board of Tibet Huatailong Mining Development Co., Ltd. (“Tibet Huatailong”) from October 2007 to June 2010. Mr. Song serves as Chairman of the Board of Zhongjin Gold Corporation Limited, 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 a Director of China Gold Hong Kong Holding Corp. Limited (“China Gold Hong Kong Holding”), since August 2011. He serves as a Director of Mundoro Mining Inc. (“Mundoro”), 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, 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 Beijing and a Bachelor’s Degree in mineral processing engineering from the Central South Institute of Mining and Metallurgy. 66 China Gold International Resources Corp. Ltd. BOARD OF DIRECTORS AND SENIOR MANAGEMENT Liangyou Jiang CHIEF EXECUTIVE OFFICER, EXECUTIVE DIRECTOR Mr. Jiang, age 53, has served as an Executive Director of the Company since October 2014 to present. In November 2018, he was promoted to Chief Executive Officer. Mr. Jiang was elected as Vice President of China National Gold since July 2018. He was also elected as Executive Vice President of China Gold Hong Kong from October 2018 to present. Mr. Jiang was elected as Senior Executive Vice President of the Company from August 2014 to November 2018 and has served as a manager of Oversea Operation Department of China National Gold from December 2015 to July 2018. Mr. Jiang joined the Company in August 2010 as the General Manager of Tibet Huatailong, and served as the Chairman of Tibet Huatailong from February 2012 to August 2014. Mr. Jiang serves as Chairman of Zhongji Mining since May 2015 up to present. He serves as General Manager of China Gold Hong Kong Buchuk Mining Company (“Buchuk”) since 2015 to present. He has also served as Chairman of Buchuk since October 2017 to present. He served as Director of Guizhou Jingfeng Mining Ltd. from August 2016 to August 2018. He serves as Chairman of Sino Mining Guizhou Pty from June 2017 up to present. He also serves as Chairman of Soremi Investments Ltd. since January 2018. Mr. Jiang serves as Chairman of Kichi Chaarat Closed Joint Stock Company since January 2018 to present. Mr. Jiang has served as a director of Tibet Jia Ertong since August 2014, has served as a director of Skyland since October 2014. Mr. Jiang has served as the director of China Gold Hong Kong Holding and Mundoro since January 2015 and August 2014 respectively. From September 2007, Mr. Jiang has served as the Head of Engineering Management Division of the Investment Management Department of China National Gold. Prior to joining China National Gold’s headquarters, Mr. Jiang served as a General Manager of China Kazakhstan Mining Corp. Ltd., a subsidiary of China National Gold. From August 1987 to March 2005, Mr. Jiang worked at Changchun Gold Design Institute Co. Ltd. (the “Design Institute”). He was appointed as a Chief Engineer of the Design Institute in February 2000 and then as Vice President and Chief Engineer of the Design Institute since April 2002. Mr. Jiang won more than 20 provincial-level scientific and technological achievement awards and numerous honorary titles from various agencies. In 2005, Mr. Jiang was awarded the special allowance by the State Council. Mr. Jiang is a Senior Professional Engineer, holds a Bachelor’s Degree in mineral processing from Northeastern University. Annual Report 2018 7 7 BOARD OF DIRECTORS AND SENIOR MANAGEMENT Yongqing Teng NON-EXECUTIVE DIRECTOR Mr. Teng, age 51, was elected as a Non-Executive Director of the Company since November 2018. Mr. Teng currently serves as Vice President of China Gold Hong Kong from October 2018 to present. Mr. Teng also serves as Director for Sichuan Gold Industry Administration Bureau and Chairman of Sichuan General Investment Co., Ltd. from November 2015 to present. Mr. Teng serves as Executive Director and General Manager of China Gold Group Sichuan Co., Ltd from October 2017 to present. Mr. Teng served as Manager of China Gold Group Sichuan Co., Ltd. from November 2015 to October 2017. Mr. Teng was appointed as Tibet Huatailong’s General Manager from February 2012 to August 2014. He served as Chairman of Tibet Huatailong from August 2014 to November 2015. He joined Tibet Huatailong in August 2010 where he served as Executive Deputy General Manager until February 2012. Mr. Teng previously served as General Manager of Sichuan Pingwu Zhongjin Mining Co., Ltd. from December 2006 to August 2010. He also served as Deputy Department Director of Development Department of Hubei Sanxin Gold Copper Limited Company (“Hubei Sanxin”) from September 2006. He was subsequently promoted to Director of Development Department of Hubei Sanxin. Mr. Teng has almost 30 years working experience in mining and corporate governance. Fuzhen Kang NON-EXECUTIVE DIRECTOR Ms. Kang, age 32, was elected as a Non-Executive Director of the Company since November 2018. Ms. Kang joined Tibet Huatailong in July 2008, she currently serves as a Manager of The First Ore Processing Plant of Tibet Huatailong where her major responsibilities are community relationship coordination and communications. Ms. Kang holds a bachelor’s degree in Environmental Science from the Tibet University. Xiangdong Jiang NON-EXECUTIVE DIRECTOR Mr. Jiang, age 60, currently serves as a Non-Executive Director since March 2017. Mr. Jiang served as an Executive Director from June 2010 to March 2017 and Vice President of Production from March 2009 to March 2017. 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 Company’s Chang Shan Hao gold project located in Inner Mongolia, China (the “CSH Gold Mine”). Mr. Jiang served as Vice President of Business Development of the Company from May 2004 to September 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 2008 to March 2009 and was promoted to Vice President of Production on March 24, 2009. Mr. Jiang has served as a director of Inner Mongolia Pacific Mining Co. Ltd. (“Inner Mongolia Pacific”), from September 2008 to September 2017, which operates the Company’s CSH Gold Mine and as General Manager of the CSH Gold Mine from August 2007 to September 2017. 88 China Gold International Resources Corp. Ltd. BOARD OF DIRECTORS AND SENIOR MANAGEMENT Mr. Jiang has over 35 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, age 57, joined the Company in May 2000 as a Non-Executive Director and serves as an Independent Director. Mr. He’s career in the mining industry has spanned over 30 years, with extensive senior executive and board experience. Mr. He is a Director and Non-Executive Chairman of Vatukoula Gold Mines Plc, formerly listed on the London Stock Exchange Alternative Investment Market; an Independent Non-Executive Director of SouthGobi Resources Corp., a company dually listed on the Toronto Stock Exchange and The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”); a Director and President of Tri-River Ventures Inc., listed on the TSX Venture Exchange (the “TSX-V”) in Canada. Mr. He also served as a former Director on the Boards of Directors of following companies: Zhongrun Resources Investment Corporation, listed on Shenzhen Stock Exchange; Dolly Varden Silver Corp., listed on the TSX-V; Huaxing Machinery Corp., listed on listed on the TSX-V. In addition to being a former Director and President of Spur Ventures Inc. (now called Atlantic Gold Corp.), listed on the TSX-V, Mr. He was also the General Manager of its operation subsidiary Yichang Mapleleaf Chemicals Inc. In his early career, Mr. He worked as a mineral process engineer and coal preparation engineer in a Canadian mining company and an engineering consulting company. Mr. He obtained his Doctoral and Master’s degrees in mineral process engineering from the University of British Columbia in Canada and his Bachelor Degree in coal preparation from Heilongjiang Institute of Mining and Technology (currently known as the Heilongjiang University of Technology) in China. Mr. He is a member of the Canadian Institute of Mining, Metallurgy and Petroleum and the Canadian Institute of Corporate Directors. Yunfei Chen INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Chen, age 47, joined the Company in May 2008 as a Non-Executive Director and serves as an Independent Director. Mr. Chen is based in Hong Kong where he carries out his own private business. Mr. Chen is currently the Independent Director of Dongfeng Motor Group Company Limited; a Hong Kong listed Chinese auto company since October 2013. Previously, Mr. Chen served as the board chairman of Asia Coal Limited, a company listed in Hong Kong from October 2010 to June 2011, and 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, United States, with a juris doctor degree. Mr. Chen obtained his bachelor of law degree from Wuhan University, China and is qualified to practice law in New York. Annual Report 2018 9 9 BOARD OF DIRECTORS AND SENIOR MANAGEMENT Gregory Hall INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Hall, age 69, joined the Company in October 2009 as a Non-Executive Director and serves as an Independent Director. Mr. Hall is a seasoned geologist with over 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’s Field’s Granny Smith and Wallaby gold mines and Rio Tinto’s Yandicoogina iron ore mine in Western Australia. Mr. Hall serves 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 Dateline Resources a public company listed on the Australian Stock Exchange since January 2015 and is chairman of Great Boulder Resources since April 2017, a public company which listed on the Australian Stock Exchange in November 2017. Mr. Hall serves as a director of three private companies including Oryx Mining and Exploration Limited, Central Exploration Limited 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, age 68, joined the Company in October 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 and Lead Director of Jaxon Mining Corp., a public company listed on the TSX-V, since May 2017; and as independent Director and Chairman of the Audit Committee of Simba Essel Energy Inc., a public company listed on the TSX-V, since September 2009. Mr. Burns also serves as an advisor to Potomac Asset Management, and as an advisor to and/ or on the boards of a number of other private, exploration and production, software, process technology and fund management companies in the natural resources, energy and technology industries. Mr. Burns has previously served as Chairman and Lead Director of Northern Orion Resources Ltd. (sold to Yamana); as Chairman & Lead Director of Athabasca Potash Inc. (sold to BHP); as an Independent Director and Chairman of Dolly Varden Silver Ltd; as Chairman and Lead Director of Emgold Mining Corp,. Inc.; as Chairman and Director of Corazon Gold Corp; as Managing Director and as an Associated Person of FRM Risk Management Inc., a Chicago based Commodities Trading Advisor; as Managing Director of Frontier Resources Management LLC; as Chairman and Independent Director of NovaDX Ventures; and as a Director of NuCoal Energy Corporation. Mr. Burns has also served as an Independent Director of Hunter Energy LLC, a private oil and gas company and as the Senior Advisor to Western Potash Corp. Mr. Burns previously served as the Global Head and Managing Director of the Derivative Trading and Structured Finance Group at Barclays Metals London, a unit of Barclays Bank PLC, London England (1991 – 1997). Mr. Burns also previously served as Vice President, Senior Risk Manager and CFO of the Drexel Global Commodities Group at Drexel Burnham Lambert Inc., New York and London (1981 – 1990) and involved with the origination, funding and risk management of the global portfolio of commodity and resource trading assets held by the Drexel Commodities Group and Drexel Burnham Lambert Trade Finance Ltd., New York and London. Mr. Burns holds a Bachelor of Arts Degree in economics from the University of Pennsylvania. 1010 China Gold International Resources Corp. Ltd. BOARD OF DIRECTORS AND SENIOR MANAGEMENT SENIOR MANAGEMENT Jerry Xie EXECUTIVE VICE PRESIDENT AND CORPORATE SECRETARY Mr. Xie, age 58, joined the Company in March 2009 and serves as Executive Vice President and Corporate Secretary. Mr. Xie is responsible for overseeing corporate secretarial matters and managing compliance and manages the daily operations at the Company’s Vancouver office, he plays an important role in business development, project evaluation, investor relations, public relations. Mr. Xie served as Vice President and Secretary to the Board of the Company from March 2009 to October 2009 at which time he was promoted to Executive Vice President and Corporate Secretary. After joining the Company, Mr. Xie was involved in the Company’s HK IPO process, evaluation of the Company’s Jiama polymetallic mineral property located in Tibet, China (the “Jiama Mine”), merger and acquisitions and bond issuance. Mr. Xie has over 30 years of experience of Engineering and Project Management in the petro-chemical and oil-sand industry and mining 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 Mechanical Engineering from the University of Calgary, a Master’s Degree in Mining 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 Association of Professional Engineers and Geoscientists of Alberta. Derrick Zhang CHIEF FINANCIAL OFFICER Mr. Zhang, age 49, joined the Company in January 2010 and serves as Chief Financial Officer responsible for financing, internal control and the planning and management of the Company’s accounting and financial reporting, since August 2011. Mr. Zhang served as interim Chief Financial Officer of the Company from February 2011 to August 2011 and served as Controller of the Company from January 2010 to February 2011. Mr. Zhang has over 27 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 member of the Chartered Professional Accountants of Canada (CPA) and a member of the Association of Chartered Certified Accountants in the United Kingdom (ACCA). Mr. Zhang is also a Member of the Society of Economic Geologists in the United States. Mr. Zhang is a certified Merger and Acquisition Specialist (CMAS) from the Chartered Institute of Management Consultants in the United States. Mr. Zhang holds a Bachelor of Commerce degree distinction with a major in Accountancy from Concordia University in Montreal, Quebec, Canada and a Bachelor of Engineering degree (honors) in Geology from Southwest University of Science and Technology in China. Annual Report 2018 11 11 BOARD OF DIRECTORS AND SENIOR MANAGEMENT Lisheng Zhang VICE PRESIDENT Mr. Zhang, age 58, serves as the Vice President responsible for overseeing overall management of the Company’s CSH Gold Mine, from March 2013 to present. He was appointed as Vice President of China Gold Hong Kong since October 2018. Mr. Zhang joined the Company in September 2008 as a Chairman of Inner Mongolia Pacific, a subsidiary of the Company, which owns and operates CSH Gold Mine. Mr. Zhang serves as an executive officer of two large mining companies which are subsidiaries of China National Gold, since 1995. Mr. Zhang has over 35 years of experience in the mining industry. Mr. Zhang’s knowledge of local culture of Inner Mongolia and his working experience contributed to the rapid and sustainable development of CSH Gold Mine. Shiliang Guan VICE PRESIDENT Mr. Guan, age 51, was appointed as the Vice President of the Company in September 2016. Mr. Guan joined the Company in November 2015 becoming Chairman of the Board of Tibet Huatailong. Mr. Guan started his career in 1991 and has over 25 years of experience in the mining industry. Mr. Guan is a senior professional engineer, holding a bachelor’s degree in mining engineering from Northeastern University of China. 1212 China Gold International Resources Corp. Ltd. BOARD OF DIRECTORS AND SENIOR MANAGEMENT The Directors are pleased to present this report and the audited consolidated financial statements of the Company for the year ended December 31, 2018 (the “Reporting Period”). PRINCIPAL ACTIVITIES AND BUSINESS REVIEW The Company is a gold and base metal mining company based in Vancouver, Canada. The Company’s main business involves the operation, acquisition, development and exploration of gold and base metal properties. The principal activities of the subsidiaries are set out in Note 36 of the Financial Statements. There were no significant changes in the nature of the Company’s principal activities during the year. Further discussion and analysis of the business review as required by Schedule 5 to the Hong Kong Companies Ordinance, including a fair view of the business and a discussion of the principal risks and uncertainties facing the Company, particulars of important events affecting the Company that have occurred since the end of the financial year 2018, an indication of likely future development in the Company’s business, the Company and all its subsidiaries (the “Group”) environmental policies and performance, compliance with relevant laws and regulations which have a significant impact on the Company, outlook of the Company’s business, and an account of the Company’s relationships with its key stakeholders can be found in the “Five-Year Financial Summary”, “Message From the Chairman”, “Message From the CEO”, “Management Discussion and Analysis” and “Corporate Governance Report” sections of this annual report. SHARE CAPITAL Details of the movement in the share capital of the Group during the Reporting Period are set out in Note 29 of the Financial Statements. RESERVES Details of the reserves available for distribution to the shareholders as at December 31, 2018 are set out in Note 38 of the Financial Statements. RESULTS The results of the Group as at December 31, 2018 are set out in the consolidated statement of profit or loss and other comprehensive income on page 70. DIVIDEND The Directors do not recommend the payment of a final dividend as at December 31, 2018. DIRECTORS The directors during the Reporting Period and up to the date of this report are as follows: Executive Directors Xin Song (Chairman) Liangyou Jiang Non-Executive Directors Yongqing Teng Fuzhen Kang Xiangdong Jiang Annual Report 2018 13 13 DIRECTORS’ REPORT Independent Non-Executive Directors Ian He Yunfei Chen Gregory Hall John King Burns In accordance with article 14.1 of the Company’s articles (the “Articles”), each of the Directors shall retire at the 2019 annual general meeting of the Company (the “2019 AGM”) and, being eligible, shall offer themselves to be re-elected and re-appointed at the 2019 AGM. THE BIOGRAPHY OF THE DIRECTORS AND THE SENIOR MANAGEMENT The biographical details of the Directors and the senior management of the Company are set out in the Directors and senior management’s profile from page 6 to page 12 of this annual report. DISCLOSURE OF INFORMATION OF DIRECTOR PURSUANT TO RULE 13.51B(1) OF THE HONG KONG LISTING RULES Save as disclosed in this annual report, there are no other changes to the Directors’ information as required to be disclosed pursuant to Rule 13.51B(1) of the Hong Kong Listing Rules (the “Listing Rules”) Governing the Listing of Securities on Hong Kong Stock Exchange. 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 Listing Rules, and considers that all of the independent non-executive Directors are independent. DIRECTORS’ SERVICE CONTRACTS None of the Directors who are proposed for re-election at the 2019 AGM have a service contract with the Company or any of its subsidiaries which is not determinable by the employing company within one year without payment of compensation, other than statutory compensation. PERMITTED INDEMNITY AND INSURANCE Pursuant to the Articles of the Company and subject to the provisions of the Business Corporations Act (British Columbia) (the “Business Corporations Act”), every Director or alternate director of the Company or its affiliates (and his or her heirs and legal personal representatives) shall be indemnified by the Company against any judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, a legal proceeding or investigative action where such person is liable by reason of him/her having been a director or alternate director of the Company and the Company must, after the final disposition of such proceeding, pay the expenses actually and reasonably incurred by such person. The Company has taken out insurance policies against the liabilities of the Directors that may arise out of corporate activities and the costs associated with defending any proceeding. The insurance coverage is reviewed on an annual basis. During the Reporting Period, no claims were made against the Directors. 1414 China Gold International Resources Corp. Ltd. DIRECTORS’ REPORT DIRECTORS’ INTEREST IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS Mr. Xin Song, Mr. Liangyou Jiang, Mr. Yongqing Teng and Ms. Fuzhen Kang are considered to have conflicts of interest in the transactions as set out in the section headed “Connected Transactions and Continuing Connected Transactions” in this report due to their senior management positions or affiliate roles with China National Gold, the ultimate controlling shareholder of the Company. Save as disclosed in the section headed “Connected Transactions and Continuing Connected Transactions” in this report, no transactions, arrangement or contracts of significance in relation to the business of the Group to which the Company, any of its subsidiaries or the controlling shareholder of the Company was a party and in which a Director or any of his connected entity had a material interest, whether directly or indirectly, subsisted as at December 31, 2018 or at any time during the Reporting Period. CONTRACTS OF SIGNIFICANCE WITH CONTROLLING SHAREHOLDERS Save as disclosed under the section headed “Connected Transactions and Continuing Connected Transactions” in this report, no other material contract (not being contracts entered into in the ordinary course of business) was entered into by a member of the Group, the controlling shareholder or one its subsidiaries during the Reporting Period. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES To the best knowledge of the Directors, during the Reporting Period and up to the date of this report, save for the directorships and management roles of our Directors in other 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 headed “Board of Directors and Senior Management” of this report for details of such circumstances. DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS IN SHARES As at December 31, 2018, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (“SFO”)) which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO), or as recorded in the register maintained 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 Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules were as follows: SHARES Shares Long Position in Shares Name Ian He Position Company Number of shares held Nature of interest Approximate percentage of interest in the company Independent Non- Executive Director China Gold International Resources Corp. Ltd. 150,000 Personal 0.0378% Xiangdong Jiang Non-Executive Director China Gold International Resources Corp. Ltd. 38,800 Personal 0.0098% Note: Information relating to share ownership provided by each Director. Annual Report 2018 15 15 DIRECTORS’ REPORT CONNECTED TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS China National Gold is the ultimate controlling shareholder of the Company currently holding approximately 39.3% of the issued shares of the Company and is therefore a connected person of the Company under the Listing Rules. As a result, the transactions entered into between China National Gold and the Controlled Entities as described in this section below constitute non-exempt continuing connected transactions or partially exempt connected transactions of the Company as defined under Chapter 14A of the Listing Rules. In addition, Tibet Huatailong, Inner Mongolia Pacific, China National Gold Group Finance Company Limited (“China Gold Finance”), and China Gold Hong Kong (the “Controlled Entities”) are ultimately controlled by China National Gold and are therefore connected persons of the Company by virtue of Rule 14A.07 of the Listing Rules. Non-Exempt Continuing Connected Transactions 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 provision of providing mining related services and products to the Company in order to facilitate the Group’s operations in the People’s Republic of China (the “PRC”) for three years until June 18, 2016. The Company entered into a First Supplemental Product and Service Framework Agreement (the “First Supplemental Product and Service Framework Agreement”) on May 29, 2015 to revise the expiry date of the Product and Service Framework Agreement to December 31, 2017 and included the sale and purchase of copper concentrates produced at the Jiama Mine between the Group and China National Gold into the product and service scope of the Product and Service Framework Agreement, which were approved by the independent shareholders of the Company on June 30, 2015. For details, please refer to the Company’s announcement dated June 3, 2015, circular dated May 29, 2015 and poll results announcement dated July 1, 2015. On May 26, 2017 the Company and China National Gold entered into the Second Supplemental Product and Service Framework Agreement (the “Second Supplemental Product and Service Framework Agreement”) to extend the term to December 31, 2020 and to extend the scope of the First Supplemental Product and Service Framework Agreement to include leasing services to be provided by Zhongxin International Financial Leasing (Shenzhen) Co. Ltd., the shares of which are 80% owned by China National Gold. For the Reporting Period, the transaction amounts under the Product and Service Framework Agreement (as amended by the First Supplemental Product and Service Framework Agreement and the Second Supplemental Product and Service Framework Agreement) were approximately RMB974 million where the relevant annual monetary cap was RMB11,400 million. Supplemental Contract for Purchase and Sale of Doré On May 7, 2014, Inner Mongolia Pacific, entered into a Contract for Purchase and Sale of Doré (the “2015 Contract for Purchase and Sale of Doré”) with China National Gold for the sale and purchase of gold doré bars and silver by- products produced at the CSH Gold Mine from time to time for three years ending December 31, 2015, December 31, 2016 and December 31, 2017. Details of the 2015 Contract for Purchase and Sale of Doré are as stated in the Company’s announcement dated May 7, 2014, circular dated May 7, 2014 and poll results announcement dated June 20, 2014. 1616 China Gold International Resources Corp. Ltd. DIRECTORS’ REPORT On May 26, 2017 Inner Mongolia Pacific and China National Gold entered into the Supplemental Contract for Purchase and Sale of Doré (the “Supplemental Contract for Purchase and Sale of Doré”) for a term commencing on January 1, 2018 and expiring on December 31, 2020. Details of the Supplemental Contract for Purchase and Sale of Doré are as stated in the Company’s announcement dated May 26, 2017, circular dated May 31, 2017 and poll results announcement dated June 30, 2017. For the Reporting Period, the transaction amounts under the 2015 Contract for Purchase and Sale of Doré and Supplemental Contract for Purchase and Sale of Doré were approximately RMB1,216 million where the relevant annual monetary cap was RMB2,700.0 million, which accounted for 33% of the total sales of the Group for the year then ended. Partially Exempt Connected Transactions Loan Agreement On December 18, 2017, the Company and China Gold Finance entered into a loan agreement pursuant to which China Gold Finance agreed to provide an unsecured loan in the aggregate amount of RMB350,000,000, for a term of one year to satisfy the financial needs of the Group within the PRC (the “2017 Loan Agreement”). Loan interest payable by the Group to China Gold Finance will be based on the RMB benchmark rate for a one year loan published by The People’s Bank of China (4.35%) with a 5% discount. For further details, please refer to the Company’s announcement dated December 19, 2017. On December 18, 2018, the Company and China Gold Finance entered into a Supplemental Loan Agreement (the “Supplemental Loan Agreement”) to extend the term for a further four months to April 30, 2019. Details of the Supplemental Loan Agreement are as stated in the Company’s announcement dated December 20, 2018. Deposit Services Agreement On December 18, 2017, the Company and China Gold Finance entered into a deposit services agreement pursuant to which the Company and its subsidiaries may, from time to time, make withdrawals and deposits with China Gold Finance up to a daily maximum deposit balance (including interest) not exceeding RMB100,000,000, for a term of one year commencing on January 1, 2018 (the “Deposit Services Agreement”). Deposit interest rates payable by China Gold Finance to the Group for any deposits shall be, at a minimum, 20% higher than the benchmark interest rate published by The People’s Bank of China for the same period and for the same type of deposit. For further details, please refer to the Company’s announcement dated December 19, 2017. On December 18, 2018, the Company and China Gold Finance entered into a Supplemental Deposit Services Agreement (the “Supplemental Deposit Services Agreement”) to extend the term for a further year to December 30, 2019. Details of the Supplemental Deposit Services Agreement are as stated in the Company’s announcement dated December 20, 2018. Daily maximum deposit monetary caps for the transactions stipulated under the Deposit Services Agreement pursuant to Chapter 14A of the Listing Rules (including accumulative settlement interest) shall not exceed RMB100,000,000. There have not been any deposits exceeding the daily maximum monetary cap for the Reporting Period. Annual Report 2018 17 17 DIRECTORS’ REPORT Annual Review 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 Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The auditor’s letter containing its findings and conclusions in respect of the continuing connected transactions disclosed above by the Group in accordance with Rule 14A.56 of the Listing Rules has been provided to the Directors, and was confirmed 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. The Auditor has confirmed to the Board that nothing has come to their attention that causes them to believe that the above continuing connected transactions for the year ended December 31, 2018: (a) have not been approved by the Board; (b) were not, in all material respects, in accordance with the pricing policies of the Group where the transactions involve the provision of goods by the Group; (c) were not entered into, in all material respects, in accordance with the relevant agreements governing the transactions; and (d) have not exceeded the respective maximum aggregate annual caps as disclosed in the announcements of the Company. In accordance with Rule 14A.55 of the Listing Rules, the independent non-executive Directors have reviewed and confirmed that the continuing connected transactions carried out under i) the Product and Service Framework Agreement (as amended), ii) the Supplemental Contract for Purchase and Sale of Doré, the Supplemental Loan Agreement, and iii) the Supplemental Deposit Services Agreement have each been entered into: (a) in the ordinary and usual course of the Company’s business; (b) on normal commercial terms or better; 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 independent Directors also confirmed in their review of the continuing connected transactions that all such transactions were carried out in accordance with the pricing policies and processes set out in the respective framework agreements for such transactions. Related Party Transactions Details of the related party transactions undertaken during the Reporting Period set out in Note 30 of the Financial Statements. All the related party transactions constituted connected transactions and/or continuing connected transactions of the Company as defined in the Listing Rules. The Company had complied with the relevant requirements under Chapter 14A of the Listing Rules during the Reporting Period. SKYLAND BONDS On June 27, 2017, the Company, Skyland Mining, China International Capital Corporation Hong Kong Securities Limited, Citigroup Global Markets Limited, CCB International Capital Limited, Industrial Bank Co., Ltd. Hong Kong Branch and Standard Chartered Bank (the “Joint Lead Managers”) entered into a subscription agreement (the “Subscription Agreement”) pursuant to which Skyland Mining agreed to issue to the Joint Lead Managers, and the Joint Lead Managers agreed severally and not jointly, to subscribe for bonds in an aggregate principal amount of US$500 million (equivalent to approximately HK$3,880 million) at an issue price of 99.663% (the “Bonds”) bearing interest at the rate of 3.25% with a maturity date of July 6, 2020, rated BBB- by Standard & Poor’s. The Bonds were unconditionally and irrevocably guaranteed by the Company. The net proceeds are used for repaying existing indebtedness, working capital and general corporate purposes of the Company. 