UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
————————
FORM 20-F
————————
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from: _____________ to _____________
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of event requiring shell company report ___________
Commission file number: 0-26046
CHINA NATURAL RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
British Virgin Islands
(Jurisdiction of incorporation or organization)
Room 2205, 22/F, West Tower, Shun Tak Centre,
168-200 Connaught Road Central, Sheung Wan, Hong Kong
(Address of principal executive offices)
Bonaventure Yue, Chief Financial Officer
Room 2205, 22/F, West Tower, Shun Tak Centre,
168-200 Connaught Road Central, Sheung Wan, Hong Kong
bonyue@chnr.net
(Name, telephone number, e-mail and/or facsimile number and address of Registrant’s contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares, without par value
Name of each exchange on which registered
NASDAQ Capital Market
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the
annual report. 24,910,916 common shares as of December 31, 2018.
Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Yes No
Yes No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of
“accelerated filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Yes No
Large Accelerated Filer
Non-Accelerated Filer
Accelerated Filer
Emerging Growth Company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by checkmark if the registrant has elected not
to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
International Financial Reporting Standards as issued
By the International Accounting Standards Board
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow.
Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
CONVENTIONS
Unless otherwise specified, all references in this Annual Report to “U.S. Dollars,” “Dollars,” “US$,” or “$” are to United States dollars; all
references to “Hong Kong Dollars” or “HK$” are to Hong Kong dollars; and all references to “Renminbi” or “CNY” are to Chinese Yuan, which is
the lawful currency of the People's Republic of China. The accounts of the Company and its subsidiaries are maintained in Hong Kong Dollars, or
Renminbi. The financial statements of the Company and its subsidiaries are prepared in Renminbi. Translations of amounts from Renminbi to U.S.
Dollars, and from Hong Kong Dollars to U.S. Dollars are for the convenience of the reader. Unless otherwise indicated, any translations from
Renminbi to U.S. Dollars or from U.S. Dollars to Renminbi have been made at the single rate of exchange (the “CNY Exchange Rate”) as quoted by
www.ofx.com on December 31, 2018, which was US$1.00 = CNY6.8785. Translations from Hong Kong Dollars to U.S. Dollars have been made at
the official pegged exchange rate of US$1.00 = HK$7.80 as of December 31, 2018. The Renminbi is not freely convertible into foreign currencies
and no representation is made that the Renminbi or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars
or Renminbi, as the case may be, at the CNY Exchange Rate or at all.
References to “Antay Pacha” are to Planta Metalurgica Antay Pacha S.A., a company organized in Bolivia and, until December 29, 2017,
an indirect wholly-owned subsidiary of CHNR.
References to “Bayannaoer Mining” are to Bayannaoer City Feishang Mining Company Limited, a company organized in the PRC and a
wholly-owned subsidiary of Yangpu Shuanghu.
References to the “BVI” are to the British Virgin Islands.
References to “China Resources” are to China Resources Development, Inc., a Nevada company and the predecessor to CHNR.
References to the “Company” or “CHNR” are to China Natural Resources, Inc. (formerly known as Billion Luck Company Ltd.), a BVI
company, which was the surviving company to a merger between China Resources and CHNR on December 9, 2004 (the “Redomicile Merger”).
Unless the context otherwise requires, the Company and/or CHNR includes the operations of its predecessor and subsidiaries.
References to “common shares” are to the common shares, without par value, of CHNR after the Redomicile Merger.
References to “common stock” are to the common stock, US$0.001 par value, of China Resources.
References to “China Coal” are to China Coal Mining Investment Limited, a company organized in Hong Kong and a wholly-owned
subsidiary of CHNR.
References to “Distribution” are to a special interim dividend declared by the Company satisfied by way of a distribution in specie of the
entire issued share capital of Feishang Anthracite, being an aggregate of 124,554,580 ordinary shares in the capital of Feishang Anthracite with a par
value of HK$0.01 each.
References to “Distribution Record Date” are to January 13, 2014, being the record date for ascertaining entitlements to the Distribution.