1818 China Gold International Resources Corp. Ltd. DIRECTORS’ REPORT On July 6, 2017, all the conditions to the issue of the Bonds as set out in the Subscription Agreement were satisfied and the issue of the Bonds was closed. The Bonds were listed on the Hong Kong Stock Exchange on July 7, 2017. Details of the Subscription Agreement are stated in the Company’s announcements dated June 27, 2017 and July 6, 2017. NUMBER AND REMUNERATION OF EMPLOYEES As at December 31, 2018, the Company had 2,128 employees working at various locations. During the Reporting Period, staff cost (including Directors’ remuneration in the form of salaries and other benefits) was approximately US$50,113,000, as compared to the staff costs of US$36,683,000 in 2017. 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 meet at least annually and reviews levels of cash compensation and makes recommendations to the Board to adjust cash compensation in light of merit, qualifications and competence, as needed. The Compensation and Benefits Committee also reviews the corporate goals and objectives relevant to the compensation of the senior executive officers 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. 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. MANAGEMENT CONTRACTS No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the Reporting Period. DIRECTORS’ RIGHT TO PURCHASE SHARES Save as disclosed in the paragraph headed “Directors’ and Chief Executive’s Interests in Shares” above, at no time during the Reporting Period, were there any rights to acquire benefits by means of acquisition of shares in or debentures of Company or any of its subsidiaries or its holding companies or any of the subsidiaries of the Company’s holding companies granted to any director or their respective spouse or children under 18 years of age, or were any such rights exercised by them; or was the Company or any of its subsidiaries a party to any arrangement to enable the directors to acquire such rights in any other body corporate. SUBSTANTIAL SHAREHOLDERS As at December 31, 2018, based on the information available to the Board and the register of substantial shareholders required to be kept under section 336 of Part XV of the SFO, the Company was notified of the following substantial shareholders’ interests and short positions, being 5% or more of the Company’s issued share capital. These interests are in addition to those disclosed above in respect of the Directors and chief executive: Annual Report 2018 19 19 DIRECTORS’ REPORT Long Position in Shares of the Company Approximate Number of percentage of Name Nature of interest Shares held outstanding shares China National Gold Group Co., Ltd.(1) China National Gold Group Hong Kong Limited Indirect Registered Owner 155,794,830(2) 155,794,830 39.3% 39.3% Notes: (1) China National Gold Group Co., Ltd. directly and wholly owns China National Gold Group Hong Kong Limited therefore the interest attributable to China National Gold Group Co., Ltd. represents its indirect interest in the Company’s shares through its equity interest in China National Gold Group Hong Kong Limited. (2) Information relating to registered and indirect ownership of the Company’s shares were provided by China National Gold Group Co., Ltd. PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES During the Reporting Period, neither the Company, nor any of its subsidiaries purchased, sold and redeemed any of the Company’s listed securities. PRE-EMPTIVE RIGHTS There are no provisions for pre-emptive rights under the Articles or under the laws of British Columbia, Canada which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders. SUFFICIENCY OF PUBLIC FLOAT Based on information that is available to the Company and within the knowledge of the Directors, as at the date of this report, the Company has complied with the sufficiency of public float requirement under the Listing Rules. MAJOR CUSTOMERS AND SUPPLIERS The percentage of purchases and sales for the Reporting Period attributable to the Company’s major suppliers and customers are as follows: Percentage of the total purchases/sales accounted for 19% 54% 33% 97% Purchases – the largest supplier – five largest suppliers combined Sales – the largest customer – five largest customers combined 2020 China Gold International Resources Corp. Ltd. DIRECTORS’ REPORT Sales to the largest customer of the Company account for 33% of the Company’s sales and relate to the sale of gold doré from the CSH Gold Mine pursuant to the Supplemental Contract for Purchase and Sale of Doré. In addition, the five largest customers account for all of the Company’s sales. However, due to the fact that pricing for the Company’s mineral products is based on prevailing market prices in accordance with the contracts with customers, the Company does not consider there to be any risks associated with reliance on major customers. The Company considers that its pricing structure based on prevailing metal prices mitigates against any adverse effects from concentration to only five customers. Save as disclosed above, at no time during the Reporting Period did a director, an associate of a director or any other shareholder (which owned more than 5% of the Company’s issued share capital) hold any direct or indirect interest in the Company’s five largest suppliers or customers during the Reporting Period. CHARITABLE DONATIONS The Company made charitable donations during the Reporting Period amounting to US$238,500. EVENTS AFTER REPORTING PERIOD There are no significant events occurring after December 31, 2018 as set out in the Financial Statements and Management’s Discussion and Analysis. INDEPENDENT AUDITORS A resolution will be submitted at the 2019 AGM 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 26, 2019 Annual Report 2018 21 21 DIRECTORS’ REPORT The Board will continue to review and, where appropriate, improve the current practices of the Company on the basis of the experience and regulatory changes to enhance the confidence of shareholders of the Company, and to safeguard shareholders’ interest for continued and long term success of the Company 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 CODE The Company has, throughout the Reporting Period, 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 Corporate Governance Code (the “CG Code”) contained in Appendix 14 to the Listing Rules. The Company’s current practices are reviewed and updated regularly to ensure that the latest developments in corporate governance are followed and observed. 2222 China Gold International Resources Corp. Ltd. CORPORATE GOVERNANCE REPORT CHANGES IN INFORMATION WITH RESPECT OF DIRECTORS AND EXECUTIVES In accordance with Rule 13.51B(1) of the Listing Rules, the changes in information required to be disclosed by directors pursuant to paragraphs (a) to (e) and (g) of Rule 13.51(2) of the Company are set out below: 1. Mr. Bing Liu resigned as a Director and Chief Executive Officer on 13 November 2018. 2. Mr. Lianzhong Sun resigned as a Non-Executive Director on 13 November 2018. 3. Mr. Liangyou Jiang was appointed as Chief Executive Officer on 13 November 2018. 4. Mr. Yongqing Teng was appointed as a Non-Executive Director on 13 November 2018. 5. Ms. Fuzhen Kang was appointed as a Non-Executive Director on 13 November 2018. 6. Mr. Songlin Zhang resigned as Vice President and Chief Engineer as of May 7, 2018. 7. Mr. Zhongxin Guo was appointed as Chief Engineer as of 13 November 2018. 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 and Rule 3.10 of the CG Code requires every board of directors to include at least three independent non-executive directors and at least one-third of the board of directors to comprise independent non-executive 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. The CG Code includes a number of factors to take into consideration when assessing the independence of a non-executive director, including the percentage of shares held by him or her in the Company and any material interest in any principal business activity of the Group. As at December 31, 2018 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 Company believes it has a well-balanced Board. The Board is comprised of two (2) Executive Directors, three (3) Non-Independent Directors and four (4) Independent Non-Executive Directors. The Directors for the year ended 31 December 2018 and up to the date of this report are as follows: Executive Directors Xin Song (Chairman)(1) Liangyou Jiang (Chief Executive Officer)(2) Annual Report 2018 23 23 CORPORATE GOVERNANCE REPORT Non-Independent Directors Yongqing Teng(3) (appointed with an effect from 13 November 2018) Fuzhen Kang(4) (appointed with an effect from 13 November 2018) Xiangdong Jiang(5) Independent Non-Executive Directors Ian He Yunfei Chen Gregory Hall John King Burns Notes: (1) Mr. Song is an Executive Director in his capacity as Chairman of the Board of Directors of the Company and is an executive officer of China National Gold which has a material relationship with the Company. (2) Mr. Jiang is an Executive Director in his capacity as Chief Executive Officer of the Company. (3) Mr. Teng is a Non-Independent Director in his capacity as an affiliate of China National Gold which has a material relationship with the Company. (4) Ms. Kang is a Non-Independent Director in her capacity as an affiliate of China National Gold which has a material relationship with the Company. (5) Mr. Jiang resigned as a senior officer of the Company on March 31, 2017. He continues to serve as a Director of the Company but is considered to be a Non-Independent Director as he served as an executive officer within the last three (3) years. As at the date of this report, China National Gold holds approximately 39.3% of the Company’s outstanding common shares. Biographical details of the Directors of the Company are set out in the section headed “Biographical Details of Directors and Senior Management” on pages 6 to 12 of this annual report. The Board has assessed the independence of all the independent non-executive Directors and considers all of them to be independent having regard to (i) their annual confirmation on independence as required under the Listing Rules, (ii) the absence of involvement in the daily management of the Company and (iii) the absence of any relationships or circumstances which would interfere with the exercise of their independent judgement. 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 size of the Company’s 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. Mr. Song currently serves as the Chairman of the Board and served as the Company’s Chief Executive Officer from October 2009 to February 2014. The Chairman provides leadership and strategic direction for the Board and is also responsible for chairing meetings, managing the operations of the Board, and ensuring that all major and appropriate issues are discussed by the Board in a timely and constructive manner. Since November 2018, Mr. Jiang serves as the Company’s Chief Executive Officer in addition to being a Director. The Chief Executive Officer is responsible for running the Company’s businesses and implementing the Group’s strategic plans and business goals. 2424 China Gold International Resources Corp. Ltd. CORPORATE GOVERNANCE REPORT For the Reporting Period, Mr. Ian He was appointed lead Independent Non-Executive Director as of November 13, 2018. The role of lead Independent Non-Executive Director was created to enhance the Company’s corporate governance practices and provides leadership to the independent directors, liaise with Chief Executive Officer on behalf of the independent directors and advise the board on matters where there may be an actual or perceived conflict of interest such as Chairman/Chief Executive Officer performance evaluation to ensure the best possible operation of the board. In November 2018, changes were made to the Committee chairs to improve and balance out the Director workloads to improve the performance and effectiveness of each Committee. For the Reporting Period, the Nominating & Corporate Governance Committee comprised of four Non-Executive Directors, namely, Mr. Ian He, Mr. Yunfei Chen, Mr. John King Burns and Mr. Greg Hall. Mr. Ian He continues in the role of Chairman of the Nominating & Corporate Governance Committee. For the Reporting Period, the Audit Committee comprised of four Independent Non-Executive Directors, namely, Mr. Ian He, Mr. Yunfei Chen, Mr. John King Burns and Mr. Greg Hall. Mr. Ian He resigned as the Chairman and Mr. Yunfei Chen was appointed as the Chairman of the Audit Committee on November 13, 2018. For the Reporting Period, the Compensation & Benefits Committee comprised of four Independent Non-Executive Directors, namely, Mr. Ian He, Mr. Yunfei Chen, Mr. John King Burns and Mr. Greg Hall. Mr. Ian He resigned as the Chairman and Mr. John King Burns was appointed as the Chairman of the Compensation & Benefits Committee on November 13, 2018. For the Reporting Period, the Health, Safety and Environmental Committee comprised of four Independent Non- Executive Directors, namely, Mr. Ian He, Mr. Yunfei Chen, Mr. John King Burns and Mr. Greg Hall. Mr. Ian He resigned as the chairman and Mr. Greg Hall was appointed as the chairman of the Health, Safety and Environmental Committee on November 13, 2018. 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 are related. Relationships include financial, business or family relationships. The Directors are free to exercise their independent judgment. Directors, including the current Non-Executive Directors and the Independent Non-Executive Directors, 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 Articles. NON-EXECUTIVE DIRECTORS The Non-Executive Directors bring a wide range of business, professional and financial expertise, experience and independent judgment to the Board. All the Board Committees comprise at least four Non-Executive Directors (including Independent Non-Executive Directors) who have made significant contribution of their skills and expertise to these Committees. Through active participation at Board meetings, taking the lead in managing issues involving potential conflict of interests and serving on Board committees, all Non-Executive Directors (including Independent Non-Executive Directors) make various contributions to the effective direction of the Company. In accordance with the Articles, the Non-Executive Directors (including the Independent Non-Executive Directors) are subject to re-election each year at the Company’s annual general meeting. Annual Report 2018 25 25 CORPORATE GOVERNANCE REPORT 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 Directors are encouraged to participate in continuous professional development to develop and refresh their knowledge and skills. 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 orientation and continuing education process will be reviewed on an annual basis and will be revised accordingly. There are technical presentations at Board meetings, focusing on either a particular property or a summary of various properties. The question and answer portions of these presentations are a valuable learning resource for the non- technical directors. The Board has also incorporated training into their board meetings with presentations by legal, accounting and other professional groups and individuals. All Directors participated in appropriate continuous professional development and provided the Company with their records of training they received for Reporting Period. Directors participated in the training which included reading regulatory updates, attending seminars or conducting training sessions and exchanging views. According to the training records maintained by the Company, the trainings received by each of the Directors during the Reporting Period are summarized as follows: Attended seminars/ conduct training sessions and exchange views Yes Yes Yes Yes Yes Yes Yes Yes Yes Executive Directors Xin Song (Chairman) Liangyou Jiang Non-Executive Director Yongqing Teng Fuzhen Kang Xiangdong Jiang Independent Non-Executive Directors Ian He Yunfei Chen Gregory Hall John King Burns 2626 China Gold International Resources Corp. Ltd. CORPORATE GOVERNANCE REPORT MANDATE OF THE BOARD Under the Business Corporations Act, the Directors 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. 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. Annual Report 2018 27 27 CORPORATE GOVERNANCE REPORT 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. In order to ensure diversity on the Board and improve the Company’s corporate governance, the Board approved the Board diversity policy (the “Policy”) in accordance with the requirements set out in code provision A.5.6 of the CG Code. The Policy sets out the approach to achieve diversity on the board by considering a number of factors, including without limitation, gender, age, cultural and educational background, professional skills, knowledge, experience and length of service, in order to maintain an appropriate range and balance of talents, skills, experience and background of the Board. Appointments of Board members shall be based on merit, and candidates will be assessed based on objective criteria. The Company will also take into account factors based on its own business model and specific needs from time to time. The Nominating & Corporate Governance will monitor the implementation of the Policy; review the Policy from time to time, as appropriate; report to the Board on their decisions or propose recommendations on any amendments for the Board’s review and approval, to ensure the effectiveness of the Policy. No measurable objectives for achieving diversity were specifically set by the Board during the year, other than the recruitment of the most suitable candidate for a position. 2828 China Gold International Resources Corp. Ltd. CORPORATE GOVERNANCE REPORT COMMITTEES OF THE BOARD Audit Committee The Board 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 risk management and internal control system. 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 is comprised of four Independent Directors of Mr. Gregory Hall, Mr. Ian He, Mr. John King Burns and Mr. Yunfei Chen serves as Chairman of the Audit Committee. The primary objective of the Audit Committee 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 Reporting Period. In performing its duties in accordance with its charter, the Audit Committee has: • • • • • • overseen the Company’s relationship, audit fees and terms of engagement of the external auditors; reviewed the independence of the external auditors and made recommendations to the Board on the re- appointment of the external auditors; reviewed the financial budget and planning including the annual and interim financial statements and results announcements during the Financial Year; reviewed and assessed the effectiveness of the Company’s financial controls, corporate governance, internal controls and risk management systems; reviewed the effectiveness of the Company’s internal audit function; and reported to the Board on the decisions and recommendations of the Audit Committee. The individual attendance of Nomination Committee members at meetings is set out on page 32 of this annual report. Annual Report 2018 29 29 CORPORATE GOVERNANCE REPORT Nominating and Corporate Governance Committee The Board established a Nominating and Corporate Governance Committee, operating under a charter approved by the Board. The Company’s Nominating and Corporate Governance Committee is comprised of four independent Directors of Mr. Yunfei Chen, Mr. Ian He, Mr. John King Burns and Mr. Gregory Hall. Mr. Ian He serves as Chairman of the Nominating and Corporate Governance Committee. The primary objective of the Nominating and Corporate Governance Committee is to assist the Board in fulfilling its oversight responsibilities by (a) determining a policy and process for 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 Nominating and Corporate Governance Committee met during the Financial Year to review its charter, to review the Articles, to assess the competencies and characteristics represented on the Board, to review the results of a Board effectiveness survey and self-assessments and to monitor, review and confirm compliance with legal, 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 the CG Code. The individual attendance of Nominating and Corporate Governance Committee members at meetings is set out on page 32 of this annual report. Compensation and Benefits Committee The Board has established a Compensation and Benefits Committee, which operates under a charter approved by the Board. The Company’s Compensation and Benefits Committee is comprised of four independent Directors of Mr. John King Burns, Mr. Yunfei Chen, Mr. Ian He, and Mr. Gregory Hall. As of November 13, 2018, Mr. John King Burns was appointed as Chairman of the Compensation and Benefits Committee. 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, the nature and size of share compensation awards granted from time to time and determining any bonuses to be awarded. 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 Reporting Period. 3030 China Gold International Resources Corp. Ltd. CORPORATE GOVERNANCE REPORT The Board established a Nominating and Corporate Governance Committee, operating 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) determining a policy and process for 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 Nominating and Corporate Governance Committee met during the Financial Year to review its charter, to review the Articles, to assess the competencies and characteristics represented on the Board, to review the results of a Board effectiveness survey and self-assessments and to monitor, review and confirm compliance with legal, 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 the CG Code. The individual attendance of Compensation and Benefits Committee members at meetings is set out on page 32 of this annual report. 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 members of the Health, Safety and Environmental Committee are Mr. Gregory Hall, Mr. Yunfei Chen, Mr. Ian He and Mr. John King Burns, all of whom are Independent Directors of the Company. On November 13, 2018, Mr. Hall was appointed the Chairman of the Health, Safety and Environmental Committee. 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 Health, Safety and Environmental Committee met during the Reporting Period to receive reports from the Chief Safety Officers from the CSH Gold Mine and the Jiama Mine, 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. The individual attendance of Health, Safety and Environmental Committee members at meetings is set out on page 32 of this annual report. Technical Advisory Committee The Board approved the establishment of a Technical Advisory Committee in 2017. The members of the Technical Advisory Committee are Mr. Gregory Hall, and one expert in each of the fields of geological mapping and interpretation, geochemistry and geophysics. Mr. Gregory Hall is the Chairman of the Technical Advisory Committee. The primary objective of the Technical Advisory Committee is to assist the Board in its oversight of the Company’s exploration and resource expansion programs and geological and production models, as well as in the evaluation of potential acquisition targets. Annual Report 2018 31 31 CORPORATE GOVERNANCE REPORT 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. MEETINGS OF THE BOARD AND BOARD COMMITTEES Details of attendance of the Directors (either in person or through telephone conferences) at Board regular meetings, meeting of Board Committees and general meetings during the Reporting Period are set out below. 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. Attendances/Number of Meetings Nominating Health, and Corporate Compensation Safety and 2018 Annual Audit Governance and Benefits Environmental and Special Committees Overall Board Committee Committee Committee Committee Meeting* (Total) Attendance Xin Song (Chairman) Liangyou Jiang Yongqing Teng(1) Fuzhen Kang(2) Xiangdong Jiang Ian He Yunfei Chen Gregory Hall John King Burns 4/4 (100%) 4/4 (100%) 1/1 (100%) 1/1 (100%) 4/4 (100%) 4/4 (100%) 4/4 (100%) 4/4 (100%) 4/4 (100%) 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 (Chair) 1/1 (Chair) 1/1 (Chair) 2/2 (Chair) 4/4 4/4 4/4 1/1 1/1 1/1 1/1 1/1 1/1 2/2 2/2 2/2 0/1 0/1 – – 0/1 1/1 0/1 0/1 1/1 – – – – – 4/5 (80%) 4/5 (80%) 1/1 (100%) 1/1 (100%) 4/5 (80%) 8/8 (100%) 13/13 (100%) 8/8 (100%) 12/13 (92%) 8/8 (100%) 12/13 (92%) 8/8 (100%) 13/13 (100%) * The 2018 Annual and Special Meeting was held June 27, 2018, no other general meeting was held during the Reporting Period. Notes: (1) Mr. Teng was appointed as a director November 13, 2018. (2) Ms. Kang was appointed as a director November 13, 2018. According to code provision A.6.7 of the CG Code, Independent Non-Executive Directors and other Non-Executive Directors should attend general meetings and develop a balanced understanding of the views of the shareholders. The Non-Executive Directors and two Independent Non-Executive Directors were unable to attend the Annual and Special Meeting of the Company held on June 27, 2018 due to other business commitments. The 2019 AGM will be held on June 28, 2019. The notice of the 2019 AGM will be sent to shareholders at least 20 clear business days before the 2019 AGM. 3232 China Gold International Resources Corp. Ltd. CORPORATE GOVERNANCE REPORT 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. 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 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 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 Articles. According to code provision A.4.3 of the CG Code, if an Independent Non-Executive Director serves more than 9 years, his further appointment should be subject to a separate resolution to be approved by shareholders. Annual Report 2018 33 33 CORPORATE GOVERNANCE REPORT SECURITIES TRANSACTIONS BY DIRECTORS The Company has adopted policies in its Corporate Disclosure, Confidentiality and Securities Trading Policy on terms no less exacting than those set out in Appendix 10 to the Listing Rules. 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. Having made specific enquiry with each Board member, all Directors have confirmed their full compliance with the required standards set out in the Corporate Disclosure, Confidentiality and Securities Trading Policy throughout the Reporting Period. Details of the shareholding interests held by the Directors as at December 31, 2018 are set out on page 15 of this annual 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 of US$3,825 per month for acting as Independent Directors and for their roles on various Board Committees. The Company pays the de facto lead Independent Director a cash retainer of US$4,500 per month. Currently no other compensation is paid to the Directors for acting as Directors. 