References to “Double Grow” are to Double Grow International Limited, a company organized in the BVI and, until December 29, 2017, a
wholly-owned subsidiary of CHNR.
References to “Easy Gain” are to Easy Gain Investments Limited, a company organized in the BVI and a wholly-owned subsidiary of
Double Grow.
References to “Feishang Anthracite” are to Feishang Anthracite Resources Limited (formerly known as Wealthy Year Limited), a company
organized in the BVI whose ordinary shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock
Exchange”) on January 22, 2014; and, until January 22, 2014, a wholly-owned subsidiary of CHNR.
References to “Feishang Dayun” are to Feishang Dayun Coal Mining Limited, a company organized in Hong Kong and a wholly-owned
subsidiary of Pineboom.
References to “Feishang Enterprise” are to Feishang Enterprise Group Co., Ltd., a related company organized in the PRC and controlled by
Mr. Li Feilie, the principal beneficial owner of the Company and its former Chairman and CEO.
References to “Feishang Hesheng” are to Feishang Hesheng Investment Limited, a related company organized in the BVI that is ultimately
controlled by Mr. Li Feilie.
i
References to “Feishang Management” are to Shenzhen Feishang Management and Consulting Co., Limited, a company organized in the
PRC and a wholly-owned subsidiary of Yunnan Mining.
References to “Feishang Mining” are to Feishang Mining Holdings Limited, a company organized in the BVI and, since February 3, 2006,
a wholly-owned subsidiary of CHNR.
References to “Feishang Group” are to Feishang Group Limited, CHNR’s principal shareholder and a company organized in the BVI that is
ultimately controlled by Mr. Li Feilie.
References to “Feishang Yongfu” are to Feishang Yongfu Mining Limited, a company organized in Hong Kong and a wholly-owned
subsidiary of Newhold.
References to “FMH Services” are to FMH Corporate Services Inc., a company organized in Florida and a wholly-owned subsidiary of
CHNR. FMH Services is currently inactive.
References to “Full Profit” are to Full Profit Investments Limited, a company organized in the BVI and a wholly-owned subsidiary of
Double Grow.
References to the “Group” are to the Company and its direct and indirect subsidiaries.
References to “HK” or “Hong Kong” are to Hong Kong Special Administrative Region.
References to “IFRS” are to International Financial Reporting Standards as issued by the International Accounting Standards Board.
References to “Newhold” are to Newhold Investments Limited, a company organized in the BVI and a wholly-owned subsidiary of CHNR.
References to “Pineboom” are to Pineboom Investments Limited, a company organized in the BVI and a wholly-owned subsidiary of
CHNR.
References to the “PRC” or “China” are to the People’s Republic of China and, solely for the purpose of this annual report, excluding Hong
Kong, Macao, and Taiwan.
References to the “Related-Party Debtholders” are to the companies affiliated with Mr. Li Feilie, CHNR’s principal beneficial owner,
including without limitation, Feishang Enterprise and Feishang Group.
References to “Series B preferred shares” are to the Series B preferred shares, without par value, of CHNR, after the Redomicile Merger.
References to “Series B preferred stock” are to the Series B preferred stock, US$.001 par value, of China Resources.
References to “shareholders” of CHNR are to the members of China Natural Resources, Inc., a BVI corporation. “Members” under British
Virgin Islands law are the equivalent of “shareholders” under the laws of the several states of the United States.
References to “Silver Moon” are to Silver Moon Technologies Limited, a company organized in the BVI and an 80%-owned subsidiary of
CHNR. Silver Moon is currently inactive.
References to “Spin-Off” are to the January 22, 2014 Distribution to the Company’s shareholders of the outstanding shares of Feishang
Anthracite, which operated the Company’s coal mining and related business prior to January 22, 2014.
References to “Sunwide” are to Sunwide Capital Limited, a company organized in the BVI and a wholly-owned subsidiary of CHNR.
Sunwide is currently inactive.
References to “Wuhu Feishang” are to Wuhu Feishang Mining Development Co., Limited, a company organized in the PRC and, until
March 3, 2017, a wholly-owned subsidiary of Feishang Mining.
References to “Yangpu Lianzhong” are to Yangpu Lianzhong Mining Co., Limited, a company organized in the PRC and a wholly-owned
subsidiary of China Coal.
References to “Yangpu Shuanghu” are to Yangpu Shuanghu Industrial Development Co., Limited, a company organized in the PRC and a
wholly-owned subsidiary of Feishang Yongfu.
References to “Yunnan Mining” are to Yunnan Feishang Mining Co., Limited, a company organized in the PRC and a wholly-owned
subsidiary of Yangpu Shuanghu.
ii
Forward-Looking Statements
This Annual Report contains statements that constitute forward-looking statements within the meaning of Federal securities laws. These
statements appear in a number of places in this Annual Report and include, without limitation, statements regarding the intent, belief and current
expectations of the Company, its directors or its officers with respect to the Company's policies regarding investments, dispositions, financings,
conflicts of interest and other matters; and trends affecting the Company's financial condition or results of operations. Forward-looking statements
are not a guarantee of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-
looking statement as a result of various factors. Among the risks and uncertainties that could cause our actual results to differ from our forward-
looking statements are our intent, belief and current expectations as to business operations and operating results, uncertainties regarding the
governmental, economic and political circumstances in the People’s Republic of China, uncertainties associated with metal price volatility;
uncertainties related to our ability to fund operations; uncertainties associated with the Company’s reliance on third-party contractors, uncertainties
related to possible future increases in operating expenses, including costs of labor and materials, and other risks detailed from time to time in the
Company’s filings with the Securities and Exchange Commission, including without limitation the information set forth in Item 3.D. of this Annual
Report under the heading “Risk Factors.” With respect to forward-looking statements that include a statement of its underlying assumptions or
bases, the Company cautions that, while it believes such assumptions or bases to be reasonable and has formed them in good faith, assumed facts or
bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material depending on the
circumstances. When, in any forward-looking statement, the Company, or its management, expresses an expectation or belief as to future results,
that expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the stated
expectation or belief will result or be achieved or accomplished.
iii
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
PART I
No disclosure is required in response to this Item.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
No disclosure is required in response to this Item.
ITEM 3.
KEY INFORMATION
A.
Selected Financial Data
The selected financial information as of and for the years ended December 31, 2014, 2015, 2016, 2017 and 2018 set forth below should be
read in conjunction with, and is qualified in its entirety by reference to, “Item 5. Operating and Financial Review and Prospects” and our audited
consolidated financial statements and the notes thereto included elsewhere in this Annual Report.
On February 3, 2006, we consummated the acquisition of all of the issued and outstanding capital stock of Feishang Mining (the
“Acquisition”). The Acquisition was accounted for using the purchase method of accounting and was treated as a reverse acquisition because on a
post-merger basis, the former Feishang Mining shareholder holds 86.4% of our outstanding common shares. As a result, Feishang Mining is deemed
to be the acquirer for accounting purposes. We have retroactively restated our issued share capital to reflect the acquisition by Feishang Mining. The
selected financial data are stated in CNY and are derived from the audited consolidated financial statements of the Company for the years ended
December 31, 2014, 2015, 2016, 2017 and 2018, prepared and presented in accordance with IFRSs. Details of the Company’s acquisition of
Feishang Mining are described elsewhere in this Annual Report.
Ernst & Young Hua Ming LLP, which has been engaged as our independent registered public accounting firm for the years ended
December 31, 2016, 2017 and 2018, has issued unqualified auditor's reports on our consolidated statements of financial position as of December 31,
2016, 2017 and 2018, and the related consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for the
years ended December 31, 2016, 2017 and 2018.
The statements of profit or loss data for each of the years ended December 31, 2016, 2017 and 2018 and the statements of financial position
data as of December 31, 2017 and 2018 are derived from our audited consolidated financial statements included in Part III, Item 18, “Financial
Statements” of this Annual Report. The statements of financial position data as of December 31, 2014, 2015 and 2016 and the statements of profit or
loss data for the years ended December 31, 2014 and 2015 are derived from our audited consolidated financial statements that are not included in
this Annual Report. Our historical results are not necessarily indicative of our results in any future period.