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 are set out in Note 11 of the Financial Statements. COMPANY SECRETARY The Corporate Secretary is responsible for advising the Board through the Chairman of the Board on governance matters and also facilitates induction and professional development of Directors in Canada. The Corporate Secretary reports to the Chairman of the Board. All Directors have access to the advice and services of the Corporate Secretary to ensure that Board procedures, all applicable law, rules and regulations are followed. Mr. Ngai Wai Fung, the Director and Chief Executive Officer of SWCS Corporate Services Group (Hong Kong) Limited, an external service provider, has been appointed by the Board as its company secretary in Hong Kong with effect from January 16, 2014. Mr. Ngai’s contact person in the Company in relation to any corporate secretarial matters is Mr. Jerry Xie, the Executive Vice President and Corporate Secretary. According to Rule 3.29 of the Listing Rules, Mr. Ngai confirmed that he has taken no less than 15 hours of professional training to update his skills and knowledge during the Reporting Period. 3434 China Gold International Resources Corp. Ltd. CORPORATE GOVERNANCE REPORT RISK MANAGEMENT AND INTERNAL CONTROLS The Board is responsible for overseeing the risk management and internal controls of the Company and reviewing their effectiveness. Risk management and 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 risk management and 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 Company maintains internal audit functions for both itself and its operating subsidiaries. The Company leverages the internal audit function of China National Gold, its controlling shareholder, for its internal audit function. Risk management and internal control systems are reviewed on a quarterly basis in conjunction with the quarterly certification requirements for disclosure controls and procedures and internal control over financial reporting as mandated by applicable Canadian securities laws. The Audit Committee and the Board have reviewed the effectiveness of the risk management and internal control systems of the Company and its subsidiaries, including all material controls, including financial, operational and compliance controls, for the Reporting Period and are of the view that the Company’s current risk management and internal control systems are adequate and operating effectively in safeguarding the investment of shareholders and assets of the Company. The Company has used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 framework to evaluate the Company’s internal control over financial reporting, and has concluded that its internal controls and procedures were effective as of December 31, 2018 and provide reasonable assurance that material information, including financial information, relating to the Company is made known to senior management, the Audit Committee and the Board, as applicable, and is recorded, processed, summarized and reported in a timely manner. The Board has established a framework for identifying, evaluating and managing key risks faced by the Company. The Board, through the Audit Committee, reviews annually the effectiveness of the internal control system of the Company and its subsidiaries, considering factors such as: • • • • • • • changes, since the last annual review, in nature and extent of significant risks, and the Company’s ability to respond to changes in its business and the external environment; the scope and quality of management’s ongoing monitoring of risks and of the internal control systems, and the work of the internal audit function; the extent and frequency of communication of monitoring results to the board which enables it to assess control of the Company and the effectiveness of risk management; adequacy of resources; staff qualifications and experience; training programmes; budget of the Company’s accounting, internal audit and financial reporting functions; communication of the monitoring results to the Board that enables it to assess control of the Company and the effectiveness of the risk management; Annual Report 2018 35 35 CORPORATE GOVERNANCE REPORT • significant control failings or weaknesses that have been identified during the period. Also, the extent to which they have caused unforeseeable outcomes or contingencies that had or might have, a material impact on the Company’s financial performance or condition; and • the effectiveness of the Company’s processes for financial reporting and compliance with applicable listing rules and securities laws. Pursuant to National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian Securities Administrators (“NI – 52-109”), the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are required to evaluate the effectiveness of the design and operation of the Company’s disclosure controls and procedures (“DC&P”), as defined in NI 52-109, and certify that the DC&P are effective to achieve the purpose for which they have been designed. Internal controls over financial reporting (“ICFR”), as defined in NI 52-109, are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. Management is also responsible for the design of the Company’s internal control over financial reporting in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The CEO and CFO provide confirmation of the foregoing matters to the Audit Committee as part of its review and approval of periodic financial disclosure. The Company has established a Code of Business Conduct and Ethics and Corporate Disclosure, Confidentiality and Securities Trading Policy (the “Code”), which includes a policy on the handling of confidential information, information disclosure and securities dealing for all employees of the Company to comply with when they are in possession of confidential or inside information in relation to the Company. The Code provides that the Company’s employees, officers, Directors and contract employees will uphold our commitment to a culture of honesty, integrity and accountability and that the Company requires the highest standards of professional and ethical conduct from its employees, officers, Directors and contract employees. The various policies forming the Code are available on the Company’s website (www.chinagoldintl.com) and have been disseminated to all employees of the Company. Ethics Point is the Company’s whistleblowing program, which is administered by an independent third party, and is available for use when someone suspects or is aware of illegal, unsafe or inappropriate activity at work. EthicsPoint provides an avenue for individuals to raise concerns confidentially and anonymously. The Audit Committee monitors compliance with the Code. The Nominating and Corporate Governance Committee monitors the Code and assists the Board in dealing with conflict of interest issues. AUDITORS The Company’s auditor is Deloitte Touche Tohmatsu of Hong Kong. Deloitte Touche Tohmatsu were first appointed as auditor of the Company on April 1, 2010. The appointment of Deloitte Touche Tohmatsu was approved by an 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 at the 2019 AGM, 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 pages 65 to 69 of the Financial Statements. 3636 China Gold International Resources Corp. Ltd. CORPORATE GOVERNANCE REPORT Deloitte & Touche LLP of Canada served as auditor of the Company 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 Reporting Period were as follows: Nature of services rendered Audit fees(1) Non-audit fees(2) Total Notes: Fees paid/payable (US$) 693,700 1,500 695,200 (1) Fees for audit services consisted of fees incurred to Deloitte Touche Tohmatsu ($693,700) 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 incurred to Deloitte Touche Tohmatsu ($1,500) in connection with preparation of the Company’s Hong Kong Tax filings. RESPONSIBILITIES IN RESPECT OF FINANCIAL STATEMENTS The Directors acknowledge their responsibility in preparing the 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. CONSTITUTIONAL DOCUMENTS For the year ended December 31, 2018, the Company has not made any changes to its notice of articles or articles. 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 of the Business Corporations Act, 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 660, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X 1M4 for the purpose of transacting any business that may be transacted at a general meeting. Annual Report 2018 37 37 CORPORATE GOVERNANCE REPORT 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 660, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X 1M4, or by email to info@chinagoldintl.com for the attention of the Company secretary. Right to put forward proposals at general meetings There are no provisions allowing shareholders to propose new resolutions at general meetings under the Business Corporations Act. However, qualified shareholders (as defined in section 187 of the Business Corporations Act) may put forward a proposal for the next general meeting pursuant to Part 5, Division 7 of the Business Corporations Act. 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 annual general meeting 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 annual general meeting. Our corporate website which contains corporate information, corporate governance practice, interim and annual reports, news releases, announcements and circulars issued by the Company enables the Company’s shareholders to have timely and updated information of the Company. 3838 China Gold International Resources Corp. Ltd. CORPORATE GOVERNANCE REPORT DIRECTORS Executive Directors Xin Song (Chairman) Liangyou Jiang (Chief Executive Officer) Non-Executive Directors Yongqing Teng Fuzhen Kang Xiangdong Jiang Independent Non-Executive Directors Ian He Yunfei Chen Gregory Hall John King Burns AUDIT COMMITTEE Yunfei Chen (Chairman) Ian He Gregory Hall John King Burns NOMINATING AND CORPORATE GOVERNANCE COMMITTEE Ian He (Chairman) Yunfei Chen Gregory Hall John King Burns COMPENSATION AND BENEFITS COMMITTEE John King Burns (Chairman) Ian He Yunfei Chen Gregory Hall CORPORATE SECRETARY (CANADA) Jerry Xie COMPANY SECRETARY (HONG KONG) Ngai Wai Fung REGISTERED OFFICE One Bentall Centre Suite 660, 505 Burrard Street Vancouver, British Columbia Canada V7X 1M4 PRINCIPAL PLACE OF BUSINESS IN HONG KONG 40/F, Sunlight Tower 248 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 PRINCIPAL SHARE REGISTER AST Transfer Company Inc. Suite 1600-1066 West Hastings Street Vancouver, British Columbia Canada V6E 3X1 HONG KONG SHARE REGISTER Computershare Hong Kong Investor Services Limited Shops 1712-1716, 17/F Hopewell Centre 183 Queen’s Road East HEALTH, SAFETY AND ENVIRONMENTAL COMMITTEE Wanchai, Hong Kong Gregory Hall (Chairman) Ian He Yunfei Chen John King Burns TECHNICAL ADVISORY COMMITTEE Gregory Hall (Chairman) INDEPENDENT AUDITOR Deloitte Touche Tohmatsu Certified Public Accountants One Pacific Place 35th Floor, 88 Queensway Hong Kong WEBSITE ADDRESS www.chinagoldintl.com Annual Report 2018 39 39 CORPORATE INFORMATION Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2018. (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 43 44 44 45 46 46 47 47 47 49 51 52 52 54 57 58 59 59 59 SIGNIFICANT INVESTMENTS, ACQUISITIONS AND DISPOSAL OF SUBSIDIARIES. ASSOCIATES AND JOINT VENTURES, AND FUTURE PLAN FOR MATERIAL INVESTMENTS OF CAPITAL ASSETS 60 CHARGE ON ASSETS EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES AND RELATED HEDGES 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 60 60 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 26, 2019. 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, 2018 and the year ended December 31, 2017, 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 26, 2019 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. 4242 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS 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 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 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. 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. Annual Report 2018 43 43 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 operation, a c q u i s i t i o n , d e v e l o p m e n t a n d exploration of gold and base metal properties. The Company’s principal mining operations are the Chang Shan Hao Gold Mine (“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 Mine, while its Chinese joint venture (“CJV”) partner holds the remaining 3.5% interest. The Company owns a 100% interest in the Jiama Mine, which hosts a large scale copper-gold polymetallic deposit containing copper, gold, molybdenum, silver, lead and zinc metals. China Gold International’s common shares are listed on the Toronto Stock Exchange (“TSX”) and The Stock Exchange of Hong Kong Limited (“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 at sedar.com as well as Hong Kong Exchange News at hkexnews.hk. 4444 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS Performance Highlights Three months ended December 31, 2018 • • • • Revenue increased by 22% to US$163.0 million from US$133.3 million for the same period in 2017. Mine operating earnings decreased by 27% to US$33.3 million from US$45.7 million for the same period in 2017. Net loss after income taxes of US$2.0 million decreased from a net profit of US$20.0 million for the same period in 2017. Gold production from the CSH Mine decreased by 31% to 41,506 ounces from 59,998 ounces for the same period in 2017. • Copper production from the Jiama Mine increased by 19% to 17,711 tonnes (approximately 39.0 million pounds) from 14,905 tonnes (approximately 32.9 million pounds) for the same period in 2017. Gold produced was 22,150 ounces compared to 17,893 ounces for the same period in 2017. The increase in production was primarily due to the output from the commercial production of the Phase II expansion. Year ended December 31, 2018 • • Revenue increased by 39% to US$570.6 million from US$411.9 million for the same period in 2017. Mine operating earnings decreased by 5% to US$110.7 million from US$116.8 million for the same period in 2017. Annual Report 2018 45 45 MANAGEMENT’S DISCUSSION AND ANALYSIS • Net loss after income taxes of US$4.2 million decreased from a net profit of US$64.3 million for the same period in 2017. • Gold production from the CSH Mine decreased by 22% to 144,896 ounces from 186,957 ounces for the same 2017 period. • Copper production from the Jiama Mine increased by 54% to 55,025 tonnes (approximately 121.3 million pounds) from 35,844 tonnes (approximately 79.0 million pounds) for the same period in 2017. Gold produced was 70,262 ounces compared to 47,710 ounces for the same period in 2017. The increase in production was mainly due to the output from the commercial production of the Phase II expansion. Selected Annual Information* US$ Millions except for per share Total revenue Profit from operations Net (loss) profit Basic (loss) earnings per share (cents) Diluted (loss) earnings per share (cents) Total assets Total non-current liabilities Distribution or cash dividends declared Year ended December 31 2018 2017 2016 2015 2014 571 43 (4) (1.22) N/A 3,216 1,301 412 79 64 15.93 N/A 3,230 1,324 339 34 (12) (3.36) N/A 2,967 737 340 39 (7) (2.07) (2.07) 2,781 971 278 73 42 10.02 10.02 3,013 850 per share – – – – – * Prepared under IFRS OUTLOOK • • • Projected gold production of 210,000 ounces in 2019. Projected copper production of approximately 132 million pounds in 2019. The Jiama Mine’s Phase II expansion consists of two series, with each series having a mining and mineral processing capacity of 22,000 tonnes per day (“tpd”). The Phase II, Series I expansion reached commercial production on December 31, 2017, followed by commercial production of Phase II, Series II effective July 1, 2018, bringing the entire Phase II expansion project into commercial production. The Company was able to accelerate its development and commissioning to achieve commercial production for Series II ahead of schedule. The Company continues to ramp up operations at Series II to full design capacity of 22,000 tonnes per day (“tpd”). The full design capacity of ore processing at the Jiama Mine will increase to 50,000 tpd from the previous capacity of 28,000 tpd once Series II reaches full design capacity. 4646 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS • The Company will continue to leverage the technical and operating experience of the Company’s substantial 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. RESULTS OF OPERATIONS Selected Quarterly Financial Data Quarter ended 2018 2017 (US$ in thousands except per share) 31-Dec 30-Sep 30-Jun 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar Revenue Cost of sales Mine operating earnings General and administrative expenses Exploration and evaluation expenses Research and development expenses Income from operations Foreign exchange (loss) gain Finance costs (Loss) profit before income tax Income tax (credit) expense Net loss (profit) Basic (loss) earnings per share (cents) Diluted earnings (loss) per share (cents) 162,957 129,693 33,264 16,701 (4) 7,374 9,193 (1,677) 11,224 (3,346) (1,351) (1,995) (0.49) N/A 158,841 123,743 35,098 12,666 134 3,068 19,230 (11,024) 10,909 (998) 3,591 (4,589) (1.23) N/A 142,087 106,294 106,685 100,131 35,793 12,674 251 2,800 20,068 (7,580) 11,214 3,839 3,449 390 0.05 N/A 6,554 9,383 78 2,553 (5,460) 4,463 11,128 (465) (2,469) 2,004 0.45 N/A 133,312 87,621 45,691 15,116 176 4,193 26,206 (492) 5,748 22,350 2,394 19,956 4.91 N/A 98,543 71,565 26,978 5,554 40 1,549 19,835 1,838 5,800 17,616 208 17,408 4.33 N/A 97,916 72,923 24,993 4,155 53 1,505 19,280 4,001 5,264 21,936 1,332 20,604 5.09 N/A 82,110 62,986 19,124 4,278 36 1,498 13,312 2,845 4,914 13,709 7,332 6,377 1.60 N/A Selected Quarterly And Annual Production Data and Analysis CSH Mine Three months ended December 31, Year ended December 31, Gold sales (US$ million) Realized average price (US$) of gold per ounce Gold produced (ounces) Gold sold (ounces) Total production cost (US$ per ounce) Cash production cost(1) (US$ per ounce) (1) Non-IFRS measure. See ‘Non-IFRS measures’ section of this MD&A 2018 52.15 1,306 41,506 39,928 1,288 817 2017 72.88 1,271 59,998 57,350 1,004 645 2018 2017 186.80 1,286 144,896 145,272 1,164 750 233.64 1,264 186,957 184,829 1,055 670 Annual Report 2018 47 47 MANAGEMENT’S DISCUSSION AND ANALYSIS Gold production at the CSH Mine decreased by 31% to 41,506 ounces for the three months ended December 31, 2018 compared to 59,998 ounces for the three months ended December 31, 2017. The decrease in gold production is attributed to lower volumes of ore mined during the 2018 period, which is in line with the revised mining plan. The total production cost of gold for the three months ended December 31, 2018 increased to US$1,288 per ounce compared to US$1,004 for the three month 2017 period. The cash production cost of gold for the three months ended December 31, 2018 increased by approximately 27% to US$817, from US$645 per ounce for the same period in 2017, mainly due to an approximately 30% lower grade of gold. Jiama Mine Copper sales (US$ in millions) Realized average price 1 (US$) of copper per pound after smelting fee discount Copper produced (tonnes) Copper produced (pounds) Copper sold (tonnes) Copper sold (pounds) Gold produced (ounces) Gold sold (ounces) Silver produced (ounces) Silver sold (ounces) Total production cost 2 (US$) of copper per pound Total production cost 2 (US$) of copper per pound after by- products credits 4 Cash production cost 3 (US$) per pound of copper Cash production cost 3 (US$) of copper per pound after by- products credits 4 Three months ended December 31, 2017 2018 87.87 39.81 2.26 17,711 2.55 14,905 Year ended December 31, 2018 285.68 2.37 55,025 2017 117.12 2.25 35,844 39,046,970 32,859,328 121,309,024 79,021,963 16,663 8,333 53,280 25,814 36,735,800 18,370,737 117,462,608 56,909,435 22,150 21,941 987,628 856,090 2.73 1.82 2.10 1.19 17,893 12,756 808,457 635,746 70,262 66,545 3,212,452 3,009,074 47,710 40,294 2,365,578 1,884,516 2.82 1.72 2.27 1.17 2.97 2.08 2.25 1.36 2.47 1.36 2.05 0.94 1 2 3 4 A discount factor of 18.8% to 22.4% 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, 2018, the Jiama Mine produced 17,711 tonnes (approximately 39.05 million pounds) of copper, an increase of 19% compared with the three months ended December 31, 2017 (14,905 tonnes, or 32.86 million pounds). The increase in production is due to the commercial production of Phase II Series II. During the three months ended December 31, 2018, both total production cost of copper per pound after by-products and cash production cost of copper per pound after by-product increased as compared to the same period in 2017 due to lower grades of ore produced. 4848 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS Review of Quarterly Data Three months ended December 31, 2018 compared to three months ended December 31, 2017 Revenue of US$163.0 million for the fourth quarter of 2018 increased by US$29.7 million or 22%, from US$133.3 million for the same period in 2017. Revenue from the CSH Mine was US$52.1 million, a decrease of US$20.8 million, compared to US$72.9 million for the same period in 2017. Gold sold by the CSH Mine was 39,928 ounces (gold produced: 41,506 ounces), compared to 57,350 ounces (gold produced: 59,998 ounces) for the same period in 2017. Revenue from the Jiama Mine was US$110.9 million, an increase of US$50.5 million, compared to US$60.4 million for the same period in 2017. Total copper sold was 16,663 tonnes (36.7 million pounds) for the three months ended December 31, 2018, an increase of 100% from 8,333 tonnes (18.4 million pounds) for the same period in 2017. Cost of sales of US$129.7 million for the quarter ended December 31, 2018, increased by US$42.1 million or 48% from US$87.6 million for the same period in 2017. The overall increase is primarily attributed to an increase of 161% at Jiama. Cost of sales as a percentage of revenue for the Company increased from 66% to 80% for the three months ended December 31, 2017 and 2018, respectively. Mine operating earnings of US$33.3 million for the three months ended December 31, 2018 a decrease of 27%, or US$12.4 million, from US$45.7 million for the same period in 2017. Mine operating earnings as a percentage of revenue decreased from 34% to 20% for the three months ended December 31, 2017 and 2018, respectively. General and administrative expenses increased by US$1.6 million, from US$15.1 million for the quarter ended December 31, 2017 to US$16.7 million for the quarter ended December 31, 2018. Research and development expenses increased by US$3.2 million, from US$4.2 million for the quarter ended December 31, 2017 to US$7.4 million for the quarter ended December 31, 2018. Income from operations of US$9.2 million for the fourth quarter of 2018, decreased by US$17.0 million, compared to US$26.2 million for the same period in 2017. Finance costs of US$11.2 million for the three months ended December 31, 2018, increased by US$5.5 million compared to US$5.7 million for the same period in 2017, primarily due to the Jiama Mine no longer capitalizing interest expense for the Phase II expansion as of the commencement of commercial production of Jiama’s Phase II. Foreign exchange loss increased to US$1.7 million for the three months ended December 31, 2018 from US$0.5 million for the same period in 2017. The increase is related to the revaluation of monetary items held in Chinese RMB, which was based on changes in the RMB/USD exchange rates. Interest and other income of US$0.4 million for the three months ended December 31, 2018 decreased from US$2.4 million for the same period in 2017, due to lower income earned on term deposits and related party loans. Income tax credit of US$1.4 million for the quarter ended December 31, 2018 increased from US$2.4 million of income tax expenses for the comparative period in 2017. During the current quarter, the Company had US$2.3 million of deferred tax credit compared to US$0.9 million for the same period in 2017. Net loss of US$2.0 million for the fourth quarter of 2018, decreased by US$22.0 million, compared to net income of US$20.0 million for the same period in 2017. Annual Report 2018 49 49 MANAGEMENT’S DISCUSSION AND ANALYSIS Year ended December 31, 2018 compared to Year ended December 31, 2017 Revenue of US$570.6 million for the year ended December 31, 2018 increased by US$158.7 million or 39%, from US$411.9 million for the same period in 2017. Revenue from the CSH Mine was US$186.8 million, a decrease of US$46.8 million, compared to US$233.6 million for the same period in 2017. Gold sold by the CSH Mine was 145,272 ounces (gold produced: 144,896 ounces), compared to 184,829 ounces (gold produced: 186,957 ounces) for the same period in 2017. Revenue from the Jiama Mine was US$383.8 million, an increase of US$205.6 million, compared to US$178.2 million for the same period in 2017. Total copper sold was 53,280 tonnes (117.5 million pounds) for the year ended December 31, 2018, an increase of 106% from 25,814 tonnes (56.9 million pounds) for the same period in 2017. Cost of sales of US$459.9 million for the year ended December 31, 2018, an increase of US$164.8 million or 56% from US$295.1 million for the same period in 2017. The overall increase is primarily attributed to higher copper sales volume at Jiama compared to the same period in 2017. Cost of sales as a percentage of revenue for the Company increased from 72% to 81% for year ended December 31, 2017 and 2018, respectively. Mine operating earnings of US$110.7 million for the year ended December 31, 2018, a decrease of 5%, or US$6.1 million, from US$116.8 million for the same period in 2017. Mine operating earnings as a percentage of revenue decreased from 28% to 19% for the year ended December 31, 2017 and 2018, respectively. General and administrative expenses increased by US$22.3 million, from US$29.1 million for the year ended December 31, 2017 to US$51.4 million for the year ended December 31, 2018. The increase is mainly due to administration and office expenditure at the Jiama Mine. Research and development expenses increased by US$7.1 million, from US$8.7 million for the year ended December 31, 2017 to US$15.8 million for the year ended December 31, 2018. Income from operations of US$43.0 million for the year ended December 31, 2018, decreased by US$35.6 million, compared to US$78.6 million for the same period in 2017. Finance costs of US$44.5 million for the year ended December 31, 2018, increased by US$22.8 million compared to US$21.7 million for the same period in 2017. During the year ended December 31, 2018, interest payments of US$1.0 million (2017: US$24.7 million) were capitalized for borrowing costs related to the Jiama Mine expansion. Foreign exchange loss of US$15.8 million for the year ended December 31, 2018, decreased from a gain of US$8.2 million for the same period in 2017. The decrease is related to the revaluation of monetary items held in Chinese RMB, which is based on the depreciation of the RMB to USD exchange rates. Interest and other income of US$16.3 million for the year ended December 31, 2018 increased from US$10.5 million for the same period in 2017, partially due to sales of low grade product from the Jiama Mine. 5050 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS Income tax expense of US$3.2 million for the year ended December 31, 2018 decreased by US$8.1 million from US$11.3 million for the comparative period in 2017. During the year, both the CSH and Jiama mine qualified for preferential tax rates of 15% and 9%, respectively. In addition, a US$2.3 million adjustment was made in 2018 for an overprovision of PRC enterprise income tax related to the prior year. During the current period, the Company had US$1.3 million of deferred tax expenses compared to US$3.0 million deferred tax credit for same period in 2017. Net loss of the Company for the year ended December 31, 2018 was US$4.2 million, which decreased by US$68.5 million, compared to a net income of US$64.3 million for the year ended December 31, 2017 NON-IFRS MEASURES The following table provides certain unit cost information on a cost of production per tonne of ore processed (non-IFRS) basis for the CSH Mine for the three months and year ended December 31, 2018 and 2017: CSH Mine Three months ended December 31, Year ended December 31, Cost of mining per tonne of ore Cost of mining waste per tonne of ore Other mining costs per tonne of ore Total mining costs per tonne of ore Cost of reagents per tonne of ore Other processing costs per tonne of ore Total processing cost per tonne of ore 2018 US$ 1.46 1.06 0.53 3.05 1.83 1.65 3.48 2017 US$ 1.36 2.14 0.20 3.70 1.32 1.23 2.55 2018 US$ 1.43 4.09 0.33 5.85 1.98 1.51 3.49 2017 US$ 1.35 1.86 0.20 3.41 1.02 0.98 2.00 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. Annual Report 2018 51 51 MANAGEMENT’S DISCUSSION AND ANALYSIS The following tables provide 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, Year ended December 31, 2018 2017 2018 2017 US$ Per ounce US$ US$ Per ounce US$ US$ Per ounce US$ US$ Per ounce US$ Total production costs Adjustments 51,413,375 (18,783,853) 1,288 57,590,615 (471) (20,599,684) 1,004 169,085,187 (359) (60,193,581) 1,164 195,005,420 (71,096,501) (414) 1,055 (385) Total cash production costs 32,629,522 817 36,990,931 645 108,891,606 750 123,908,919 670 Jiama Mine (Copper with by-products credits) Three months ended December 31, Year ended December 31, 2018 2017 2018 2017 US$ Per Pound US$ US$ Per Pound US$ US$ Per Pound US$ US$ Per Pound US$ Total production costs Adjustments 100,129,701 (22,821,607) 2.73 44,326,022 (0.62) (8,617,209) 2.82 348,919,807 (0.55) (84,544,391) 2.97 127,705,079 (21,460,499) (0.72) Total cash production costs 77,308,094 2.11 35,708,813 2.27 264,375,416 2.25 106,244,580 2.47 (0.42) 2.05 By-products credits (33,422,628) (0.91) (17,256,583) (1.10) (104,185,742) (0.89) (57,429,843) (1.11) Total cash production costs after by- products credits 43,885,466 1.20 18,452,230 1.17 160,189,674 1.36 48,814,737 0.94 The adjustments above include depreciation and depletion, amortization of intangible assets, and selling expenses included in total production costs. MINERAL PROPERTIES The CSH Mine The CSH Mine is located in 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 the Company holds a 96.5% interest and Ningxia Nuclear Industry Geological Exploration Institution (formerly known as Brigade 217) holds the remaining 3.5%. 