In accordance with IFRS 5, consolidated statements of profit or loss have been restated retrospectively for all periods presented due to the
Spin-Off and listing by way of introduction on the Hong Kong Stock Exchange of the Company’s wholly-owned subsidiary, Feishang Anthracite,
which operated the Company’s coal mining and related business. The Spin-Off was completed on January 22, 2014. The coal mining and related
operations are therefore presented as “discontinued operations” in the consolidated statements of profit or loss for the year ended December 31,
2014.
Moreover, consolidated statements of profit or loss have been restated retrospectively for the years ended December 31, 2014, 2015 and
2016 due to the disposal of Wuhu Feishang and Double Grow on March 3, 2017 and December 29, 2017, respectively. Wuhu Feishang and Double
Grow were the primary contributors to the Group’s exploration and mining of non-ferrous metals segment and copper smelting segment,
respectively, which represented a separate major line of business with separately identifiable operations and cash flows. Accordingly, the results of
Wuhu Feishang and Double Grow are classified and separately reported as “discontinued operations” in the consolidated statements of profit or loss
for the year ended December 31, 2017. The comparative amounts reported in the consolidated statements of profit or loss and related notes have
been revised accordingly to reflect the reclassification between continuing operations and the discontinued operations. In addition, the gains
recognized on the disposal of Wuhu Feishang and Double Grow are included in the results of the discontinued operations.
1
Year Ended
December 31,
2014
CNY
Amounts in thousands, except share amounts and per share data
Year Ended
December 31,
2016
CNY
Year Ended
December 31,
2017
CNY
Year Ended
December 31,
2015
CNY
Year Ended
December 31,
2018
CNY
Consolidated Statements of Profit or Loss Data
Continuing operations
Revenue
Cost of sales
Gross profit
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Profit/(loss) before income tax from continuing operations
11,290
(3,769)
(4,445)
(6,179)
(6,176)
Profit/(loss) for the year from continuing operations
attributable to:
Owners of the Company
Non-controlling interests
Loss for the year from discontinued operations attributable to:
Owners of the Company
Non-controlling interests
Loss attributable to:
Owners of the Company
Non-controlling interests
Loss per share attributable to owners of the Company:
Basic
For profit/(loss) from continuing operations
For loss from discontinued operations
Diluted
For profit/(loss) from continuing operations
For loss from discontinued operations
Weighted average number of shares outstanding
Basic
Diluted
6,280
—
6,280
(49,428)
(783)
(50,211)
(43,148)
(783)
(43,931)
0.27
(2.00)
(1.73)
0.27
(2.00)
(1.73)
(5,273)
—
(5,273)
(36,176)
—
(36,176)
(41,449)
—
(41,449)
(0.21)
(1.45)
(1.66)
(0.21)
(1.45)
(1.66)
(4,445)
—
(4,445)
(18,591)
—
(18,591)
(23,036)
—
(23,036)
(0.18)
(0.74)
(0.92)
(0.18)
(0.74)
(0.92)
(6,179)
—
(6,179)
(23,817)
—
(23,817)
(29,996)
—
(29,996)
(0.25)
(0.95)
(1.20)
(0.25)
(0.95)
(1.20)
(6,176)
—
(6,176)
—
—
—
(6,176)
—
(6,176)
(0.25)
—
(0.25)
(0.25)
—
(0.25)
24,910,916
24,910,916
24,910,916
24,910,916
24,910,916
24,910,916
24,910,916
24,910,916
24,910,916
24,910,916
2
December 31,
2014
CNY
Amounts in thousands, except share amounts and per share data
December 31,
2016
CNY
December 31,
2017
CNY
December 31,
2015
CNY
December 31,
2018
CNY
Consolidated Statements of Financial Position Data
Total assets
Current assets
Current liabilities
Total equity/ (deficiency in assets)
Equity/ (deficiency in assets) attributable to owners of the
Company
Capital stock
80,662
63,150
37,827
23,240
23,240
312,081
111,057
57,580
123,889
(17,799)
(17,799)
312,081
94,793
36,242
76,296
13,195
13,195
312,081
29,748
29,411
45,253
(15,505)
(15,505)
312,081
7,743
7,468
29,541
(21,798)
(21,798)
312,081
The Company has not paid any dividends with respect to its common shares and has no present plan to pay any dividends in the foreseeable
future. The Company intends to retain its earnings to support the development of its business. Any dividends paid in the future by the Company will
be paid at the discretion of the Company’s Board of Directors and will be dependent upon distributions, if any, made by its subsidiaries, and on the
Company’s results of operations, its financial condition and other factors deemed relevant by the Board of Directors. In accordance with the relevant
PRC regulations and the Articles of Association of companies incorporated in the PRC, appropriations of net income of wholly-owned foreign
enterprises and sino-foreign joint venture companies as reflected in its statutory financial statements are to be allocated to either (i) each of the
general reserve, enterprise expansion reserve and staff bonus and welfare reserve, respectively, or (ii) statutory reserve, as determined by the
resolution of the Board of Directors annually. Prior to the Acquisition, the Board of Directors of Wuhu Feishang declared and paid dividends of
CNY44.01 million and CNY38.46 million on February 28, 2005 and January 27, 2006, respectively. Wuhu Feishang declared dividends of
CNY127.10 million to its parent on April 27, 2012 which were paid in 2013. On June 28, 2013, Feishang Mining declared and paid dividends of
HK$155.00 million to the Company. On September 24, 2014, Wuhu Feishang declared dividends of CNY39.24 million to its parent which were
paid in 2015. On May 19, 2015, Feishang Mining declared and paid dividends of HK$39.50 million to the Company.
Exchange Rates
The Company’s reporting currency is Renminbi. Translations of amounts from Renminbi to U.S. Dollars are for the convenience of the
reader. The following table provides information concerning the exchange rate of Renminbi for U.S. Dollars for each of the preceding five years,
and for each month during the preceding six months. The rates of exchange for 2014 are the rates quoted by Bloomberg L.P. The rates of exchange
for 2015 are the rates quoted by www.oanda.com. The rates of exchange for 2016 to 2018 and the preceding six months are the rates quoted by
www.ofx.com. The Renminbi is not freely convertible into foreign currencies and the quotation of exchange rates does not imply convertibility of
Renminbi into U.S. Dollars or other currencies. All foreign exchange transactions take place either through the Bank of China or other banks
authorized to buy and sell foreign currencies at the exchange rates quoted by the People's Bank of China, the PRC’s central bank. No representation
is made that the Renminbi or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or Renminbi, as the
case may be, at the CNY Exchange Rate or at all.
The exchange rate on April 25, 2019 was US$1.00 = CNY6.7431.
The following table reflects the high and low exchange rates for each month during the previous six months:
MONTH
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
High
Low
6.9758
6.8688
6.9636
6.8909
6.9590
6.8370
6.8785
6.7004
6.7924
6.6872
6.7391
6.6946
3
The following table reflects the average exchange rate for each of the preceding five years, calculated by using the average of the exchange
rates on the last day of each month during the period:
YEAR
2014
2015
2016
2017
2018
High
Low
Average for period
6.2598
6.0406
6.1711
6.4917
6.0933
6.2436
6.9597
6.4490
6.6551
6.9610
6.4642
6.7404
6.9758
6.2637
6.6363
B.
Capitalization and Indebtedness
No disclosure is required in response to this Item.
C.
Reasons for the Offer and Use of Proceeds
No disclosure is required in response to this Item.
D.
Risk Factors
Risks Relating to our Mine Exploration Activities in Inner Mongolia
The Wulatehouqi Moruogu Tong Mine (“Moruogu Tong Mine”) is in the exploration stage and we may not generate revenues for the
foreseeable future.