5252 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS The CSH Mine has two open-pit mining operations and has a mining and processing capacity of 60,000 tpd. The capital expenditure incurred in the CSH Mine for the year ended December 31, 2018 was US$57.9 million. Major new contracts entered into during the year ended December 31, 2018 are as follows: Subject amount Contract period (US $ millions) (effective day and Item No. Contract Name Counterpart Unit price expiration date) Date of Contract 1 2 Liquid Sodium Cyanide Inner Mongolia Chengxin Estimated: 19.9 2019.1.1 – 2018.12.12 Purchase contract Yongan Chemical Co., Ltd. 2019.12.31 Powder mine transportation Urad Zhongqi Taiyue Estimated: 10.8 2018.12.21 – 2018.12.21 and heap leaching site Earthwork Engineering Co., 2021.12.20 building contract Ltd. Production Update CSH Mine Three months ended December 31, 2018 2017 Year ended December 31, 2018 2017 Ore mined and placed on pad (tonnes) 2,879,128 4,665,896 9,938,110 19,666,184 Average ore grade (g/t) Recoverable gold (ounces) Ending ore inventory (ounces) Waste rock mined (tonnes) 0.40 22,209 165,250 0.57 50,874 212,051 0.51 95,262 165,250 0.56 211,491 212,051 19,517,887 23,663,584 67,858,227 91,383,879 For the three months ended December 31, 2018, the total amount of ore placed on the leach pad was 2.9 million tonnes, with total contained gold of 22,209 ounces (691 kilograms). The overall accumulative project-to-date gold recovery rate has slightly increased to approximately 54.02% at the end of December 2018 from 53.59% at the end of September 2018. Of which, gold recovery from the phase I heap is 58.94% and; gold recovery from the Phase II heap is 46.26% at end of 2018. In the second half of 2017, there were a series of wall failures on one side of the pits at the CSH Mine leading to short term interruptions of mining activities. 2017 production was not significantly impacted. The Company is conducting studies to develop remediation plans to address the slope stability issues and to assess the impact on the long term mine plan. 2019 and onwards production estimates have been reduced accordingly. Exploration The Company’s mineral exploration plan for 2017 included 10,450 +/- meters, involving nine or more drill sites. The drill sites step out from known mineralized zones. The 2017 drilling program commenced in Q3 of 2017 and continued to 2018. The Company’s 2018 exploration program involved drilling of 6,005 +/- additional meters involving five or more drill sites. By the end of 2018, 6,161 meters or 103% of the 2018 total has been completed. Combined 10,844 +/- meters or 104% of the combined 2017 and 2018 drilling programs have now been completed. Analyses of samples are under review. Annual Report 2018 53 53 MANAGEMENT’S DISCUSSION AND ANALYSIS Mineral Resource Update CSH Mine Resources by category, Northeast and Southwest pits combined at December 31, 2018 under NI 43-101: Type Measured Indicated M+I Inferred Quantity Mt Au g/t 12.34 124.12 136.46 80.36 0.62 0.62 0.62 0.52 Metal Au t 7.60 76.63 84.24 41.51 Au Moz 0.24 2.46 2.71 1.33 Mineral Reserves Update CSH Mine Reserves by category, Northeast and Southwest pits combined at December 31, 2018 under NI 43-101: Type Proven Probable Total The Jiama Mine Quantity Mt 10.59 66.49 77.08 Au g/t 0.63 0.65 0.65 Metal Au t 6.72 43.23 49.96 Au Moz 0.22 1.39 1.61 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. 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 of the Jiama Mine commenced mining operations in 2018 with 44,000 tpd design capacity. Phase II Expansion The Jiama Expansion Program The Jiama Mine’s Phase II expansion consists of two series, with each series having a mining and mineral processing capacity of 22,000 tpd. The Phase II, Series I expansion reached commercial production at the end of 2017. The Series II expansion commenced commercial production in July 2018. The capital expenditure incurred for the Jiama Mine expansion for the year ended December 31, 2018 was US$137.7 million. 5454 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS Major new contracts entered into during the year ended December 31, 2018 are as follows: Item No. Contract Name Counterpart Subject amount (US $ millions) Contract period (effective day and expiration date) Date of Contract 1 2 3 4 5 6 7 8 9 Blasting Engineering Technology Tibet Zhongjin Xinlian Blasting Estimated: 12.1 2018.01.01 – 2018.01.01 Service Contract Engineering Co., Ltd. 2020.01.01 Cable Purchase Contract Silon Cable Co., Ltd. Estimated: 17.5 2018.05.29 – 2018.05.29 2019.05.28 Cu-Pb-Zn Sales Contract Beijing Yuyang Road Investment Estimated: 9.1 2018.05.01 – 2018.05.01 Co., Ltd. 2018.12.31 Copper Concentrate Sales Contract Tibet Huading Resources Estimated: 105.8 2018.03.01 – 2018.03.01 Copper Concentrate Sales Contract Tibet Ruijia Trade Co., Ltd. Estimated: 90.7 2018.03.01 – 2018.03.01 Development Co., Ltd. 2019.01.31 2019.02.28 Copper Concentrate Sales Contract Gansu Boda Mining Co., Ltd. Estimated: 36.3 2018.03.01 – 2018.03.01 2019.02.28 South Open-pit Production Period Shaanxi Xiaoshanchuan Mineral Estimated: 225.5 2018.11.01 – 2018.12.28 Mining and Stripping Project Resources Development and 2023.10.31 Construction Co., Ltd. Hornfels Open-pit Mining and Shaanxi Xiaoshanchuan Mineral Estimated: 203.1 2018.12.01 – 2018.12.28 Stripping Project Resources Development and 2023.11.30 Underground Mining – Cutting Well, Sichuan Chuan Coal Sixth Estimated: 4.0 2018.08.15 – 2018.08.15 Ventilation Well Engineering Construction Co., 2019.08.14 Construction Co., Ltd. Ltd. 10 Copper Concentrate Sales Contract Tibet Huading Resources Estimated: 8.6 2018.07.10 – 2018.07.08 Development Co., Ltd. 2019.07.09 Production Update Jiama Mine Ore processed (tonnes) Average copper ore grade (%) Copper recovery rate (%) Average gold ore grade (g/t) Gold recovery rate (%) Average silver ore grade (g/t) Silver recovery rate (%) Three months ended December 31, Year ended December 31, 2018 2017 2018 2017 3,227,260 1,787,698 10,431,401 5,033,396 0.78 78 0.43 55 19.59 54 0.90 93 0.47 67 21.94 64 0.71 75 0.39 53 17.91 53 0.87 82 0.47 63 25.95 56 Annual Report 2018 55 55 MANAGEMENT’S DISCUSSION AND ANALYSIS According to the mining plan for the Phase II expansion, the Jiama Mine began to produce low grade ore from the open pit mine. As a result, the Company expected the average ore grade to be lower than previous years which used higher grade ore from underground mining only. Production cost was also expected to be higher since the commencement of commercial production of Phase II due to the lower grade of ore and lower recovery rates. During 2018, metal recovery rates were also lower compared to the same period in 2017 due to presence of the oxide ore from the open pit mine. Recovery rates are expected to increase in 2019 as the ratio of oxide ore gradually decreases. Exploration In 2017 the Company developed an exploration program to test for structural controls, extensions of the known mineralize zones and other targeted zones. The 2017-2018 programs called for 6,920 +/- meters involving nine surface drill sites and 10,155 +/- meters involving fourteen +/- underground drill sites. The drilling program ended at fifteen dill sites and 10,871 +/-meters, some projects are terminated in advance given natural condition. Core is being logged and sent for assay. The evaluation of 2017-2018 exploration is expected to be completed in Q2 of 2020. The Company plans to drill approximately 35,000 meters in 2019 and 2020. Mineral Resources Estimate An NI 43-101 compliant mineral resource estimate was independently completed by Mining One Pty Ltd. in November 2013, based on information collected up to November 12, 2012. The drilling programs subsequent to November 2012, including an extensive drill program conducted in 2013, will be included in future updates of the Mineral Resources and Reserves. Mining One Pty Ltd. noted that gold and silver mineralization within the ore body had a significantly higher spatial variability than the other elements. 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. Jiama Project – Cu, Mo, Pb, Zn, Au, and Ag Mineral Resources under NI 43-101 Reported at a 0.3% Cu Equivalent Cut off grade*, as of December 31, 2018 Quantity Cu Metal Mo Metal Pb Metal Zn Metal Class Mt Cu % Mo % Pb % Zn % Au g/t Ag g/t (kt) (kt) (kt) (kt) Au Moz Ag Moz Measured Indicated M+I Inferred 94.9 1,369.1 1,463.9 406.1 0.39 0.41 0.41 0.30 0.04 0.03 0.03 0.00 0.04 0.05 0.05 0.10 0.02 0.03 0.03 0.00 0.08 0.11 0.11 0.10 5.44 5.93 5.90 5.1 371 5,590 5,961 1,247 34.2 463 497.4 123 41.8 732 773.7 311 22.4 460 482.4 175 0.245 4.762 5.008 1.3 16.595 261.145 277.740 66.9 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 Grade: = (Ag Grade * Ag Price + Au Grade * Au Price + Cu Grade * Cu Price + Pb Grade * Pb Price + Zn Grade * Zn Price + Mo Grade * Mo Price)/Copper Price 5656 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS 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. Quantity Cu Metal Mo Metal Pb Metal Zn Metal Jiama Project Statement of NI 43-101 Mineral Reserve Estimate as of December 31, 2018 Class Mt Cu % Mo % Pb % Zn % Au g/t Ag g/t (kt) Proven Probable P+P 20.8 398.4 419.2 0.61 0.56 0.61 0.05 0.03 0.03 0.05 0.13 0.13 0.03 0.08 0.08 0.21 0.18 0.18 8.99 11.21 11.10 126.4 2,427.9 2,554.3 (kt) 9.5 128.2 137.8 (kt) (kt) Au Moz Ag Moz 10.3 548.2 558.5 6.9 317.3 324.2 0.140 2.285 2.425 6.026 143.574 149.600 Notes: 1. All Mineral Reserves have been estimated in accordance with the JORC code and have been reconciled to CIM standards as prescribed by the NI 43-101. 2. 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; an overall slope angles of 43 degrees; a copper price of US$2.9/lbs; an overall processing recovery of 88 – 90% for copper Underground: a) b) c) 10% dilution added to all Sub-Level Open Stoping; Stope recovery is 87% for Sub-Level Open Stoping; An overall processing recovery of 88 – 90% for copper. 3. 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. LIQUIDITY AND CAPITAL RESOURCES The Company operates in a capital intensive industry. The Company’s liquidity requirements arise principally from the need for financing the expansion of its mining and mineral 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, 2018, the Company had an accumulated surplus of US$229.8 million, working capital of US$39.3 million and borrowings of US$1,210 million. The Company’s cash balance at December 31, 2018 was US$138.0 million. Annual Report 2018 57 57 MANAGEMENT’S DISCUSSION AND ANALYSIS 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. The Company’s borrowings are comprised of US$505.7 million of 3.25% unsecured bonds maturing on July 6, 2020, of which US$16.1 million is included in the current portion of borrowings, and US$107.8 million of short term debt facilities with interest rates ranging from 2.75% to 4.35% per annum arranged through various banks in China. In addition, on November 3, 2015, the Company entered into a Loan Facility agreement with a syndicate of banks, led by Bank of China. The lenders agreed to lend an aggregate principle amount of RMB3.98 billion, approximately US$613 million with the interest rate of 2.83% per annum currently. The People’s Bank of China Lhasa Center Branch’s interest rate serves as a benchmark for the interest on the drawdowns. The bank’s interest rate is then discounted by 7 basis points (or 0.07%) to calculate the interest on the drawdowns. The proceeds from the Loan Facility are to be used for the development of the Jiama Mine. The loan is secured by the mining rights for the Jiama Mine. As of December 31, 2018 the Company has drawdown RMB3.495 billion, approximately US$509.2 million under the Loan Facility. The Company believes that the availability of debt financing in China at favorable rates will continue for the foreseeable future. On July 6, 2017, the Company, through its wholly-owned subsidiary, Skyland Mining (BVI) Limited, completed the issuance of bonds in an aggregate principal amount of US$500 million. The bonds were issued at a price of 99.663%, bearing coupon rate of 3.25% with a maturity date of July 6, 2020. The bonds are listed on the Stock Exchange of Hong Kong Limited as of July 7, 2017. The Company continues to review and assess its assets for impairment as part of its financial reporting processes. To date, the assessment carried out by the Company support the carrying values of the Company’s assets and no impairment has been required. However, the management of the Company continues to evaluate key assumptions on estimates and management judgements in order to determine the recoverable amount of the CSH Mine and the Jiama Mine. Cash flows The following table sets out selected cash flow data from the Company’s consolidated cash flow statements for the years ended December 31, 2018 and December 31, 2017. Net cash from operating activities Net cash (used in) investing activities Net cash (used in) from financing activities Net increase (decrease) in cash and cash equivalents Effect of foreign exchange rate changes on cash and cash equivalents Cash and cash equivalents, beginning of period Year ended December 31, 2018 US$’000 154,944 (128,899) (29,908) (3,863) (5,459) 147,318 2017 US$’000 98,551 (88,114) 78,193 88,630 (1,242) 59,930 Cash and cash equivalents, end of period 137,996 147,318 5858 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS Operating cash flow For the year ended December 31, 2018, net cash inflow from operating activities was US$154.9 million which is primarily attributable to (i) depreciation and depletion of US$127.0 million (ii) increase of account payables of US$46.0 million and (iii) finance cost of US$44.5 million, partially offset by (i) increase in inventory of US$56.2 million and (ii) interest paid of US$42.5 million. Investing cash flow For the year ended December 31, 2018, the net cash outflow from investing activities was US$128.9 million which is primarily attributable to (i) placement of restricted cash balances of US$162.8 million, (ii) payment for the acquisition of property, plant and equipment of US$117.3 million, partially offset by (i) release of restricted bank balance of US$164.0 million and (ii) interest received of US$2.6 million. Financing cash flow For the year ended December 31, 2018, the net cash outflow from financing activities was US$29.9 million which is primarily attributable to repayment of borrowings of US$237.5 million, partially offset by proceeds of borrowings of US$208.0 million. Expenditures Incurred For the year ended December 31, 2018, the Company incurred mining costs of US$92.0 million, mineral processing costs of US$110.1 million and transportation costs of US$7.8 million. Gearing ratio Gearing ratio is defined as the ratio of consolidated total debt to consolidated total equity. As at December 31, 2018, the Company’s total debt was US$1,210 million and the total equity was US$1,489 million. The Company’s gearing ratio was therefore 0.81 as at December 31, 2018 and 0.84 as at December 31, 2017. Restrictive covenants The Company is subject to various customary conditions and covenants under the terms of its financing agreements. Under a Loan Facility agreement entered on November 3, 2015 between the Company and a syndicated of banks, led by Bank of China pursuant to which the banks agreed to lend to Tibet Huatailong, the Company’s subsidiary, the aggregate principle amount of RMB3.98 billion (approximately US$613 million), the debt to assets ratio of Huatailong should be less than 75% during the term of the agreement. Annual Report 2018 59 59 MANAGEMENT’S DISCUSSION AND ANALYSIS SIGNIFICANT INVESTMENTS, ACQUISITIONS AND DISPOSAL OF SUBSIDIARIES. ASSOCIATES AND JOINT VENTURES, AND FUTURE PLAN FOR MATERIAL INVESTMENTS OF CAPITAL ASSETS Other than as disclosed elsewhere in this MD&A or in the audited annual consolidated financial statements for the year ended December 31, 2018, there were no significant investments held by the Company, nor were there any material acquisitions or disposals of subsidiaries, associates and joint ventures during the year ended December 31, 2018. Other than as disclosed in this MD&A, there was no plan authorized by the Board for other material investments or additions of capital assets at the date of this MD&A. CHARGE ON ASSETS Other than as disclosed elsewhere in this MD&A and annual consolidated financial statements, none of the Group’s assets were pledged as at December 31, 2018. EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES AND RELATED HEDGES The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates for the monetary assets and liabilities denominated in the currencies other than the functional currencies to which they relate. The Company has not hedged its exposure to currency fluctuation. However, the Management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise. Refer to Note 32, Financial Instruments, in the annual consolidated financial statements for the year ended December 31, 2018. 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. 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. Refer to Note 33, Commitments and Contingencies, in the annual consolidated financial statements for the year ended December 31, 2018. On July 7, 2017, the Company, through its wholly owned subsidiary Skyland Mining (BVI) Limited, issued bonds on the HKSE, denominated U.S. dollar, with an aggregate principal amount of US$500 million. The Bonds were issued at a price of 99.663%, bearing a coupon of 3.25% per annum with a maturity date of July 6, 2020. Interest is payable in semi-annual installments on January 6 and July 6 of each year. 6060 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS The following table outlines payments for commitments for the periods indicated: Principal repayment of bank loans Repayment of bonds including interest Operating lease commitments (a) Capital Commitments (b) Total US$’000 704,483 505,675 364 61,657 Within One year US$’000 107,822 16,099 111 61,657 Within Two to five years US$’000 311,808 489,576 141 – Over 5 years US$’000 284,853 – 112 – Total 1,272,179 185,689 801,525 284,965 (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 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, 2018 and December 31, 2017. The Company had major related party transactions with the following companies related by way of shareholders and shareholder in common: The Company’s subsidiary, Inner Mongolia Pacific is a party to a non-exclusive contract for the purchase and sale of doré with CNG (the “Dore Sales Contract”) pursuant to which Inner Mongolia Pacific sells gold doré bars to CNG. The pricing is based on the monthly average price of gold ingot as quoted on the Shanghai Gold Exchange and the daily average price of silver as quoted on the Shanghai Huatong Platinum & Silver Exchange prevailing at the time of each relevant purchase order during the contract period. The Dore Sales Contract has been in effect since October 24, 2008 and has been renewed for a current term that commences on January 1, 2018 and expires on December 31, 2020, which renewal was approved by the Company’s shareholders on June 28, 2017. Revenue from sales of gold doré bars to CNG of US$186.8 million for the year ended December 31, 2018 decreased from US$233.6 million for the year ended December 31, 2017. The Company is also a party to a Product and Service Framework Agreement with CNG, pursuant to which CNG provides construction, procurement and equipment financing services to the Company and also purchases the copper concentrates produced at the Jiama Mine. The quantity of copper concentrates, pricing terms and payment terms may be established from time to time by the parties with reference to the pricing principles for connected transactions set out under the Product and Service Framework Agreement. On June 28, 2017, the Supplemental Product and Service Framework Agreement was approved and extended to expire on December 31, 2020. For the year ended December 31, 2018, revenue from sales of copper concentrate and other products to CNG was US$127.5 million, compared to US$101.2 million for the same period in 2017. Annual Report 2018 61 61 MANAGEMENT’S DISCUSSION AND ANALYSIS For the year ended December 31, 2018, construction services of US$16.5 million were provided to the Company by subsidiaries of CNG (US$21.9 million for the year ended December 31, 2017). 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, including a Deposit Services Agreement and Loan Agreement entered into on December 18, 2017 and renewed on December 18, 2018 among the Company and China Gold Finance. 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, 2018. The Company continues to review possible acquisition targets. 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 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, 2018. 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, 2018. FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS The Company holds a number of financial instruments, the most significant of which are equity securities, accounts receivables, accounts payables, 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 financial derivatives or outstanding hedging contracts as at December 31, 2018. OFF-BALANCE SHEET ARRANGEMENTS As at December 31, 2018, the Company had not entered into any off-balance sheet arrangements. 6262 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, 2018 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, 2018 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 of December 31, 2018, 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) 2013 framework to evaluate the Company’s ICFR as of December 31, 2018 and have concluded that these controls and procedures were effective as of December 31, 2018 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, 2018, 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. Annual Report 2018 63 63 MANAGEMENT’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 scientific or technical information in this MD&A was approved by Mr. Zhongxin Guo, P.Eng. the Company’s chief engineer and a Qualified Person (“QP”) for the purposes of NI 43-101. March 26, 2019 6464 China Gold International Resources Corp. Ltd. MANAGEMENT’S DISCUSSION AND ANALYSIS TO THE SHAREHOLDERS OF CHINA GOLD INTERNATIONAL RESOURCES CORP. LTD. (incorporated in British Columbia, Canada with limited liability) OPINION We have audited the 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 70 to 151, which comprise the consolidated statement of financial position as at December 31, 2018, 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 notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at December 31, 2018, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KEY AUDIT MATTER Key audit matter is that matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements of the current period. This matter was addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Annual Report 2018 65 INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF CHINA GOLD INTERNATIONAL RESOURCES CORP. LTD. - (continued) (incorporated in British Columbia, Canada with limited liability) KEY AUDIT MATTER (Cont’d) Impairment assessment of mining rights and property, plant and equipment How our audit addressed the key audit matter Our procedures in relation to the impairment assessment of mining rights and property, plant and equipment included: • • • • • • Obtaining an understanding of the key controls over the impairment assessment of the Group’s mining rights and property, plant and equipment; Evaluating the sensitivity analysis for the key assumptions in the valuation models for risk assessment; Assessing the appropriateness of the Group’s identification of individual CGU; Assessing the reasonableness of the key assumptions used in the valuation models with reference to the historical accuracy of such forecasts and the current operational results; Evaluating the independent external valuer’s competence, capabilities and objectivity; Engaging our internal valuation experts to evaluate the appropriateness of the valuation methodology, technical information provided by external valuation expert and the key assumptions used in the valuation models against external benchmarks, our knowledge of the Group and its industry; and • Comparing the input data in the cash flow forecast to the source document. We identified the impairment assessment of mining rights and property, plant and equipment as key audit matter due to significant management judgement involved in the impairment assessment. As at December 31, 2018, the market capitalisation of the Company was below the carrying value of its net assets of approximately US$1,489 million. This may indicate the need for a write-down of the carrying amounts of the Group’s mining rights and property, plant and equipment. As disclosed in notes 21 and 22 to the consolidated financial statements, the carrying values of the Group’s property, plant and equipment and mining rights as at December 31, 2018 were approximately US$1,765 million and US$920 million, respectively. The Group’s two cash-generating units (“CGUs”) for impairment assessment purposes include the mining rights and the related property, plant and equipment associated with the Group’s gold mine, located in Inner Mongolia, China and copper mine, located in Tibet, China. When an impairment review is undertaken, recoverable amount is assessed with reference to the higher of value in use (“VIU”) and fair value less costs of disposal. VIU is based on the discounted cash flows expected to be derived from the Group’s CGUs, taking into account the appropriate discount rate. As disclosed in note 4 to the consolidated financial statements, the management exercises significant judgement in respect of the key assumptions applied in the VIU calculation, such as future metal selling price, recoverable reserves, resources, exploration potential, production cost estimates, future operating costs and discount rates. During the year ended December 31, 2018, no impairment loss was recognised for the Group’s mining rights and property, plant and equipment. 66 China Gold International Resources Corp. Ltd. INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF CHINA GOLD INTERNATIONAL RESOURCES CORP. LTD. - (continued) (incorporated in British Columbia, Canada with limited liability) OTHER INFORMATION The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion 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. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. Annual Report 2018 67 INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF CHINA GOLD INTERNATIONAL RESOURCES CORP. LTD. - (continued) (incorporated in British Columbia, Canada with limited liability) AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d) As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 68 China Gold International Resources Corp. Ltd. INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF CHINA GOLD INTERNATIONAL RESOURCES CORP. LTD. - (continued) (incorporated in British Columbia, Canada with limited liability) AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d) From the matter communicated with those charged with governance, we determine that matter that was of most significance in the audit of the consolidated financial statements of the current period and is therefore the key audit matter. We describe this matter in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in the independent auditor’s report is Wong Ka I. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong March 26, 2019 Annual Report 2018 69 INDEPENDENT AUDITOR’S REPORT Revenue Cost of sales Mine operating earnings Expenses General and administrative expenses Exploration and evaluation expenditure Research and development expenses Income from operations Other (expenses) income Foreign exchange (loss) gain, net Interest and other income Finance costs (Loss) profit before income tax Income tax expense (Loss) profit for the year Other comprehensive (expenses) income for the year Item that will not be reclassified to profit or loss: Fair value loss on equity instruments at fair value through other comprehensive income Items that may be reclassified subsequently to profit or loss: Exchange difference arising on translation Fair value gain on available-for-sale investment NOTES 5 6 7 8 9 10 2018 US$’000 570,570 (459,861) 2017 US$’000 411,881 (295,095) 110,709 116,786 (51,424) (459) (15,795) (29,103) (305) (8,745) (67,678) (38,153) 43,031 78,633 (15,818) 16,292 (44,475) 8,192 10,512 (21,726) (44,001) (3,022) (970) (3,220) 75,611 (11,266) (4,190) 64,345 (1,461) (14,601) – – 18,783 6,943 Total comprehensive (expense) income for the year (20,252) 90,071 70 China Gold International Resources Corp. Ltd. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED DECEMBER 31, 2018CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (Loss) profit for the year attributable to: Non-controlling interests Owners of the Company Total comprehensive (expense) income for the year attributable to: Non-controlling interests Owners of the Company (Loss) earnings per share – Basic (US$) Weighted average number of common shares – Basic NOTE 2018 US$’000 2017 US$’000 647 (4,837) 1,199 63,146 (4,190) 64,345 651 (20,903) 1,192 88,879 (20,252) 90,071 (1.22) cents 15.93 cents 396,413,753 396,413,753 13 13 Annual Report 2018 71 FOR THE YEAR ENDED DECEMBER 31, 2018CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Current assets Cash and cash equivalents Restricted bank balance Trade and other receivables Prepaid expenses and deposits Prepaid lease payments Inventories Non-current assets Prepaid expenses and deposits Prepaid lease payments Deferred tax assets Equity instruments at fair value through other comprehensive income Available-for-sale investments Property, plant and equipment Mining rights Total assets Current liabilities Accounts and other payables and accrued expenses Contract liabilities Borrowings Tax liabilities Net current assets Total assets less current liabilities Non-current liabilities Borrowings Deferred tax liabilities Deferred income Entrusted loan payable Environmental rehabilitation Total liabilities 72 China Gold International Resources Corp. Ltd. NOTES 14 14 15 16 17 18 16 17 9 19 20 21 22 23 24 25 25 9 27 26 28 2018 US$’000 137,996 16,100 23,303 4,107 446 282,958 2017 US$’000 147,318 18,089 24,848 2,769 466 224,501 464,910 417,991 30,813 14,515 – 20,230 – 1,765,360 920,067 15,431 15,659 2,562 – 21,823 1,809,724 947,254 2,750,985 2,812,453 3,215,895 3,230,444 292,013 4,593 123,921 5,074 227,410 – 161,489 7,702 425,601 396,601 39,309 21,390 2,790,294 2,833,843 1,086,237 122,732 3,478 29,140 59,469 1,113,444 123,959 4,579 30,608 51,269 1,301,056 1,323,859 1,726,657 1,720,460 CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAT DECEMBER 31, 2018CONSOLIDATED STATEMENT OF FINANCIAL POSITION Owners’ equity Share capital Reserves Retained profits Non-controlling interests Total owners’ equity NOTE 29 2018 US$’000 2017 US$’000 1,229,061 15,570 229,802 1,474,433 14,805 1,229,061 37,176 229,099 1,495,336 14,648 1,489,238 1,509,984 Total liabilities and owners’ equity 3,215,895 3,230,444 The consolidated financial statements on pages 70 to 151 were approved and authorized for issue by the Board of Directors on March 26, 2019 and are signed on its behalf by: Xin Song Director Liangyou Jiang Director Annual Report 2018 73 AT DECEMBER 31, 2018CONSOLIDATED STATEMENT OF FINANCIAL POSITION Attributable to the owners of the Company Number of shares Share capital US$’000 Investments Equity revaluation reserve US$’000 reserve US$’000 Exchange reserve US$’000 Retained profits US$’000 Subtotal US$’000 Non- controlling interests US$’000 Total owners’ equity US$’000 Statutory reserves US$’000 (Note) At January 1, 2017 396,413,753 1,229,061 11,179 1,278 (19,429) 12,163 172,205 1,406,457 13,732 1,420,189 Profit for the year Fair value gain on available-for-sale investment Exchange difference arising on translation Total comprehensive income for the year Transfer to statutory reserve – appropriation from retained profits Transfer to statutory reserve – safety production fund Dividend paid to a non-controlling shareholder – – – – – – – – – – – – – – – – – – – – – – 6,943 – – – 18,790 6,943 18,790 – – – – 63,146 – – 63,146 6,943 18,790 1,199 – (7) 64,345 6,943 18,783 63,146 88,879 1,192 90,071 – – – – – – 825 (825) 5,427 – (5,427) – – – – – – – – (276) (276) At December 31, 2017 396,413,753 1,229,061 11,179 8,221 (639) 18,415 229,099 1,495,336 14,648 1,509,984 At January 1, 2018 396,413,753 1,229,061 11,179 8,221 (639) 18,415 229,099 1,495,336 14,648 1,509,984 Impact of adopting IFRS 9 on January 1, 2018 (note 2) – – – (8,551) – – 8,551 – – – At January 1, 2018 (restated) 396,413,753 1,229,061 11,179 (330) (639) 18,415 237,650 1,495,336 14,648 1,509,984 (Loss) profit for the year Fair value loss on equity instruments at fair value through other comprehensive income Exchange difference arising on translation Total comprehensive (expense) income for the year Transfer to statutory reserve – appropriation from retained profits Transfer from – safety production fund Dividend paid to a non-controlling shareholder – – – – – – – – – – – – – – – – – – – – – – (1,461) – – – (14,605) (1,461) (14,605) – – – – (4,837) (4,837) 647 (4,190) – – (1,461) (14,605) – 4 (1,461) (14,601) (4,837) (20,903) 651 (20,252) – – – – – – 3,708 (3,708) (697) – 697 – – – – – – – – (494) (494) At December 31, 2018 396,413,753 1,229,061 11,179 (1,791) (15,244) 21,426 229,802 1,474,433 14,805 1,489,238 74 China Gold International Resources Corp. Ltd. CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED DECEMBER 31, 2018CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Note: Statutory reserves which consist of (1) appropriations from the profit after taxation of the subsidiaries established in the People’s Republic of China (“PRC”) and (2) provision of safety production fund of the subsidiaries engaged in the exploration and development in the mining industry, form 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. 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 RMB5 per ton multiplied by the volume of ore mined less actual payment, each year to a statutory reserve. Annual Report 2018 75 FOR THE YEAR ENDED DECEMBER 31, 2018CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Operating activities (Loss) profit before income tax Items not requiring use of cash and cash equivalents: Amortisation of mining rights Depreciation Interest income Dividend income Finance costs Allowance for credit losses Loss on disposal of property, plant and equipment Release of prepaid lease payment Release of deferred income Reversal of allowance for credit losses Unrealised foreign exchange losses (gains), net Change in operating working capital items: Trade and other receivables Prepaid expenses and deposits Inventories Contract liabilities Accounts and other payables and accrued expenses Cash generated from operations Environmental rehabilitation expense paid Interest paid Income taxes paid 2018 US$’000 2017 US$’000 (970) 75,611 23,835 127,019 (2,588) (431) 44,475 133 44 497 (545) – 5,603 87,617 (5,187) – 21,726 – 206 374 (548) (188) 17,766 (11,773) 2,018 (291) (56,245) 1,797 45,969 202,483 (828) (42,474) (4,237) (18,806) 394 (3,347) – 5,254 156,936 (11) (43,620) (14,754) Net cash from operating activities 154,944 98,551 Investing activities Interest received Dividend received Payment for acquisition of mining rights Payment for acquisition of property, plant and equipment Deposit paid for acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Payment for acquisition of land use right Placement of restricted bank balance Release of restricted bank balance Receipt of government grant Proceeds from repayment of loans to related companies 2,588 431 – (117,258) (16,112) 13 – (162,773) 163,956 256 – 5,620 – (26,694) (228,752) (115) 35 (866) (173,253) 177,429 482 158,000 Net cash used in investing activities (128,899) (88,114) 76 China Gold International Resources Corp. Ltd. CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2018CONSOLIDATED STATEMENT OF CASH FLOWS Financing activities Proceeds from borrowings Repayments of borrowings Proceeds from entrusted loan Repayment of entrusted loan Dividend paid to a non-controlling shareholder 2018 US$’000 2017 US$’000 208,113 (237,527) – – (494) 699,389 (621,534) 29,186 (28,572) (276) Net cash (used in) from financing activities (29,908) 78,193 Net (decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of year Effect of foreign exchange rate changes on cash and cash equivalents (3,863) 147,318 (5,459) 88,630 59,930 (1,242) Cash and cash equivalents, end of year 137,996 147,318 Annual Report 2018 77 FOR THE YEAR ENDED DECEMBER 31, 2018CONSOLIDATED STATEMENT OF CASH FLOWS 1. GENERAL China Gold International Resources Corp. Ltd., (the “Company”) is a publicly listed company incorporated in British Columbia, Canada on May 31, 2000 with limited liability under the legislation of the Province of British Columbia and its shares are listed on the Toronto Stock Exchange (“TSX”) and The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The Company together with its subsidiaries (collectively referred to as the “Group”) is principally engaged in the acquisition, exploration, development and mining of mineral reserves in the PRC. Particulars of the subsidiaries of the Company are set out in note 36. The Group considers that China National Gold Group Co., Ltd. (formerly known as China National Gold Group Corporation) (“CNG”), a state owned company registered in Beijing, PRC which is controlled by State-owned Assets Supervision and Administration Commission of the State Council of the PRC, is able to exercise significant influence over the Company. The head office, principal address and registered and records office of the Company are located at Suite 660, One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X 1M4. The consolidated financial statements are presented in United States Dollars (“US$”) which is also the functional currency of the Company. 2. APPLICATION OF NEW AND AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) New and amendments to IFRSs that are mandatorily effective for the current year The Group has applied the following new and amendments to IFRSs issued by International Accounting Standards Board (“IASB”) for the first time in the current year: IFRS 9 IFRS 15 IFRIC 22 Amendments to IFRS 2 Amendments to IFRS 4 Amendments to IAS 28 Amendments to IAS 40 Financial Instruments Revenue from Contracts with Customers and the related Amendments Foreign Currency Transactions and Advance Consideration Classification and Measurement of Share-based Payment Transactions Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts As part of the Annual Improvements to IFRS Standards 2014 – 2016 Cycle Transfers of Investment Property Except as described below, the application of the new and amendments to IFRSs 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 the disclosures set out in these consolidated financial statements. 78 China Gold International Resources Corp. Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2018 2. APPLICATION OF NEW AND AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (Cont’d) New and amendments to IFRSs that are mandatorily effective for the current year (Cont’d) 2.1 IFRS 15 Revenue from Contracts with Customers The Group has applied IFRS 15 for the first time in the current year. IFRS 15 superseded IAS 18 Revenue and the related interpretations. The Group has applied IFRS 15 retrospectively with the cumulative effect of initially applying this Standard recognised at the date of initial application, January 1, 2018. Any difference at the date of initial application is recognised in the opening retained profits (or other components of equity, as appropriate) and comparative information has not been restated. Furthermore, in accordance with the transition provisions in IFRS 15, the Group has elected to apply the Standard retrospectively only to contracts that are not completed at January 1, 2018. Accordingly, certain comparative information may not be comparable as comparative information was prepared under IAS 18 Revenue and the related interpretations. The Group recognises revenue from the following major sources which arise from contracts with customers: • • Sales of gold dore bars Sales of copper concentrate and other by-products Information about the Group’s performance obligations and the accounting policies resulting from application of IFRS 15 are disclosed in notes 5 and 3 respectively. Summary of effects arising from initial application of IFRS 15 The following adjustments were made to the amounts recognised in the consolidated statement of financial position at January 1, 2018. Line items that were not affected by the changes have not been included. Carrying amounts previously reported at December 31, 2017 US$’000 Reclassification US$’000 Carrying amounts under IFRS 15 at January 1, 2018 US$’000 227,410 – (2,724) 2,724 224,686 2,724 Current liabilities Accounts and other payables and accrued expenses Contract liabilities Note: As at January 1, 2018, advances from customers of US$2,724,000 in respect of sales of copper concentrate and other by- products previously included in accounts and other payables and accrued expenses were reclassified to contract liabilities. Annual Report 2018 79 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. APPLICATION OF NEW AND AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (Cont’d) New and amendments to IFRSs that are mandatorily effective for the current year (Cont’d) 2.1 IFRS 15 Revenue from Contracts with Customers (Cont’d) Summary of effects arising from initial application of IFRS 15 (Cont’d) The following tables summarise the impacts of applying IFRS 15 on the Group’s consolidated statement of financial position as at December 31, 2018 and its consolidated statement of cash flows for the current year for each of the line items affected. Line items that were not affected by the changes have not been included. Impact on the consolidated statement of financial position As reported US$’000 Adjustment US$’000 Amounts without application of IFRS 15 US$’000 292,013 4,593 4,593 (4,593) 296,606 – As reported US$’000 Adjustment US$’000 Amounts without application of IFRS 15 US$’000 45,969 1,797 1,797 (1,797) 47,766 – Current liabilities Accounts and other payables and accrued expenses Contract liabilities Impact on the consolidated statement of cash flows Operating activities Accounts and other payables and accrued expenses Contract liabilities 2.2 IFRS 9 Financial Instruments In the current year, the Group has applied IFRS 9 Financial Instruments and the related consequential amendments to other IFRSs. IFRS 9 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities, 2) expected credit losses (“ECL”) for financial assets and 3) general hedge accounting. The Group has applied IFRS 9 in accordance with the transition provisions set out in IFRS 9, i.e. applied the classification and measurement requirements (including impairment under ECL model) retrospectively to instruments that have not been derecognised as at January 1, 2018 (date of initial application) and has not applied the requirements to instruments that have already been derecognised as at January 1, 2018. 80 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. APPLICATION OF NEW AND AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (Cont’d) New and amendments to IFRSs that are mandatorily effective for the current year (Cont’d) 2.2 IFRS 9 Financial Instruments (Cont’d) Accordingly, certain comparative information may not be comparable as comparative information was prepared under IAS 39 Financial Instruments: Recognition and Measurement. Accounting policies resulting from application of IFRS 9 are disclosed in note 3. Summary of effects arising from initial application of IFRS 9 The table below illustrates the classification and measurement of financial assets and financial liabilities under IFRS 9 and IAS 39 at the date of initial application, January 1, 2018. Note Available- Equity for-sale instruments investments US$’000 at FVTOCI US$’000 Investments revaluation reserve US$’000 Retained profits US$’000 Closing balance at December 31, 2017 – IAS39 21,823 – 8,221 229,099 Effect arising from initial application of IFRS 9: (a) (21,823) 21,823 (8,551) 8,551 Opening balance at January 1, 2018 – IFRS 9 – 21,823 (330) 237,650 (a) Available-for-sale (“AFS”) investments From AFS investments to fair value through other comprehensive income (“FVTOCI”) The Group elected to present in other comprehensive income for the fair value changes of all its equity investments previously classified as available-for-sale. These investments are not held for trading and not expected to be sold in the foreseeable future. At the date of initial application of IFRS 9, US$21,823,000 were reclassified from available-for-sale investments to equity instruments at FVTOCI, of which US$2,143,000 related to unquoted equity investments previously measured at cost less impairment under IAS 39. The fair value gains of US$8,221,000 relating to those investments previously carried at fair value continued to accumulate in investments revaluation reserve. In addition, impairment losses previously recognised of US$8,551,000 were transferred from retained profits to investment revaluation reserve as at January 1, 2018. Annual Report 2018 81 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. APPLICATION OF NEW AND AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (Cont’d) New and amendments to IFRSs that are mandatorily effective for the current year (Cont’d) 2.3 Impacts on opening consolidated statement of financial position arising from the application of all new standards As a result of the changes in the Group’s accounting policies above, the opening consolidated statement of financial position had to be restated. The following table show the adjustments recognised for each of the line items affected. Line items that were not affected by the changes have not been included. December 31, 2017 (Audited) US$’000 IFRS 15 US$’000 IFRS 9 US$’000 January 1, 2018 (Restated) US$’000 21,823 – – – (21,823) 21,823 – 21,823 227,410 – 37,176 229,099 (2,724) 2,724 – – 224,686 2,724 – – (8,551) 8,551 28,625 237,650 Non-current assets AFS investments Equity instruments at FVTOCI Current liabilities Accounts and other payables and accrued expenses Contract liabilities Owners’ equity Reserves Retained profits 82 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. APPLICATION OF NEW AND AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (Cont’d) New and revised IFRSs in issue but not yet effective The Group has not early applied the following new and revised IFRSs that have been issued but are not yet effective: IFRS 16 IFRS 17 IFRIC 23 Amendments to IFRS 3 Amendments to IFRS 9 Amendments to IFRS 10 and IAS 28 Amendments to IAS 1 and IAS 8 Amendments to IAS 19 Amendments to IAS 28 Amendments to IFRSs Leases1 Insurance Contracts3 Uncertainty over Income Tax Treatments1 Definition of a Business4 Prepayment Features with Negative Compensation1 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture2 Definition of Material5 Plan Amendment, Curtailment or Settlement1 Long-term Interests in Associates and Joint Ventures1 Annual Improvements to IFRS Standards 2015 – 2017 Cycle1 1 2 3 4 Effective for annual periods beginning on or after January 1, 2019 Effective for annual periods beginning on or after a date to be determined Effective for annual periods beginning on or after January 1, 2021 Effective for business combinations and asset acquisitions for which the acquisition date is on or after the beginning of the first annual period beginning on or after January 1, 2020 5 Effective for annual periods beginning on or after January 1, 2020 Except for the new IFRS mentioned below, the directors of the Company anticipate that the application of all other new and amendments to IFRSs will have no material impact on the consolidated financial statements in the foreseeable future. IFRS 16 Leases IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede IAS 17 Leases and the related interpretations when it becomes effective. IFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. In addition, IFRS 16 requires sales and leaseback transactions to be determined based on the requirements of IFRS 15 as to whether the transfer of the relevant asset should be accounted as a sale. IFRS 16 also includes requirements relating to subleases and lease modifications. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except for short-term leases and leases of low value assets. Annual Report 2018 83 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. APPLICATION OF NEW AND AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (Cont’d) New and revised IFRSs in issue but not yet effective (Cont’d) IFRS 16 Leases (Cont’d) The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, the operating lease payments are presented as operating cash flows. Upon application of IFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing and operating cash flows respectively by the Group. Under IAS 17, the Group has already recognised prepaid lease payments for leasehold lands where the Group is a lessee. The application of IFRS 16 may result in potential changes in classification of these assets depending on whether the Group presents right-of-use assets separately or within the same line item at which the corresponding underlying assets would be presented if they were owned. Other than certain requirements which are also applicable to lessor, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease. Furthermore, extensive disclosures are required by IFRS 16. As at December 31, 2018, the Group has non-cancellable operating lease commitments of approximately US$364,000 as disclosed in note 33. A preliminary assessment indicates that these arrangements will meet the definition of a lease. Upon application of IFRS 16, the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases. In addition, the Group currently considers refundable rental deposits paid of US$53,000 as rights and obligations under leases to which IAS 17 applies. Based on the definition of lease payments under IFRS 16, such deposits are not payments relating to the right to use the underlying assets, accordingly, the carrying amounts of such deposits may be adjusted to amortised cost. Adjustments to refundable rental deposits paid would be considered as additional lease payments and included in the carrying amount of right-of- use assets. The application of new requirements may result in changes in measurement, presentation and disclosure as indicated above. The Group intends to elect the practical expedient to apply IFRS 16 to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease and not apply this standard to contracts that were not previously identified as containing a lease applying IAS 17 and IFRIC 4. Therefore, the Group will not reassess whether the contracts are, or contain a lease which already existed prior to the date of initial application. Furthermore, the Group intends to elect the modified retrospective approach for the application of IFRS 16 as lessee and will recognise the cumulative effect of initial application to opening retained profits without restating comparative information. 84 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with IFRSs issued by the IASB. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (“Listing Rules”) and by the Hong Kong Companies Ordinance (“CO”). The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. 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 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets. 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. The principal accounting policies are set out below. 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. Annual Report 2018 85 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Basis of consolidation (Cont’d) 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. Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Non-controlling interests in subsidiaries are presented separately from the Group’s equity therein, which represent present ownership interests entitling their holders to a proportionate share of net assets of the relevant subsidiaries upon liquidation. Revenue from contracts with customers (upon application of IFRS 15 in accordance with transitions in note 2) Under IFRS 15, the Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to the customer. A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same. Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met: • • • the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; the Group’s performance creates or enhances an asset that the customer controls as the Group performs; or the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service. A contract asset represents the Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with IFRS 9. In contrast, a receivable represents the Group’s unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due. 86 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Revenue from contracts with customers (upon application of IFRS 15 in accordance with transitions in note 2) (Cont’d) A contract liability represents the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. A contract asset and a contract liability relating to the same contract are accounted for and presented on a net basis. Revenue is recognised at a point in time when control of the gold doré bars, copper concentrate and other by- products is passed to customers, i.e. when the products are delivered and titles have passed to customers. Revenue recognition (prior to January 1, 2018) Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Revenue is recognised when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group’s activities, as described below. Revenue from the sale of goods is recognised when the goods are delivered and titles have passed. 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 currencies other than the functional currency of that entity (foreign currencies) are recognised at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items 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. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise. 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$) using exchange rates prevailing at the end of each reporting period. Income and expenses items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of exchange reserve. 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, which includes completion of all necessary activities to bring the assets to readiness of fulfilling relevant regulatory requirements and obtaining relevant regulatory consent. Annual Report 2018 87 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Borrowing costs (Cont’d) Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before income tax because of income or expense that are taxable or deductible in other years and 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 recognised 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 recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred assets and liabilities are not recognised if the temporary differences arise 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 recognised for taxable temporary differences associated with investments in subsidiaries, 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 recognised 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. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realized, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. 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 offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and 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. 88 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Taxation (Cont’d) Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. Government grants Government grants are not recognised 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 recognised in profit or loss on a systematic basis over the periods in which the Group recognises 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 recognised as deferred income in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis 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 recognised in profit or loss in the period in which they become receivable. Retirement benefit costs Payments to state-managed retirement benefit scheme are recognised as an expense when employees have rendered service entitling them to the contributions. Short-term employee benefits Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another IFRS requires or permits the inclusion of the benefit in the cost of an asset. A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid. Share-based payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Annual Report 2018 89 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Share-based payments (Cont’d) The fair value of the equity-settled share-based payments determined at the grant date without taking into consideration all non-market vesting conditions is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity (equity reserve). When share options are exercised, the amount previously recognised in equity reserve will be transferred to share capital and share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share options reserve will continue to be held in equity reserve. Inventories Inventories are stated at the lower of cost and net realizable value. Costs of inventories are determined on weighted average cost 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 Gold in process inventory consists of gold contained in the ore on leach pads and in-circuit material within processing operations. Gold doré bar is gold awaiting refinement and gold refined and ready for sales. Production costs are capitalised 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. Gold doré 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). Others Copper inventory is copper concentrate and other by-products 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. 90 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Property, plant and equipment General Property, plant and equipment (other than construction in progress as described below) are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation, depletion and impairment losses, if any. An item of property, plant and equipment is derecognised 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 recognised 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 capitalised and the carrying amount of the component being replaced is derecognised. Directly attributable costs incurred for major capital projects and site preparation are capitalised 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 recognised as a provision. The Management of the Group (the “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 capitalised, at their cost at the date of acquisition. Construction in progress Assets under construction are capitalised as construction in progress until the asset is available for use. The cost of construction in progress comprises its purchase price of crushers, and machinery and equipment, any costs directly attributable to the construction for bringing it into working condition for its intended use and for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Construction in progress amounts related to development projects are included in the carrying amount of the construction in progress. The Company uses the following factors to assess whether the criteria of construction completion and ready for intended use have been met such that the construction in progress are classified to the appropriate categories of the property, plant and equipment: (1) the completion of the constructions as planned; and (2) the completion of testing of mine plant and equipment which demonstrates their ability to sustain ongoing production of minerals, and ability to produce minerals in saleable form (within specifications). Annual Report 2018 91 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES 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 capitalised and included in the carrying amount of the mineral assets. Management evaluates the following criteria in its assessment 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 capitalising 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. 