We are in the exploration stage at Moruogu Tong Mine located in the Inner Mongolia Autonomous Region of the PRC, and, at this stage,
we cannot predict whether ore can be mined on a profitable basis. During the exploration stage, the mine incurs operating expenses but does not yet
generate revenues for the Company. The Company intends to fund mine exploration, construction and development through bank borrowings, funds
received pursuant to its Cooperation Agreement with Bayannaoer Jijincheng Mining Co., Ltd. (“Jijincheng Mining”), and loans from a related party.
To date, the exploration program has indicated the presence of a “mid-size” deposit of lead and silver ore and resources sufficient in quantity and
quality to warrant further exploration designed to confirm and increase measured resources, with the prospect of identifying other minable metal
resources such as copper.
Further exploration is subject to negotiation with Jijincheng Mining (based on a number of factors including, inter alia, the economic,
geological and technical viability) as to whether to continue exploration of potential copper resources in 2019, and a final appraisal and application
for mining rights will be scheduled thereafter. While the results of preliminary prospecting suggest that Moruogu Tong Mine contains mineable
quantities of lead and silver, until further exploration and analysis is completed, we cannot predict the nature and extent of minerals contained at the
mine or the commercial viability of pursuing a plan of extraction. In the event that further exploration and analysis does not confirm initial findings,
continued activities in furtherance of revenue-producing mining operations at Moruogu Tong Mine will cease.
Moruogu Tong Mine is currently being explored under an agreement which effectively reduces our share in any future profits from mineral
extraction at the mine.
On August 20, 2017, Bayannaoer Mining entered into a mutual cooperation agreement (the “Cooperation Agreement”) with Jijincheng
Mining, an unrelated third party. The Cooperation Agreement is intended to provide for financial support for the operating expenses of Moruogu
Tong Mine during the exploration stage, and the allocation of rights and responsibilities between Bayannaoer Mining and Jijincheng Mining.
Pursuant to the Cooperation Agreement: (i) Bayannaoer Mining contributed the existing exploration results for Moruogu Tong Mine; (ii) Jijincheng
Mining provides the necessary funds for further exploration at the mine; (iii) Bayannaoer Mining enjoys full rights to any resources already
discovered and confirmed by its independent exploration works conducted prior to commencement of the cooperative exploration project; (iv)
Bayannaoer Mining and Jijincheng Mining will each receive a 50% interest in any newly discovered resources from the first 10 drilling holes in the
cooperative exploration project; and (v) Bayannaoer Mining and Jijincheng Mining will receive 30% and 70% interests, respectively, in any newly
discovered resources from drilling works beyond the first 10 drilling holes in the cooperative exploration project. Other details of the Cooperation
Agreement, including allocations and distributions upon completion of exploration works, remain to be negotiated between the parties. There is no
assurance that the details of the arrangement that remain to be negotiated will be resolved in a manner satisfactory to the Company.
4
Our estimates of the reserves contained in Moruogu Tong Mine are based upon protocols not generally recognized in the United States and the
various assumptions underlying our estimates may be inaccurate.
Moruogu Tong Mine is the subject of a geological survey prepared in conformity with procedures and protocols recognized in the PRC.
These procedures and protocols are different from those generally recognized in the United States. In addition, reserve estimation is an interpretive
process based upon available data and various assumptions that are believed to be reasonable, and the economic value of ore reserves may be
adversely affected by price fluctuations in the metal market, reduced recovery rates or a rise in production costs as a result of inflation or other
technical problems arising in the course of extraction. The exploration program at Moruogu Tong Mine has indicated the presence of a “mid-size”
deposit of lead and silver ore and resources sufficient in quantity and quality to warrant further exploration designed to confirm and increase
measured resources. If the assumptions upon which we conduct the reserve study prove to be inaccurate, we may reach incorrect conclusions as to
the nature and extent of resources present at Moruogu Tong Mine.
Volatility in the market prices of metals may adversely affect the results of our mining operations.
The market prices of lead, silver and other metals have experienced significant volatility in recent years. Market prices depend upon many
factors outside of our control and include industry specific factors such as supply and demand, as well as factors such as local and world-wide
general economic conditions. The uncertainties surrounding the market prices of metals and the costs of extraction may adversely affect our ability
to operate on a profitable basis.