92 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Property, plant and equipment (Cont’d) Development expenditure Drilling and related costs incurred to define and delineate a mineral deposit are capitalised 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. Production expenditure A mine that is under construction is determined to enter the production stage when the project is in the position and condition necessary for it to be capable of operating in the manner intended by management. Therefore, such costs incurred are capitalised as part of the mineral assets and the proceeds from sales prior to commercial production are offset against costs capitalised. Mine development costs incurred to maintain current production are included in cost of inventories. For those areas being developed which will be mined in future periods, the costs incurred are capitalised and depleted when the related mining area is mined. Depreciation Mineral assets are depreciated using the unit-of-production method based on the actual production volume over the estimated total recoverable ounces contained in proven and probable reserves at the related mine when the mine is capable of operating as intended by the Management. 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 amortised using the unit-of-production method based on the actual production volume over the estimated total recoverable ounces contained in proven and probable reserves at the related mine. Annual Report 2018 93 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Mining rights (Cont’d) Mining rights acquired in a business combination Mining rights acquired in a business combination are recognised separately from goodwill and are initially recognised 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 amortisation and any accumulated impairment losses. Amortisation 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. 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 relevant asset is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount of an asset is estimated individually, when it is not possible to estimate the recoverable amount individually, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When 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 of disposal 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 (or a cash-generating unit) 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. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) 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 recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. 94 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Research and development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development activities (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • • • • • the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally- generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Financial instruments Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place. Financial assets and financial liabilities are initially measured at fair value except for trade receivables arising from contracts with customers which are initially measured in accordance with IFRS 15 since January 1, 2018. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of financial assets or financial liabilities, as appropriate, on initial recognition. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Annual Report 2018 95 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments (Cont’d) Financial assets Classification and subsequent measurement of financial assets (upon application of IFRS 9 in accordance with transitions in note 2) Financial assets that meet the following conditions are subsequently measured at amortised cost: • • the financial asset is held within a business model whose objective is to collect contractual cash flows; and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets that meet the following conditions are subsequently measured at FVTOCI: • • the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling; and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All other financial assets are subsequently measured at FVTPL, except that at the date of initial application/ initial recognition of a financial asset the Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which IFRS 3 Business Combinations applies. In addition, the Group may irrevocably designate a financial asset that are required to be measured at the amortised cost or FVTOCI as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. All recognised financial assets of the Group that are within the scope of IFRS 9 are subsequently measured at amortised cost or FVTOCI. (i) Amortised cost and interest income Interest income is recognised using the effective interest method for financial assets measured subsequently at amortised cost. For financial instruments, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired (see below). For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit- impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit impaired. 96 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments (Cont’d) Financial assets (Cont’d) Classification and subsequent measurement of financial assets (upon application of IFRS 9 in accordance with transitions in note 2) (Cont’d) (ii) Equity instruments designated as at FVTOCI Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments revaluation reserve; and are not subject to impairment assessment. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, and will be transferred to retained profits. Dividends from these investments in equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment. Impairment of financial assets (upon application IFRS 9 with transitions in accordance with note 2) The Group recognises a loss allowance for ECL on financial assets which are subject to impairment under IFRS 9 (including trade receivables, other receivables, amounts due from related companies and bank balances). The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition. Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL (“12m ECL”) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessment are done based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions. The Group always recognises lifetime ECL for trade receivables, which are assessed individually. For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition. (i) Significant increase in credit risk In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. Annual Report 2018 97 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments (Cont’d) Financial assets (Cont’d) Impairment of financial assets (upon application IFRS 9 with transitions in accordance with note 2) (Cont’d) (i) Significant increase in credit risk (Cont’d) In particular, the following information is taken into account when assessing whether credit risk has increased significantly: • an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating; • significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor; • existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations; • • an actual or expected significant deterioration in the operating results of the debtor; an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations. Irrespective of the outcome of the above assessment, the Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise. The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due. (ii) Definition of default For internal credit risk management, the Group considers an event of default occurs when information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collaterals held by the Group). Irrespective of the above, the Group considers that default has occurred when a financial asset is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. 98 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments (Cont’d) Financial assets (Cont’d) Impairment of financial assets (upon application IFRS 9 with transitions in accordance with note 2) (Cont’d) (iii) Credit-impaired financial assets A financial asset is credit-impaired when one or more events of default that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit- impaired includes observable data about the following events: (a) significant financial difficulty of the issuer or the borrower; (b) a breach of contract, such as a default or past due event; (c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; or (d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganization. (iv) Write-off policy The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example, when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss. (v) Measurement and recognition of ECL The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the respective risks of default occurring as the weights. Generally, the ECL is the difference between all contractual cash flows that are due to the Group in accordance with the contract and the cash flows that the Group expects to receive, discounted at the effective interest rate determined at initial recognition. Annual Report 2018 99 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments (Cont’d) Financial assets (Cont’d) Impairment of financial assets (upon application IFRS 9 with transitions in accordance with note 2) (Cont’d) (v) Measurement and recognition of ECL (Cont’d) Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit impaired, in which case interest income is calculated based on amortised cost of the financial asset. The Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of trade receivables where the corresponding adjustment is recognised through a loss allowance account. Classification and subsequent measurement of financial assets (before application of IFRS 9 on January 1, 2018) Financial assets are classified as available-for-sale 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. 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 “cash and cash equivalents”, “restricted bank balance”, “trade and other receivables” and “amount due from a non-controlling shareholder of a subsidiary (included in prepaid expenses)”. Loans and receivables are initially recognised at fair value plus transaction costs and subsequently carried at amortised cost using the effective interest method, less any impairment except for short-term receivables when the recognition of interest would be immaterial. 100 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments (Cont’d) Financial assets (Cont’d) AFS 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 except for unquoted equity investments whose fair value cannot be reliably measured. Dividends on AFS equity investments are recognised in profit or loss when the Group’s right to receive the dividends is established. 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). 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). Impairment of financial assets (before application of IFRS 9 on January 1, 2018) Financial assets are assessed for indicators of impairment at the end of the each reporting period. Financial assets are considered to be 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 financial assets 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: • • • significant financial difficulty of the issuer or counterparty; or breach of contract, such as a default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial reorganization. Annual Report 2018 101 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments (Cont’d) Financial assets (Cont’d) Impairment of financial assets (before application of IFRS 9 on January 1, 2018) (Cont’d) For certain categorises of financial assets, such as trade receivables (included in trade and other receivables), are assessed for impairment on an individual basis. Objective evidence of impairment for the receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments past the average credit period of 90 and 180 days, observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment loss recognised 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. For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods (see the accounting policy below). The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. 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 amortised 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 recognised, the previously recognised 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 amortised cost would have been had the impairment not been recognised. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period in which the impairment takes place. In respect of AFS equity investments, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. 102 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments (Cont’d) Financial assets (Cont’d) Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. On derecognition of an investment in equity instrument which the Group has elected on initial recognition to measure at FVTOCI upon application of IFRS 9, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained profits. On derecognition of an AFS financial asset, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. Financial liabilities and equity instruments Classification as debt or equity Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments 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 Company are recognised at the proceeds received, net of direct issue costs. Financial liabilities at amortised cost Financial liabilities including borrowings, entrusted loan payable, bills payable and accounts and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost using the effective interest method. Annual Report 2018 103 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments (Cont’d) Financial liabilities and equity instruments (Cont’d) Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised 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 capitalised 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 recognised 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 recognised in profit or loss. 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 recognised 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 leases 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 leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Leasehold land and building When the Group makes payments for a property interest which includes both leasehold land and building elements, the Group assesses the classification of each element 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 property is accounted as an operating lease. Specifically, the entire consideration (including any lump-sum upfront payments) are allocated between the leasehold land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element at initial recognition. To the extent the allocation of the relevant 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 amortised over the lease term on a straight-line basis. 104 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in note 3, the Group are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. (a) Impairment of mining rights and property, plant and equipment While assessing whether any indications of impairment exist for mining rights and property, plant and equipment, consideration is given to both external and internal sources of information. Information the Management considered includes changes in the market, economic and legal environment in which the Group operates that are not within its control and affect the recoverable amounts of the mining rights and property, plant and equipment. The carrying amounts of mining rights and property, plant and equipment are reviewed for impairment in accordance with IAS 36 Impairment of Assets whenever certain events or changes in circumstances indicate that the carrying amount may not be recoverable. As at December 31, 2018, the market capitalisation of the Company was below the carrying value of its net assets of approximately US$1,489 million (2017: US$1,510 million). This may indicate the need for a write-down of the carrying amounts of the Group’s mining rights and property, plant and equipment. The Group’s two cash-generating units (“CGUs”) for impairment assessment of mining rights and related property, plant and equipment are two significant mine sites which are producing gold and copper. When an impairment review is undertaken, recoverable amount is assessed by reference to the higher of 1) value in use (“VIU”) and 2) fair value less costs to disposal (“FVLCD”). The best evidence of FVLCD is the value obtained from an active market or binding sale agreement. Where neither exists, FVLCD is based on the best information available to reflect the amount the Group could receive for the CGU in an arm’s length transaction. This is often estimated using discounted cash flow techniques. In determining the recoverable amounts of the Group’s mining rights and property, plant and equipment, the Group estimates the recoverable amount based on VIU and makes estimates of the discounted future pre-tax cash flows expected to be derived from the Group’s CGUs and the appropriate discount rate. The key assumptions used in estimating the projected cash flows are metal selling price, recoverable reserves, resources, exploration potential, production cost estimates, future operating costs and discount rates. Reductions in metal price forecasts, increases in estimated future costs of production, increases in estimated future operating costs, reductions in the amount of recoverable reserves, resources, and exploration potential, and/or change in economic conditions can result in a write-down of the carrying amounts of the Group’s mining rights and property, plant and equipment. Annual Report 2018 105 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. KEY SOURCES OF ESTIMATION UNCERTAINTY (Cont’d) (a) Impairment of mining rights and property, plant and equipment (Cont’d) The Group uses its internal experts to perform the valuation for the purpose of impairment assessment with the assistance from third party qualified valuers. The Management works closely with internal experts and qualified external valuers to establish the appropriate valuation techniques and inputs to the model to estimate the VIU for the mining rights and property, plant and equipment. The carrying amounts of property, plant and equipment and mining rights as at December 31, 2018 and 2017 are disclosed in notes 21 and 22, respectively. During the years ended December 31, 2018 and 2017, no impairment loss was recognised for the property, plant and equipment in the Group’s gold producing mine and the mining rights and property, plant and equipment in the Group’s copper producing mine as the recoverable amounts were higher than their respective carrying amounts. (b) 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 processing 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. During the year, there is no change in the relevant estimation. Although the quantities of recoverable gold placed on the leach pad and the processing plant 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. Management periodically reassesses the assumptions used in the valuation of gold in process and the costing of production of gold doré 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 doré bars. During the year, there is no change in the relevant estimation. The carrying amount of gold in process and gold doré bars as at December 31, 2018 and 2017 are disclosed in note 18. 106 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. REVENUE AND SEGMENT INFORMATION A. For the year ended December 31, 2018 (i) Disaggregation of revenue from contracts with customers The following is an analysis of the Group’s revenue from its major products and services: At a point in time Gold bullion Copper concentrate Other by-products Total revenue 2018 US$’000 186,796 277,988 105,786 570,570 (ii) Performance obligations for contracts with customers The Group sells gold bullion, copper concentrate and other by-products directly to customers. For sales of gold bullion, copper concentrate and other by-products directly to customers, revenue is recognised at a point in time when control of the gold doré bars, copper concentrate and other by-products is passed to customers, i.e. when the products are delivered and titles have passed to customers. A contract liability represents the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. B. For the year ended December 31, 2017 An analysis of the Group’s revenue for the year is as follows: Sales of goods 2017 US$’000 411,881 Annual Report 2018 107 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. REVENUE AND SEGMENT INFORMATION (Cont’d) IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the chief operating decision-maker (“CODM”) to allocate resources to the segments and to assess their performance. The CODM, which is responsible for allocating resources and assessing performance of the operating segments, has been defined as the executive directors of the Company. The CODM has identified two operating and reportable segments as follows: (i) The mine-produced gold segment – the production of gold bullion through the Group’s integrated processes, i.e., mining, metallurgical processing, production and selling of gold doré bars to external clients. (ii) The mine-produced copper segment – the production of copper concentrate and other by-products through the Group’s integrated processes, i.e., mining, metallurgical processing, production and selling copper concentrate and other by-products to external clients. Information regarding the above segments is reported below. (a) Segment revenue and results The following is an analysis of the Group’s revenues and results by operating and reportable segment: For the year ended December 31, 2018 Mine – produced gold US$’000 Mine – produced copper US$’000 Segment total US$’000 Unallocated US$’000 Consolidated US$’000 Revenue – external and segment revenue Cost of sales 186,796 (169,085) 383,774 (290,776) 570,570 (459,861) Mining operating earnings 17,711 92,998 110,709 – – – Income (expenses) from operations Foreign exchange gain (loss), net Interest and other income Finance costs 17,252 5,151 776 (5,689) 34,854 (20,895) 15,265 (21,233) 52,106 (15,744) 16,041 (26,922) (9,075) (74) 251 (17,553) 570,570 (459,861) 110,709 43,031 (15,818) 16,292 (44,475) Profit (loss) before income tax 17,490 7,991 25,481 (26,451) (970) 108 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. REVENUE AND SEGMENT INFORMATION (Cont’d) (a) Segment revenue and results (Cont’d) For the year ended December 31, 2017 Mine – Mine – produced produced Segment gold US$’000 copper US$’000 total Unallocated Consolidated US$’000 US$’000 US$’000 411,881 (295,095) 116,786 78,633 8,192 10,512 Revenue – external and segment revenue 233,641 178,240 411,881 Cost of sales (195,005) (100,090) (295,095) Mining operating earnings 38,636 78,150 116,786 – – – Income (expenses) from operations Foreign exchange gain (loss), net Interest and other income Finance costs 38,331 (7,474) 920 (5,458) 50,536 15,161 4,375 88,867 7,687 5,295 (10,234) 505 5,217 (5,219) (10,677) (11,049) (21,726) Profit (loss) before income tax 26,319 64,853 91,172 (15,561) 75,611 The accounting policies of the operating segments are the same as the Group’s accounting policies described in note 3. Segment results represent profit (loss) before income tax attributable to the respective segment. This is the measure reported to the CODM for the purposes of resource allocation and performance assessment. There are no inter-segment sales for the years ended December 31, 2018 and 2017. Annual Report 2018 109 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. REVENUE AND SEGMENT INFORMATION (Cont’d) (b) Segment assets and liabilities The following is an analysis of the Group’s assets and liabilities by segment representing assets/liabilities directly attributable to the respective segment: As of December 31, 2018 Total assets Total liabilities As of December 31, 2017 Total assets Total liabilities Mine – produced gold US$’000 Mine – produced copper US$’000 Segment total US$’000 Unallocated US$’000 Consolidated US$’000 745,729 203,453 2,435,072 1,013,025 3,180,801 1,216,478 35,094 510,179 3,215,895 1,726,657 733,032 208,545 2,446,753 1,003,410 3,179,785 1,211,955 50,659 508,505 3,230,444 1,720,460 For the purposes of monitoring segment performance and allocating resources between segments: • all assets are allocated to operating segments other than cash and cash equivalents, other receivables, prepaid expenses and deposits, and equity instrument at FVTOCI; and • all liabilities are allocated to operating segments other than other payables and accrued expenses and certain borrowings. (c) Other segment information (included in the measure of segment profit or loss or segment assets regularly provided to the CODM) Mine – produced gold US$’000 Mine – produced copper US$’000 Segment total US$’000 Unallocated US$’000 Consolidated US$’000 For the year ended December 31, 2018 Additions of property, plant and equipment Depreciation of property, plant and equipment Amortisation of mining rights For the year ended December 31, 2017 Additions of property, plant and equipment Depreciation of property, plant and equipment Additions of mining rights Amortisation of mining rights 57,924 137,674 195,598 (63,831) – (63,188) (23,835) (127,019) (23,835) 89,088 206,928 296,016 (70,766) – – (16,851) 26,694 (5,603) (87,617) 26,694 (5,603) – – – – – – – 195,598 (127,019) (23,835) 296,016 (87,617) 26,694 (5,603) 110 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. REVENUE AND SEGMENT INFORMATION (Cont’d) (d) Geographical information The Group operated in two geographical areas, Canada and the PRC. The Group’s corporate division located in Canada only earns revenue that is considered incidental to the activities of the Group and therefore is not presented as an operating segment. During the years ended December 31, 2018 and 2017, the Group’s revenue was generated from gold sales and copper multi-products to customers in the PRC. Approximately 99% (2017: 99%) of non-current assets of the Group are located in the PRC. (e) Information about major customers Revenue from major customers which accounts for 10% or more of the Group’s total revenue are sales of gold doré bars and copper and other products to CNG and its subsidiaries as disclosed in note 30 (a)(i). In addition, revenue from third-party customers of the corresponding years contributing over 10% of the total sales of the Group are as follows: Customer A2 Customer B2 Customer C2 Year ended Year ended December 31, December 31, 2018 US$’000 N/A1 119,362 121,195 2017 US$’000 74,499 – – 1 2 The corresponding revenue did not contribute over 10% of the total revenue of the Group. Revenue from mine-produced copper segment 6. GENERAL AND ADMINISTRATIVE EXPENSES Administration and office Depreciation of property, plant and equipment Professional fees Salaries and benefits Others Year ended Year ended December 31, December 31, 2018 US$’000 22,372 3,786 3,924 16,855 4,487 2017 US$’000 11,479 2,850 2,198 9,463 3,113 Total general and administrative expenses 51,424 29,103 Annual Report 2018 111 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. EXPLORATION AND EVALUATION EXPENDITURE CSH Gold Mine (note 21(a)) Generative exploration Total explorative and evaluation expenditure 8. FINANCE COSTS Interests on borrowings: Accretion on environmental rehabilitation (note 28) Less: Amounts capitalised to property, plant and equipment Year ended Year ended December 31, December 31, 2018 US$’000 2017 US$’000 459 – 459 304 1 305 Year ended Year ended December 31, December 31, 2018 US$’000 42,474 2,984 45,458 (983) 2017 US$’000 43,620 2,757 46,377 (24,651) Total finance costs 44,475 21,726 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 Year ended Year ended December 31, December 31, 2018 % 2.80 2017 % 4.23 112 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAX EXPENSE The Company was incorporated in Canada and is subject to Canadian federal and provincial tax requirements which are calculated at 27% (2017: 26%) of the estimated assessable profit for the year ended December 31, 2018. 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% (2017: 25%) on the estimated taxable profit of the group entities located in the PRC for the year ended December 31, 2018 except as described below. Pursuant to the Enterprise Income Tax Law (the “EIT” Law) effective on January 1, 2008, Inner Mongolia Pacific Mining Co. Ltd. (“IMP”) is a certified “High and New Technology Enterprise” which is entitled to a preferential tax rate of 15% (2017: 15%) for three years from the year ended December 31, 2017 and eligible for renewal every three years. Such certificate will expire in 2020. Tibet Huatailong Mining Development Co. Ltd. (“Huatailong”), Metrorkongka County Jiama Industry and Trade Co. (“Jiama Industry and Trade”) and Tibet Jia Ertong Minerals Exploration Ltd. (“Jia Ertong”) established in the westward development area of the PRC were was subject to preferential tax rate of 15% (2017: 15%) of taxable profit, except as described below. Pursuant to the Tibet Administration (2018) Notice on Investment Promotion (“No. 25”), effective on June 15, 2018, Huatailong is certified as a “High and New Technology Enterprise”, and entitled to a preferential tax rate of 9% for three years, set to expire in 2021. In addition, pursuant to the Tibet Autonomous Region Enterprise Income Tax Policy (2014) (“No. 51”, “Measures”), Huatailong was entitled to a preferential tax rate of 9% during the year ended December 31, 2017 and expired in 2018. Pursuant to No. 25, Jiama Industry and Trade, employs 70% or above of its employees who are Tibet Permanent Residents and thus is entitled to a reduced preferential tax rate of 9% for the year ended December 31, 2018. In addition, pursuant to No. 51, Jiama Industry and Trade was entitled to a preferential tax rate of 9% during the year ended December 31, 2017 and expired in 2018. Pursuant to No. 51, Jia Ertong was entitled to a preferential tax rate of 9% during the year ended December 31, 2017 and expired in 2018. 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$420,484,000 and US$366,841,000 at December 31, 2018 and 2017, respectively, as the Group is able to control the timing of the reversal of temporary differences and it is probable the temporary differences will not reverse in the foreseeable future. Taxation for other relevant jurisdictions is calculated at the rates prevailing in each of those jurisdictions respectively. Annual Report 2018 113 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAX EXPENSE (Cont’d) Tax expense comprises: Current tax expense – PRC EIT Overprovision in prior year – PRC EIT Deferred tax expense (credit) Year ended Year ended December 31, December 31, 2018 US$’000 4,151 (2,266) 1,335 2017 US$’000 16,395 (2,100) (3,029) Total income tax expense 3,220 11,266 Per the consolidated statement of profit or loss and other comprehensive income, the income tax expense for the Group can be reconciled to the (loss) profit before income tax for the year as follows: Year ended Year ended December 31, December 31, 2018 US$’000 2017 US$’000 (Loss) profit before income tax (970) 75,611 PRC EIT tax rates Tax at the PRC EIT tax rates Tax effect of different tax rates of subsidiaries operating in other jurisdictions Tax effect of concessionary tax rate Tax effect of tax losses and other deductible temporary differences not recognised Tax effect of non-deductible expenses Tax effect of non-taxable income Impacts on opening deferred tax asset/liability resulting from decrease in applicable tax rate Impacts on foreign exchange Withholding tax in respect of interest income earned from PRC subsidiaries Overprovision of PRC EIT in prior year 25% 25% (243) 18,903 (60) (5,119) 5,146 2,719 (371) – 1,933 1,481 (2,266) (64) (11,368) 4,081 2,889 (808) 152 (2,076) 1,657 (2,100) 3,220 11,266 114 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAX EXPENSE (Cont’d) The following are the major deferred tax (assets) liabilities recognised and movements thereon during the current and prior years: Property, Plant and Environmental equipment US$’000 rehabilitation US$’000 Mining Rights (1) US$’000 Inventories US$’000 Others US$’000 At January 1, 2017 Charge (credit) to profit or loss Effect of change in tax rate At December 31, 2017 Charge (credit) to profit or loss (4,391) (2,477) 42 (6,826) 2,596 (10,174) 132,495 21 2,925 (7,228) (540) (751) – 131,744 (3,344) 7,186 (542) (2,874) 3,770 3,274 (690) 568 59 (63) (651) Total US$’000 124,426 (3,181) 152 121,397 1,335 At December 31, 2018 (4,230) (7,768) 128,400 7,044 (714) 122,732 (1) Amount represents deferred tax liability arising from the fair value adjustment on mining rights during the business acquisition of Skyland Mining Limited and its subsidiaries (“Skyland”) in December 2010. For the purpose of presentation in the consolidated statement of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes: Deferred tax assets Deferred tax liabilities 2018 US$’000 – (122,732) 2017 US$’000 2,562 (123,959) (122,732) (121,397) Annual Report 2018 115 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAX EXPENSE (Cont’d) The Group’s unrecognised deferred income tax assets are as follows: Deferred income tax assets Tax loss carry forwards Other deductible temporary differences 2018 US$’000 2017 US$’000 20,623 5,579 17,139 3,917 Total unrecognised deferred income tax assets 26,202 21,056 Deferred tax asset of US$20,623,000 (2017: US$17,139,000) has not been recognised in respect of unused tax losses of US$85 million (2017: US$71 million) due to the unpredictability of future profit streams. Under Canadian tax laws, unused tax loss can be carried forward for 20 years if the loss is arising in tax years ended after December 31, 2005. Included in unrecognised tax losses are losses of US$67 million (2017: US$58 million) that will expire from 2027 to 2038. Other losses may be carried forward indefinitely. Other deductible temporary differences of US$21 million (2017: US$15 million) primarily comprise of share issue costs and cumulative eligible capital expenditures that were incurred by the Company which are tax deductible according to the relevant tax law in Canada. No deferred tax asset has been recognised because the amount of future taxable profit that will be available to realize such assets is unpredictable and not probable. 116 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. LOSS (PROFIT) FOR THE YEAR Loss (profit) for the year has been arrived at after charging (crediting): Auditor’s remuneration Depreciation included in cost of sales and inventories Depreciation included in administrative expenses (note 6) Total depreciation Release of prepaid lease payment (included in cost of sales) Amortisation of mining rights (included in cost of sales) Loss on disposal of property, plant and equipment Staff costs Directors’ and chief executive’s emoluments (note 11) Staff salaries and benefits Retirement benefit contributions Total salaries and benefits included in administrative expenses (note 6) Total salaries and benefits capitalised in construction in progress Staff costs included in cost of sales and inventories Total staff costs Operating lease payment Loan interest income Bank interest income Government subsidies Reversal of allowance for credit losses of other receivables Allowance for credit losses Year ended December 31, 2018 US$’000 Year ended December 31, 2017 US$’000 695 676 123,233 3,786 82,991 4,626 127,019 87,617 497 23,835 44 299 15,427 1,129 16,855 1,556 31,702 374 5,603 206 428 12,355 599 13,382 6,416 16,885 50,113 36,683 3,774 4,125 – (3,635) (2,588) (1,552) (545) – 133 (548) (188) – Annual Report 2018 117 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. DIRECTORS’ AND CHIEF EXECUTIVE’S EMOLUMENTS AND FIVE HIGHEST PAID EMPLOYEES (a) Directors’ and Chief Executive’s emoluments Directors’ and chief executive’s remuneration for the year, disclosed pursuant to the applicable Listing Rules and CO, is as follows: For the year ended December 31, 2018 Executive Directors and Chief Executive (Note a) Liangyou Jiang Bing Liu (Note e) Executive Director (Note b) Xin Song (Note e) Non-executive Directors (Note c) Xiangdong Jiang Yongqing Teng Fuzhen Kang Lianzhong Sun (Note e) Independent Non-executive Directors (Note d) Ian He Yunfei Chen Gregory Hall John King Burns Salaries Retirement and other benefits Fees benefits contributions Total US$’000 US$’000 US$’000 US$’000 – – – 48 – – – 54 46 46 46 44 – – – – 9 – – – – – 240 53 1 – – 2 – 1 – 2 – – – 6 45 – – 50 – 10 – 56 46 46 46 299 118 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. DIRECTORS’ AND CHIEF EXECUTIVE’S EMOLUMENTS AND FIVE HIGHEST PAID EMPLOYEES (Cont’d) (a) Directors’ and Chief Executive’s emoluments (Cont’d) For the year ended December 31, 2017 Salaries Retirement and other benefits Fees benefits contributions Total US$’000 US$’000 US$’000 US$’000 – – – – 36 68 61 61 61 – – 130 – – – – – – – – 7 – 2 2 – – – – – 137 – 38 70 61 61 61 287 130 11 428 Executive Directors and Chief Executive (Note a) Bing Liu (Note e) Executive Directors (Note b) Xin Song (Note e) Liangyou Jiang Non-executive Directors (Note c) Lianzhong Sun (Note e) Xiangdong Jiang Independent Non-executive Directors (Note d) Ian He Yunfei Chen Gregory Hall John King Burns Notes: (a) Mr. Liangyou Jiang was appointed as Chief Executive Officer (“CEO”) effective from November 13, 2018, and is also an executive director of the Company. He is also an employee of CNG and his emolument payments are centralised by CNG as of his CEO appointment. The emoluments disclosed above are inclusive of services rendered by him as executive director. Mr. Bing Liu resigned as executive director and CEO effective from November 13, 2018. (b) The executive directors’ emoluments shown above were mainly for their services in connection with the management of the affairs of the Company and the Group. (c) The non-executive directors’ emoluments shown above were mainly for their services as directors of the Company. Effective from November 13, 2018, Mr. Yongqing Teng and Ms. Fuzhen Kang were appointed as non-executive directors. During 2018, Mr. Lianzhong Sun resigned as non-executive director as of November 13, 2018. (d) The independent non-executive directors’ emoluments shown above were mainly for their services as directors of the Company. (e) Mr. Bing Liu, Mr. Xin Song and Mr. Lianzhong Sun have also been employed by CNG and the payment of their emoluments was centralised and made by CNG for both years, in which the amounts are considered as insignificant. Annual Report 2018 119 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. DIRECTORS’ AND CHIEF EXECUTIVE’S EMOLUMENTS AND FIVE HIGHEST PAID EMPLOYEES (Cont’d) (a) Directors’ and Chief Executive’s emoluments (Cont’d) For the years ended December 31, 2018 and 2017, none of the directors of the Company waived or agreed to waive any emoluments. (b) Five highest paid employees The five highest paid employees included nil (2017: nil) director for the year ended December 31, 2018. The emoluments of the five (2017: five) non-director employees for the year ended December 31, 2018, are as follows: Employees Salaries and other benefits Retirement benefits contributions Year ended Year ended December 31, December 31, 2018 US$’000 2017 US$’000 857 6 863 995 6 1,001 The number of the highest paid employees who are not the directors of the Company whose remuneration fell within the following bands is as follows: HK$1,000,001 to HK$1,500,000 (equivalent to approximately US$129,001 to US$193,000) HK$2,000,001 to HK$2,500,000 (equivalent to approximately US$258,001 to US$323,000) No. of individuals 2018 2017 5 – 4 1 During the years ended December 31, 2018 and 2017, no emoluments were paid by the Group to the directors of the Company or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office. 12. DIVIDEND No dividend was paid or proposed for ordinary shareholders of the Company during the years ended December 31, 2018 and 2017, nor has any dividend been proposed since the end of reporting period. 120 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. (LOSS) EARNINGS PER SHARE (Loss) profit used in determining (loss) earnings per share are presented below: Year ended Year ended December 31, December 31, 2018 2017 (Loss) profit attributable to owners of the Company for the purposes of basic (loss) earnings per share (US$’000) (4,837) 63,146 Weighted average number of shares, basic 396,413,753 396,413,753 Basic (loss) earnings per share (US$) (1.22) cents 15.93 cents The Group had no outstanding potential dilutive instruments issued as at December 31, 2018 and 2017 and during the years ended December 31, 2018 and 2017. Therefore, no diluted (loss) earnings per share is presented. 14. CASH AND CASH EQUIVALENTS/RESTRICTED BANK BALANCE Cash and cash equivalents of the Group are comprised of bank balances and bank deposits with an original maturity of three months or less. The Group’s bank balances, cash equivalents and restricted bank balances denominated in the foreign currencies other than the respective group entities’ functional currencies are presented below: Denominated in: Canadian dollars (“CAD”) Renminbi (“RMB”) US$ Hong Kong dollars (“HK$”) December 31, December 31, 2018 US$’000 2017 US$’000 211 39,197 18 674 1,087 27,180 25 245 40,100 28,537 The bank balances and bank deposits carry interest rates ranging from 0.01% to 2.80% (2017: 0.01% to 2%) per annum for the year ended December 31, 2018. Restricted bank balance carries interest at market rates ranging from 0.30% to 1.55% (2017: 0.3% to 1.11%) per annum for the year ended December 31, 2018. The balance represents deposits pledged to banks to secure bills payable issued to suppliers for mining costs. Annual Report 2018 121 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. TRADE AND OTHER RECEIVABLES The Group’s accounts receivable arise from the following sources: trade receivables and amounts due from related companies. The components are as follows: Trade receivables Less: allowance for credit losses Amounts due from related companies (note 30(a))(1) Other receivables(2) December 31, 2018 US$’000 December 31, 2017 US$’000 570 (46) 524 725 22,054 20,685 (33) 20,652 65 4,131 Total trade and other receivables 23,303 24,848 (1) The outstanding balances represent service fee receivables arising from provision of transportation services to the subsidiaries of CNG during the years ended December 31, 2018 and 2017. The amounts are unsecured, interest free and repayable on demand. (2) Included in the balance as at December 31, 2018 is an amount of approximately US$19,201,000 (2017: US$3,424,000) value- added tax recoverable which is expected to be recovered within twelve months after the end of the reporting period. The Group allows an average credit period of 90 days and 180 days to its trade customers including CNG for gold doŕe bar sales and copper sales, respectively. Below is an aged analysis of trade receivables (net of allowance for credit losses) presented based on invoice dates, which approximated the respective revenue recognition dates, at the end of the reporting period: Less than 30 days 31 to 90 days 91 to 180 days Over 180 days Total trade receivables December 31, 2018 US$’000 December 31, 2017 US$’000 227 119 60 118 524 20,538 33 26 55 20,652 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. As at December 31, 2017, the customers with balances that are neither past due nor impaired have good repayment history and thus no impairment is considered necessary. Included in the Group’s trade receivables balances are debtors with aggregate carrying amount of US$55,000 at December 31, 2017, respectively, which are past due over six months for which the Group has not provided for impairment loss as there has not been a significant change in credit quality and amounts are still considered recoverable based on historical experience. The Group does not hold any collateral over these balances. 122 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. TRADE AND OTHER RECEIVABLES (Cont’d) Movement in the allowance for credit losses: At January 1 Amount written off as uncollectible Exchange realignment At December 31 2017 US$’000 94 (65) 4 33 Details of impairment assessment of trade and other receivables for the year ended December 31, 2018 are set out in note 32(d). 16. PREPAID EXPENSES AND DEPOSITS Deposits for mine supplies and services (Note a) Deposits for spare parts (Note a) 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 of a subsidiary (Note d) Other prepayment and deposits Less: Amounts that will be settled or utilised within one year shown under current assets December 31, December 31, 2018 US$’000 1,952 1,546 13,848 16,317 159 357 741 2017 US$’000 565 1,566 14,545 205 222 375 722 34,920 18,200 (4,107) (2,769) Amounts that will be settled or utilised for more than one year shown under non-current assets 30,813 15,431 Notes: a. The amount represents deposits paid to third party vendors and related companies (note 30) for purchasing of raw materials, consumable, spare parts and mine services. b. The amounts represent deposits paid to the PRC local land administration bureau for undertaking the restoration of land when the lease terms expire. Such amounts are receivable upon the end of the mine life and are expected to be repaid after one year and therefore are shown as non-current assets at both 2018 and 2017 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 due from a non-controlling shareholder is non-interest bearing, unsecured and repayable after one year. Annual Report 2018 123 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17. PREPAID LEASE PAYMENTS At January 1, 2017 Additions Release to profit or loss Exchange realignment At December 31, 2017 and January 1, 2018 Additions Release to profit or loss Exchange realignment At December 31, 2018 Analysed for reporting purpose: Current portion Non-current portion US$’000 14,769 866 (374) 864 16,125 – (497) (667) 14,961 December 31, December 31, 2018 US$’000 2017 US$’000 446 14,515 466 15,659 Total prepaid lease payments 14,961 16,125 Prepaid lease payments represent payments for medium-term leasehold land located in the PRC. The prepaid lease payments are released to profit or loss over the remaining lease terms. 124 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INVENTORIES Gold in process Gold doré bars Consumables Copper Spare parts Total inventories December 31, December 31, 2018 US$’000 203,067 19,021 29,794 17,251 13,825 2017 US$’000 196,611 14,726 3,812 672 8,680 282,958 224,501 Inventories totalling US$438,505,000 (2017: US$290,486,000) for the year ended December 31, 2018 was recognised in cost of sales. 19. EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME Listed investments (Details of the investment as set out in note 20): – Equity securities listed in Hong Kong (Note a) Unlisted investments (Details of the investments as set out in note 20): – Equity securities (Note b) Total Notes: December 31, 2018 US$’000 17,655 2,575 20,230 a. The above listed equity investments represent ordinary shares of an entity listed in Hong Kong. These investments are not held for trading, instead, they are held for long-term strategic purposes. The directors of the Company have elected to designate these investments in equity instruments as at FVTOCI as they believe that recognising short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these investments for long-term purposes and realising their performance potential in the long run. b. The above unlisted equity investments represent the Group’s equity interests in two private entities established in the PRC. The directors of the Company have elected to designate these investments in equity instruments as at FVTOCI as they believe that recognising short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these investments for long-term purposes and realising their performance potential in the long run. Annual Report 2018 125 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20. AVAILABLE-FOR-SALE INVESTMENTS Listed investment, at fair value: – Equity securities listed in Hong Kong(1) Unlisted investment, at cost: – Equity securities(2) (3) Total available-for-sales investments December 31, 2017 US$’000 19,680 2,143 21,823 (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. CNMC engaged in mining, processing and trading of nonferrous metals in Zambia. During the year ended December 31, 2017 a fair value gain of US$6,943,000 was recognised in other comprehensive income and accumulated under the heading of investment revaluation reserve in accordance with the Group’s accounting policies. (2) As of December 31, 2017, the Group has invested RMB10,000,000, approximately US$1,530,000, representing 10% share interest in Inner Mongolia Chengxin Yong’an Chemicals Co., Ltd. (“Yong’an Chemicals”). Yong’an Chemicals is established in the PRC and principally engaged in the development and manufacturing of chemicals. (3) As of December 31, 2017, the Group has invested RMB4,000,000, approximately US$613,000, representing 7.425% share interest in Mozu Gongka Jiulian Industrial Explosives Material Co. Ltd. (“Mozu Explosives”). Mozu Explosives is established in the PRC and principally engaged in the development and manufacturing of explosives. Both Yong’an Chemicals and Mozu Explosives were measured at cost less impairment at December 31, 2017 because the range of reasonable fair value estimates was so significant that the fair values could not be measured reliably. 126 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. PROPERTY, PLANT AND EQUIPMENT Furniture and office equipment US$’000 Machinery and equipment US$’000 Motor vehicles US$’000 Leasehold improvements US$’000 Mineral assets US$’000 Construction in progress (“CIP”) US$’000 Buildings US$’000 Crushers US$’000 COST At January 1, 2017 Additions Disposals Transfer from CIP Environmental rehabilitation adjustment (note 28) Exchange realignment At December 31, 2017 Additions Costs adjustment Disposals Transfer from CIP Environmental rehabilitation adjustment (note 28) Exchange realignment 198,713 1,288 – 565,087 – 26,671 791,759 371 (1,335) (181) 82,833 – (40,856) 213,144 – – 10,295 – – 223,439 3,893 – – – – – 4,403 1,233 (4) – – 223 5,855 1,362 (147) (28) – – (123) 110,377 3,807 – 136,131 – 7,292 257,607 2,185 (3,348) (57) 62,641 – (13,021) 8,502 1,599 (1,985) – – 360 8,476 1,700 (7) (163) – – (342) 198 – – – – – 198 – – – – – – 442,534 170,141 – 135,043 (3,899) 13,567 757,386 115,506 – – 17,992 8,069 (24,618) 846,790 117,948 – (846,556) – 30,969 149,151 25,533 – – (163,466) – 146 Total US$’000 1,824,661 296,016 (1,989) – (3,899) 79,082 2,193,871 150,550 (4,837) (429) – 8,069 (78,814) At December 31, 2018 832,591 227,332 6,919 306,007 9,664 198 874,335 11,364 2,268,410 ACCUMULATED DEPRECIATION At January 1, 2017 Provided for the year Eliminated on disposals Exchange realignment At December 31, 2017 Provided for the year Eliminated on disposals Exchange realignment (43,957) (9,455) – (2,472) (55,884) (36,615) 172 3,994 (61,679) (12,985) – – (74,664) (16,968) – – (2,569) (1,169) 4 (95) (3,829) (496) 20 125 (52,297) (9,483) – (1,557) (63,337) (21,139) 40 2,323 (5,672) (853) 1,744 (206) (4,987) (627) 140 174 (143) (23) – – (166) (20) – – (127,037) (53,649) – (594) (181,280) (51,154) – 1,128 At December 31, 2018 (88,333) (91,632) (4,180) (82,113) (5,300) (186) (231,306) – – – – – – – – – (293,354) (87,617) 1,748 (4,924) (384,147) (127,019) 372 7,744 (503,050) CARRYING VALUE At December 31, 2018 744,258 135,700 2,739 223,894 4,364 At December 31, 2017 735,875 148,775 2,026 194,270 3,489 12 32 643,029 11,364 1,765,360 576,106 149,151 1,809,724 Annual Report 2018 127 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. 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 Crushers Over the shorter of the term of lease, or 24 years 14 years Furniture and office equipment 2 to 5 years Machinery and equipment Motor vehicles 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, stripping 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 capitalised when they are incurred to improve access to the future ores. 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 the Group holds a 96.5% equity 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 the CSH Gold Mine in relation to mineral assets is US$301,684,000 as at December 31, 2018 (December 31, 2017: US$286,824,000). (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% equity interest through its wholly-owned subsidiary, Skyland. The Group acquired Skyland on December 1, 2010. The carrying value of the Jiama Mine in relation to mineral assets is US$341,345,000 as at December 31, 2018 (December 31, 2017: US$289,282,000). 128 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22. MINING RIGHTS COST At January 1, 2017 Additions Exchange realignment At December 31, 2017 and January 1, 2018 Exchange realignment At December 31, 2018 ACCUMULATED AMORTISATION At January 1, 2017 Additions Exchange realignment At December 31, 2017 and January 1, 2018 Additions Exchange realignment At December 31, 2018 CARRYING VALUE At December 31, 2018 At December 31, 2017 US$’000 974,341 26,694 3,526 1,004,561 (3,596) 1,000,965 (51,524) (5,603) (180) (57,307) (23,835) 244 (80,898) 920,067 947,254 The amounts represent mining rights in the Jiama Mine, in relation to the copper concentrate and other by- products production, acquired through the acquisition of Skyland. The mining permit will expire in 2023. The Group considers that it will be able to renew the mining rights with the relevant government authority continuously at insignificant cost until the end of mine life. Amortisation 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. Annual Report 2018 129 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. ACCOUNTS AND OTHER PAYABLES AND ACCRUED EXPENSES Accounts and other payables 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 and other payables and accrued expenses comprise the following: Accounts payable Bills payable Construction costs payable Advances from customers Mining cost accrual Payroll and benefit payable Other accruals Other tax payables Other payables December 31, December 31, 2018 US$’000 44,670 83,263 138,838 – 3,578 4,863 5,018 5,185 6,598 2017 US$’000 26,191 67,338 112,194 2,724 1,940 4,833 4,714 4,523 2,953 Total accounts and other payables and accrued expenses 292,013 227,410 The following is an aging 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 December 31, December 31, 2018 US$’000 16,832 12,232 1,619 13,987 2017 US$’000 15,838 3,703 2,850 3,800 Total accounts payable 44,670 26,191 The credit period for bills payable is 180 days from the bills issue date. 130 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. ACCOUNTS AND OTHER PAYABLE AND ACCRUED EXPENSES (Cont’d) The following is an ageing analysis of bills payables, presented based on bills issue date at the end of the reporting period: Less than 30 days 31 to 60 days 61 to 90 days 91 to 180 days Total bills payable 24. CONTRACT LIABILITIES December 31, December 31, 2018 US$’000 19,512 15,265 14,196 34,290 2017 US$’000 12,243 6,122 12,243 36,730 83,263 67,338 December 31, 2018 US$’000 January 1, 2018* US$’000 Copper concentrate 4,593 2,724 * The amount in this column is after the adjustments from the application of IFRS 15. The following table shows how much of the revenue recognised in the current year relates to carried-forward contract liabilities. Revenue recognised that was included in the contract liability balance at the beginning of the year Copper concentrate US$’000 2,724 Typical payment terms which have an impact on the amount of contract liabilities recognised are as follows: When the Group receives a deposit before the goods delivered, this will give rise to contract liabilities at the start of a contract, until the revenue recognised on the relevant contract exceeds the amount of the deposit. The Group typically receives 100% deposit on acceptance of sales order. Annual Report 2018 131 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. BORROWINGS The borrowings are repayable as follows: Carrying amount repayable on demand and within one year(2), (3) Carrying amount repayable within one to two years(1), (3) Carrying amount repayable within two to five years(3) Carrying amount repayable over five years(3) Less: Amounts due within one year (shown under current liabilities) December 31, December 31, 2018 US$’000 123,921 537,659 263,725 284,853 2017 US$’000 161,489 128,799 636,478 348,167 1,210,158 (123,921) 1,274,933 (161,489) Amounts shown under non-current liabilities 1,086,237 1,113,444 (1) On July 7, 2017, the Company (as “Guarantor”), through its wholly-owned subsidiary, Skyland (BVI), completed the issuance of bonds to independent third parties in an aggregate principal amount of US$500 million, listed on the Stock Exchange. The bonds were issued at a price of 99.663%, bearing coupon rate of 3.25% with a maturity date of July 6, 2020. Interest is payable in equal semi-annual instalments on January 6 and July 6 in each year. (2) As at December 31, 2018, included in the Group’s borrowing balance are loans payable to a CNG subsidiary with an amount of US$50,997,000 (2017: US$53,564,000). Details of balances with related parties are set out in Note 30(a). (3) Skyland entered into a syndicated long term loan facility agreement with a syndicate of banks (“The Lenders”), on November 3, 2015 which is available for Skyland to draw down up to October 30, 2018. As at December 31, 2018, Skyland has drawn down the loan amount of RMB3,495,000,000 (equivalent to approximately US$509,238,000) (2017: RMB3,495,000,000 (equivalent to approximately US$534,878,000)). The loan carries a floating rate, currently set at 2.83% per annum, set by the People’s Bank of China Lhasa Center Branch’s interest rate bench mark, discounted by 7 base points (or 0.07%) as at December 31, 2018 and 2017. Repayment of the loan is scheduled to begin in May 2019 and will reach full maturity and repayment in November 2028. The loan is subject to a financial covenant with which the Company was in compliance as at December 31, 2018 and 2017. 132 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. BORROWINGS (Cont’d) Analysed as: Secured Unsecured December 31, December 31, 2018 US$’000 509,238 700,920 2017 US$’000 534,878 740,055 1,210,158 1,274,933 Fixed rate loans amounting to approximately US$700,920,000 (December 31, 2017: US$740,055,000), carry weighted average effective interest rate of 3.19% (2017: 3.27%) per annum. The carrying values of the pledged assets to secure borrowings by the Group are as follows: Mining rights 26. ENTRUSTED LOAN PAYABLE December 31, December 31, 2018 US$’000 2017 US$’000 920,067 947,254 On January 16, 2017, the Group renewed the entrusted loan by entering into a three-year entrusted loan agreement with CNG (note 30) and China National Gold Group Finance Company Limited (“China Gold Finance”), a subsidiary of CNG, in which CNG provided a loan of RMB200 million (equivalent to approximately US$29,186,000 based on the spot rate at the withdrawal date) to the Group through China Gold Finance as the entrusted bank. The entrusted loan is unsecured and carries interest at a fixed rate of 2.75% per annum. The principal amount is repayable on January 15, 2020. Annual Report 2018 133 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27. DEFERRED INCOME Deferred income – government grants Deferred lease inducement Total deferred income Movement in the deferred income – government grants: At January 1 Addition Charged to other income Exchange realignment At December 31 28. ENVIRONMENTAL REHABILITATION December 31, December 31, 2018 US$’000 2017 US$’000 3,459 19 3,478 4,560 19 4,579 2018 US$’000 2017 US$’000 4,560 256 (545) (812) 4,195 482 (548) 431 3,459 4,560 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$86,910,000 (2017: US$88,772,000), discounted at 4.5% (2017: 7.0%) per annum at December 31, 2018. The following is an analysis of the environmental rehabilitation: 2018 US$’000 51,269 8,897 2,984 (828) (2,853) 2017 US$’000 49,337 (3,899) 2,757 (11) 3,085 59,469 51,269 At January 1 Changes from change in discount rate during the year Accretion incurred in the current year Payment during the year Exchange realignment At December 31 134 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29. SHARE CAPITAL Common shares (i) Authorized – Unlimited common shares without par value (ii) Issued and outstanding Number of shares Amount US$’000 Issued & fully paid: At January 1, 2017, December 31, 2017 and 2018 396,413,753 1,229,061 30. 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, 2018 % 39.3 2017 % 39.3 Annual Report 2018 135 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30. RELATED PARTY TRANSACTIONS (Cont’d) (a) Transactions/balances with government-related entities in the PRC (i) Transactions/balances with CNG and its subsidiaries The Group had the following transactions with CNG and CNG’s subsidiaries: December 31, December 31, 2018 US$’000 2017 US$’000 Gold doré bars sales by the Group (Note a) 186,796 233,641 Copper and other product sales by the Group (Note b) Provision of transportation services by the Group (Note b) 127,453 101,225 1,536 699 Construction, stripping and mining services provided to the Group (Note b) 16,548 21,852 Office lease to the Group (Note b) 4,051 3,924 Interest income Interest expense Entrusted loan (Note 26) and loans provided to the Group (Note c) Cash and cash equivalent held by the Group (Note c) 177 4,124 3,094 3,003 53,756 105,065 14,570 96,337 136 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30. RELATED PARTY TRANSACTIONS (Cont’d) (a) Transactions/balances with government-related entities in the PRC (Cont’d) (i) Transactions/balances with CNG and its subsidiaries (Cont’d) Notes: a. On May 7, 2014, the Company’s subsidiary, IMP entered into an exclusive contract for the sale of doré with CNG pursuant to which IMP sells gold doré bars to CNG for the period up to December 31, 2017. On May 26, 2017, the Company and IMP entered into the Supplemental Contract for Purchase and Sale of Dore for an extended term commencing on January 1, 2018 and expiring on December 31, 2020. The extent of the continuing connected transactions for the years ended December 31, 2018 and 2017 did not exceed the limit as set out in the announcements of the Company on May 26, 2017 and May 7, 2014 respectively. b. On April 26, 2013, the Company entered into a product and service framework agreement with CNG for the provision of mining related services and products to the Company for three years until June 18, 2016. The agreement was amended to extend the term of the agreement to December 31, 2017 and to include copper concentrates sales contract and office lease contract with CNG since May 29, 2015. On May 26, 2017 the Company and CNG entered into the second supplemental product and service framework agreement to extend the term to December 31, 2020 and to extend the scope of the supplemental product and service framework agreement to include leasing services to be provided by Zhongxin International Financial Leasing (Shenzhen) Co. Ltd., the shares of which are 80% owned by CNG. The extent of the continuing connected transactions for the years ended December 31, 2018 and 2017 did not exceed the limit as set out in the announcement of the Company on May 26, 2017 and May 29, 2015 respectively. c. On May 29, 2015, the Company’s subsidiaries, IMP, Huatailong and China Gold Finance, a subsidiary of CNG, entered into a financial services agreement (the “Financial Services Agreement”) pursuant to which China Gold Finance will provide deposit services, loan, settlement, credit facility, financial advisory and other financial services subject to terms and conditions provided therein for a term of three years. The extent of the continuing connected transactions for the year ended December 31, 2017 did not exceed the limit as set out in the announcement of the Company on May 29, 2015. On December 18, 2017, the Company and China Gold Finance entered into a deposit services agreement (“Deposit Services Agreement”) pursuant to which the Company and its subsidiaries may, from time to time, make withdrawals and deposits with China Gold Finance up to a daily maximum deposit balance (including interest) not exceeding RMB100 million (approximately equivalent to US$15 million) and commencing from January 1, 2018 for one year. On the same date, IMP and China Gold Finance entered into a loan agreement (“Loan Agreement”) pursuant to which China Gold Finance agreed to provide an unsecured loan in the aggregate amount of RMB350 million (approximately equivalent to US$51 million) to satisfy the financial needs of the Group within the PRC subject to terms and conditions provided therein for a term of one year, and detail of terms as set out in loans payable to a CNG subsidiary below. On December 18, 2018, the Deposit Services Agreement and Loan Agreement have been extended for a one year term to December 31, 2019 and four month term to April 30, 2019 pursuant to the supplemental deposit services agreement and loan agreement respectively. The extend of the connected transaction for deposit services for the year ended December 31, 2018 did not exceed the limit as set out in the announcement of the Company on December 18, 2017. Annual Report 2018 137 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30. RELATED PARTY TRANSACTIONS (Cont’d) (a) Transactions/balances with government-related entities in the PRC (Cont’d) (i) Transactions/balances with CNG and its subsidiaries (Cont’d) The Group has the following significant balances with CNG and its subsidiaries at the end of each reporting period: Assets Amounts due from related companies (note 15) Cash and cash equivalents held in a CNG subsidiary Trade receivables from CNG subsidiaries (note 15) Deposits December 31, December 31, 2018 US$’000 2017 US$’000 725 14,570 – 53 65 96,337 19,721 81 15,348 116,204 Other than the cash and cash equivalents held in a CNG subsidiary, the remaining amounts due from CNG and its subsidiaries as at December 31, 2018 and 2017, which are included in trade and other receivables is non-interest bearing, unsecured and repayable on demand. Liabilities Loans payable to a CNG subsidiary Entrusted loan payable (note 26) Construction costs payable to CNG subsidiaries Trade payable to CNG subsidiaries Amount due to CNG Customer advances paid by a CNG’s subsidiary Contract liabilities with a CNG’s subsidiary December 31, December 31, 2018 US$’000 2017 US$’000 50,997 29,140 25,500 3,556 86 – 3,263 53,564 30,608 22,852 722 – 35 – 112,542 107,781 The loans payable to a CNG subsidiary, which are included in borrowings, carry fixed interest rates at 4.13% (2017: 4.13%) per annum and are unsecured and repayable within one year. With the exception of the entrusted loan payable to CNG and loans payable to a CNG subsidiary, the amounts due to CNG and its subsidiaries which are included in other payables and construction costs payable, are non-interest bearing, unsecured and have no fixed terms of repayments. 138 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30. RELATED PARTY TRANSACTIONS (Cont’d) (a) Transactions/balances with government-related entities in the PRC (Cont’d) (ii) Transactions/balances with other government – related entities in the PRC Apart from the transactions with CNG and its subsidiaries disclosed above, the Group has also entered into transactions of bank deposits, pledged bank deposits, borrowings and other general banking facilities with other government-related entities in its ordinary course of business. Over 80%, 100%, 54% and 100% (2017: over 24%, 100%, 52% and 100%) of the Group’s bank deposits, pledged bank deposits, borrowings and other general banking facilities are with government-related entities respectively. (b) Compensation of key management personnel Other than the directors’ emoluments disclosed in note 11(a), the Group has the following compensation to other key management personnel during the years: Salaries and other benefits Post-employment benefits 31. CAPITAL RISK MANAGEMENT Year ended Year ended December 31, December 31, 2018 US$’000 2017 US$’000 666 23 689 869 19 888 The Group manages its common shares as capital. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to operate its mines, pursue the development of its mineral properties and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk. The Group’s overall strategy remains unchanged from prior years. The Group manages the capital structure and makes adjustments to it in light of operating results, changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may attempt to issue new shares or options, issue of new debt, redemption of existing debt or acquire or dispose of assets. In order to facilitate the management of its capital requirements, the Group prepares annual expenditure budgets that are updated as necessary depending on various factors, including operating results, successful capital deployment and general industry conditions. The annual and updated budgets are approved by the board of directors of the Company. In order to maximize ongoing development efforts, the Group does not pay out dividends. The Group’s policy is to invest its short-term excess cash in fixed bank deposits with maturities of 90 days or less from the original date of acquisition, selected with regards to the expected timing of expenditures from its operations. Annual Report 2018 139 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. FINANCIAL INSTRUMENTS Financial assets Financial assets at amortised cost Equity instruments at FVTOCI Loans and receivables (including cash and cash equivalents) Available-for-sale investments Financial liabilities At amortised cost December 31, December 31, 2018 US$’000 158,555 20,230 – – 2017 US$’000 – – 187,206 21,823 1,512,667 1,514,217 Financial assets at amortised cost and loan and receivables (including cash and cash equivalents) as at December 31, 2018 and 2017 respectively are as follows: Cash and cash equivalents Restricted bank balance Trade and other receivables (1) Amount due from a non-controlling shareholder of a subsidiary (included December 31, December 31, 2018 US$’000 137,996 16,100 4,102 2017 US$’000 147,318 18,089 21,424 in prepaid expenses) 357 375 158,555 187,206 Financial liabilities at amortised cost as at December 31, 2018 and 2017 are as follows: December 31, December 31, 2018 US$’000 2017 US$’000 273,369 208,676 700,920 509,238 29,140 740,055 534,878 30,608 1,512,667 1,514,217 Accounts and other payables (2) Borrowings – Loans, other than syndicated loan – Syndicated loan Entrusted loan payable 140 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. FINANCIAL INSTRUMENTS (Cont’d) (1) Excluded VAT recoverables. (2) Excluded advances from customers, mining cost accrual, other accruals, payroll and benefit payable and other tax payables. The Group’s financial instruments are exposed to certain financial risks including market risk (e.g. currency risk, interest rate risk and other price risk), credit risk and liquidity risk. (a) Currency risk The Group is exposed to the financial risk related to the fluctuation of foreign exchange rates for the monetary assets and liabilities denominated in the currencies other than the functional currencies to which they related. The Group has not hedged its exposure to currency fluctuations. However, the Management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise. At the end of each reporting period, Huatailong of which its functional currency is RMB, had US$ denominated intra-group borrowings from Skyland (BVI). The intra-group borrowing is approximately US$225,550,000 (2017: US$224,631,000) as at December 31, 2018. The Group is mainly exposed to exchange rate fluctuation of RMB and US$. RMB monetary assets and (liabilities) Cash and cash equivalents Restricted bank balance Trade and other receivables Available-for-sale investments Equity instrument at FVTOCI Accounts and other payables Borrowings December 31, December 31, 2018 US$’000 23,097 16,100 65 – 1,992 (81,921) (80,138) 2017 US$’000 9,091 18,089 78 1,530 – (89,461) (84,173) (120,805) (144,846) Based on the above net exposures, and assuming that all other variables remain constant, a 5% (2017: 5%) depreciation/appreciation of the RMB against the US$ would result in a decrease/increase in the Group’s loss for the year of approximately US$5,134,000 (2017: increase/decrease in the Group’s profit for the year of approximately US$6,158,000) for the year ended December 31, 2018. Annual Report 2018 141 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. FINANCIAL INSTRUMENTS (Cont’d) (a) Currency risk (Cont’d) US$ monetary assets and (liabilities) Cash and cash equivalents Inter-company loans Other payables December 31, December 31, 2018 US$’000 18 (225,550) (133,087) 2017 US$’000 25 (224,631) (16,165) (358,619) (240,771) Based on the above net exposures, and assuming that all other variables remain constant, a 5% (2017: 5%) depreciation/appreciation of the US$ against the RMB would result in a decrease/increase in the Group’s loss for the year of approximately US$16,317,000 (2017: increase/decrease in the Group’s profit for the year of approximately US$10,233,000) for the year ended December 31, 2018. In the 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. (b) Interest rate risk Interest rate risk is the risk that the fair value in relation to bank balance, borrowings, entrusted loan payable and loan to a CNG subsidiary of US$725,694,000 (2017: US$744,418,000) bearing fixed interest rate or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is exposed to cash flow interest rate risk on the variable rate bank balances and variable-rate bank borrowings (see note 25 for details of these borrowings). Sensitivity analysis The following analysis is prepared assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year and all other variables were held constant. A 25 basis point (2017: 25 basis points) increase or decrease is used when reporting interest rate risk internally to key management personnel and represents the Management’s assessment of the reasonably possible change in interest rates. 142 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. FINANCIAL INSTRUMENTS (Cont’d) (b) Interest rate risk (Cont’d) Sensitivity analysis (Cont’d) The analysis below reflects the sensitivity that the interest rate may be higher/lower by 25 basis points (2017: 25 basis points). 25 basis points (2017: 25 basis points) higher – increase in loss (2017: decrease in profit) for the year – addition in finance costs capitalised 25 basis points (2017: 25 basis points) lower – decrease in loss (2017: increase in profit) for the year – reduction in finance costs capitalised Year ended Year ended December 31, December 31, 2018 US$’000 2017 US$’000 (652) 29 652 (29) (175) 756 175 (756) The Group monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise. (c) Other price risk The Group is exposed to equity price risk through its investments in equity securities listed in Hong Kong. The Group’s equity price risk is mainly concentrated on equity instruments operating in mining industry sector quoted in the Stock Exchange. In addition, the Group also invested in certain unquoted equity securities for investees operating in the chemical industry sector for long term strategic purposes which had been designated as FVTOCI (2017: available-for-sale investments measured at cost less impairment). The Group has formed a team led by Chief Financial Officer to monitor the price risk and will consider hedging the risk exposure should the need arise. Sensitivity analysis The sensitivity analyses below have been determined based on the exposure to equity price risk at the reporting date. No sensitivity analysis is presented as the directors of the Company consider the amounts of unquoted investments are insignificant. If the prices of the respective equity instruments had been 10% (2017: 10%) higher/lower: • Investments revaluation reserve would increase/decrease by US$1,766,000 (2017: increase/decrease by US$1,968,000) for the Group as a result of the changes in fair value of listed investment at FVTOCI (2017: available-for-sale investment). Annual Report 2018 143 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. FINANCIAL INSTRUMENTS (Cont’d) (d) Credit risk and impairment assessment 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 sold approximately 100% (2017: 100%) of its gold to one creditworthy customer, CNG, and approximately 33% (2017: 57%) and 63% (2017: 42%) of its copper concentrate and other by-product to a CNG subsidiary and third-party customers with 10% or more of the Group’s revenue respectively for the year ended December 31, 2018 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 for sales of copper concentrate and other by-products and has set up monitoring procedures to ensure that follow-up action is taken for timely settlement of receivables from CNG, the CNG subsidiary and third-party customers. The Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure the adequate impairment losses are made for irrecoverable amounts. In addition, the Group performs impairment assessment under ECL model upon application of IFRS 9 (2017: incurred loss model) on trade balances individually. In this regard, Management considers the Group’s credit risk is significantly reduced. The Group does not hold any collateral over these balances. Since the adoption of IFRS 9 on January 1, 2018, the Group applies the simplified approach to provide for expected credit losses on trade receivables as permitted and prescribed by IFRS 9. The Management assessed the expected loss on trade receivables individually. Based on historical experience of the Group, these trade receivables are generally recoverable due to the long term/on-going relationship and good repayment record. As at December 31, 2018, included in the Group’s trade receivables balance are debtors with aggregate carrying amount of US$118,000 which are past due as at the reporting date. The directors of the Company are of the opinion that there has no default occurred for the past due balances and the balances are still considered fully recoverable due to long-term/on-going relationship and good repayment record from these customers. Movement in the allowance for credit losses of trade receivables: December 31, 2018 US$’000 33 20 (7) 46 At January 1 Allowance for credit losses Exchange realignment At December 31 144 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. FINANCIAL INSTRUMENTS (Cont’d) (d) Credit risk and impairment assessment (Cont’d) The Group was exposed to credit risk on amount due from related parties and other receivables. The Management periodically monitors the financial position of each of the related companies to ensure each related company is financially viable to settle the amount due to the Group. The Management makes individual assessment on the recoverability of other receivables based on historical settlement records and past experience. The directors of the Company believe that there is no material credit risk inherent in the Group’s outstanding balance of other receivables. The Group’s cash and short-term bank deposits are held in large PRC, Hong Kong and Canadian financial institutions, which the credit risks on cash and short-term bank deposits are limited. These deposits mature at various dates within three months from inception date. 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 financial assets at amortised cost comprise various debtors which are located either in the PRC or Canada for the years ended December 31, 2018 and 2017. 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. (e) Liquidity risk The Group operates in a capital intensive industry. The Group’s liquidity requirements arise principally from the need for financing the expansion of its mining and processing operations. 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 31. The Group manages its liquidity primarily through maintaining adequate level of cash and cash equivalents and bank borrowings. In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The Management monitors the utilisation of bank borrowings and ensures compliance with loan covenants. The Group relies on bank borrowings as a significant source of liquidity. Details of which are set out in note 25. The following table details the Group’s remaining contractual maturities for its 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. Annual Report 2018 145 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. FINANCIAL INSTRUMENTS (Cont’d) (e) 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: On demand or within 1 year US$’000 Weighted average interest rate % 1 – 2 years 2 – 5 years US$’000 US$’000 US$’000 Total Over 5 undiscounted years cashflow US$’000 Carrying Amount US$’000 At December 31, 2018 Accounts and other payables Borrowings Entrusted loan payable – 2.88 2.75 273,369 143,414 801 – 554,282 29,173 – – 273,369 273,369 296,829 306,206 1,300,731 1,210,158 – – 29,974 29,140 417,584 583,455 296,829 306,206 1,604,074 1,512,667 On demand or within 1 year Weighted average 1 – 2 years 2 – 5 years interest rate US$’000 US$’000 US$’000 US$’000 Total Over 5 undiscounted years cashflow US$’000 Carrying Amount US$’000 At December 31, 2017 Accounts and other payables Borrowings Entrusted loan payable % – 3.13 2.75 208,676 183,818 842 – 145,382 842 – 674,611 30,645 – 208,676 208,676 371,191 1,375,002 1,274,933 – 32,329 30,608 393,336 146,224 705,256 371,191 1,616,007 1,514,217 (f) Fair value Equity instruments at FVTOCI – listed equity securities (2017: available-for-sale investment – listed equity securities) and equity instruments at FVTOCI – unlisted equity securities which are measured at fair value based on the quoted bid price in an active market (Level 1) and the discounted cash flow model as considered insignificant respectively. The fair values of other financial assets and financial liabilities measured at amortised cost are 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 amortised cost in the consolidated financial statements approximate their fair values. There was no transfer amongst 1, 2 and 3 in the current and prior years. 146 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, 2018 US$’000 2017 US$’000 111 141 112 364 119 237 150 506 Operating lease payments represent rentals payable by the Group for its premises. Leases are negotiated for a term of 1 to 14 years. Capital commitments December 31, December 31, 2018 US$’000 2017 US$’000 Capital expenditure in respect of acquisition of property, plant and equipment in the consolidated financial statements – contracted but not provided for 61,657 188,293 Capital expenditure in respect of capital injection to an investee 3,643 3,826 Other commitments existed at the end of each reporting period The Group has signed a service contract with a third party to provide mining services to the Group up to December 31, 2022. The value of the mining service of each year will vary and is dependent upon the amount of mining work performed. Annual Report 2018 147 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES 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 of approximately US$4,473,000 and US$2,493,000 for the years ended December 31, 2018 and 2017, respectively, represent contributions payable to the scheme by the Group. 35. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES The table below details changes in the Group’ liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows as cash flows from financing activities. At January 1, 2018 Financing cash flows Exchange difference arising on translation Unrealised foreign exchange gain, net Borrowings US$’000 (note 25) 1,274,933 (29,414) (31,326) (4,035) Entrusted loan payable US$’000 (note 26) 30,608 – (1,468) – Total US$’000 1,305,541 (29,414) (32,794) (4,035) At December 31, 2018 1,210,158 29,140 1,239,298 At January 1, 2017 Financing cash flows Exchange difference arising on translation Unrealised foreign exchange loss, net Borrowings US$’000 (note 25) 1,154,832 77,855 37,590 4,656 Entrusted loan payable US$’000 (note 26) 28,831 614 1,163 – Total US$’000 1,183,663 78,469 38,753 4,656 At December 31, 2017 1,274,933 30,608 1,305,541 148 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 36. PARTICULARS OF SUBSIDIARIES Details of the Company’s subsidiaries at December 31, 2018 and 2017 are as follows: Place and date of incorporation/ Name of subsidiaries establishment Issued and fully paid share capital/ registered capital Equity interest attributable to the Group as at December 31, Principal activities 2018 2017 Pacific PGM Inc. British Virgin Islands US$100 100% 100% Investment holding (“BVI”) May 17, 2001 Pacific PGM (Barbados) Inc. Barbados US$200,000 100% 100% Investment holding IMP September 6, 2007 PRC April 29, 2002 US$45,000,000 96.5% 96.5% Engaged in exploration and development of mining properties in China Skyland Mining Limited Barbados October 6, 2004 US$233,380,700 plus RMB1,510,549,032 100% 100% Investment holding Jia Ertong(1) PRC US$273,920,000 100% 100% Exploration, October 31, 2003 development and mining of mineral properties and investment holding Huatailong(1) PRC RMB1,760,000,000 100% 100% Exploration, January 11, 2007 development and mining of mineral properties Jiama Industry and Trade(1) PRC RMB5,000,000 51% 51% Mining logistics and December 1, 2011 transport business Skyland (BVI) BVI US$1 100% 100% Issue of bonds October 26, 2012 (1) Domestic limited liability company. None of the subsidiaries had issued any debt securities at the end of the year except for Skyland (BVI) has US$500 million of listed bonds as at December 31, 2018 and 2017. Annual Report 2018 149 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 37. STATEMENT OF FINANCIAL POSITION OF THE COMPANY Current assets Cash and cash equivalents Other receivables Prepaid expenses and deposits Amounts due from subsidiaries Non-current assets Property, plant and equipment Loan receivables from subsidiaries Equity instruments at FVTOCI Available-for-sale investment Investments in subsidiaries Amounts due from subsidiaries Total assets Current liability Other payable and accrued expenses Non-current liability Deferred income Total liabilities Net current assets December 31, 2018 US$’000 December 31, 2017 US$’000 6,758 48 223 – 7,029 31 62,220 17,655 – 987,016 53,988 4,360 14 234 7,252 11,860 53 59,585 – 19,680 987,016 54,236 1,120,910 1,120,570 1,127,939 1,132,430 4,385 4,011 19 4,404 2,644 19 4,030 7,849 Total assets less current liabilities 1,123,554 1,128,419 Owners’ equity Share capital (note 29) Reserves (note 38) Deficits (note 38) Total owners’ equity 1,229,061 440 (105,966) 1,229,061 11,016 (111,677) 1,123,535 1,128,400 Total liabilities and owners’ equity 1,127,939 1,132,430 150 China Gold International Resources Corp. Ltd. FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 38. RESERVES AND DEFICITS OF THE COMPANY At January 1, 2017 Loss for the year Fair value gain on available-for-sale investment Reserves US$’000 Accumulated losses US$’000 Total US$’000 4,073 (102,859) (98,786) – 6,943 (8,818) – (8,818) 6,943 Total comprehensive loss for the year 6,943 (8,818) (1,875) At December 31, 2017 Impact of adopting IFRS 9 on January 1, 2018 (note 2) 11,016 (8,551) (111,677) 8,551 (100,661) – At January 1, 2018 (restated) 2,465 (103,126) (100,661) Loss for the year Fair value loss on equity instruments at FVTOCI – (2,025) (2,840) – (2,840) (2,025) Total comprehensive loss for the year (2,025) (2,840) (4,865) At December 31, 2018 440 (105,966) (105,526) 39. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the current year’s presentation of the consolidated financial statements. Annual Report 2018 151 FOR THE YEAR ENDED DECEMBER 31, 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated results and assets and liabilities of the Group for the last five financial years, as extracted from the audited financial statements are as follows: Year ended December 31 2018 US$’000 2017 US$’000 2016 US$’000 2015 US$’000 2014 US$’000 570,570 411,881 338,601 339,949 277,783 RESULTS Revenue (Loss) profit attributable to owners of the Company (4,837) 63,146 (13,304) (8,188) 39,729 2018 US$’000 2017 US$’000 At December 31 2016 US$’000 2015 US$’000 2014 US$’000 ASSETS AND LIABILITIES Total assets Total liabilities 3,215,895 (1,726,657) 3,230,444 2,966,619 2,780,593 3,013,494 (1,720,460) (1,546,430) (1,333,339) (1,548,336) Total net assets 1,489,238 1,509,984 1,420,189 1,447,254 1,465,158 Equity attributable to owners of the Company Non-controlling interests 1,474,433 14,805 1,495,336 1,406,457 1,434,227 1,452,993 14,648 13,732 13,027 12,165 Total owners’ equity 1,489,238 1,509,984 1,420,189 1,447,254 1,465,158 152 China Gold International Resources Corp. Ltd. FIVE-YEAR FINANCIAL SUMMARY 2018 ANNUAL REPORT 2 0 1 8 A n n u a l R e p o r t (Incorporated in British Columbia, Canada with limited liability) HK Stock Exchange Stock Code: 2099 Toronto Stock Exchange Stock Code: CGG