We will be subject to government regulations in various aspects of our exploration activities and our failure to comply with applicable
government regulations could adversely affect us.
Bayannaoer Mining, our subsidiary that acquired exploration rights to Moruogu Tong Mine, is and will continue to be subject to
regulations in various aspects of its operations by a variety of laws, rules and regulations administered by the national and local governments,
including laws, rules and regulations relating to: exploration activities; environmental protection; the use and preservation of dangerous substances;
employment practices; as well as land use laws and a variety of local business laws, customs and implementation rules. Our failure to comply with
applicable laws, rules, regulations and customs could adversely affect our operations and subject us to fines and other penalties including suspension
or termination of our business permits.
We do not have binding agreements with customers to purchase our future output of metals.
While we believe there is a robust market for lead, silver and other metals not only in China but also in other countries, we do not currently
have any commitments from any customers to purchase our future output of metals.
Risks Relating to Our Financial Condition
We have incurred losses from operations for each of the preceding three fiscal years and there is no assurance that we will generate profits in
the future.
For the three years ended December 31, 2016, 2017 and 2018, we incurred operating losses from continuing operations of CNY4.52
million, CNY6.20 million and CNY6.21 million (US$0.90 million), respectively. Our operating losses mainly represented exploration expenses in
Moruogu Tong Mine, as well as administrative expenses such as legal and professional fees, rental and office expenses. Our profitability is
dependent upon many factors, including our ability to fund our exploration and operating expenses, produce metal outputs, and sell our production
outputs to third parties. Other factors, such as uncertainty over the demand and market price for lead, silver and other metals, are outside of our
control. There is no assurance that we will be successful in our efforts to achieve profitability.
We do not currently generate revenues from operations; we will have to fund operating expenses until we are able to generate sufficient revenue
to pay them.
We do not currently generate revenues from operations. We will continue to incur operating expenses prior to the commencement of
revenue-producing activities, and we intend to fund those expenses from the proceeds of loans from our Related-Party Debtholders, payments
pursuant to the Cooperation Agreement and, to the extent deemed necessary, bank borrowings. If we encounter delays prior to the commencement
of revenue production in our mining operations, we will be required to fund operating expenses longer than expected. There is no assurance that we
will be able to secure amounts sufficient to fund our operating expenses until such time as we are able to generate revenues sufficient to pay those
expenses.
5
Any failure to achieve and maintain effective internal control could have material adverse effect on our business, results of operations and the
market price of our shares.
The United States Securities and Exchange Commission (“SEC”), as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act (“SOX”), adopted rules requiring most public companies to include a management report on such company’s internal control
over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over
financial reporting. In addition, under certain circumstances, an independent registered public accounting firm must report on the effectiveness of
the company’s internal control over financial reporting.
Our management has concluded that our internal control over financial reporting as of December 31, 2018 was effective. However, we
cannot assure you our management will not identify material weaknesses in the future during the Section 404(a) process or our independent public
registered accounting firm will not identify material weaknesses during the Section 404(b) process if it was performed in the current year or in the
future or for other reasons. In addition, because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely
basis. As a result, if we fail to maintain effective internal control over financial reporting or should we be unable to prevent or detect material
misstatements due to error or fraud on a timely basis, investors could lose confidence in the reliability of our financial statements, which in turn
could harm our business, results of operations and negatively impact the market price of our shares, and harm our reputation. Furthermore, we have
incurred and expect to continue to incur considerable costs and to use significant management time and other resources in an effort to comply with
Section 404 and other requirements of the Sarbanes-Oxley Act.
Risks Relating to PRC Operations
Our current business operations are conducted in the PRC; our executive officers, directors and principal shareholder, our auditors and our
bank accounts are located in the PRC; and many of our subsidiaries are organized and funded in the PRC. As we are subject to the laws, rules,
regulations and customs of the PRC, investors should consider the following risk factors.
Investors should consider economic, legal and political factors applicable to investments in the PRC prior to investing in our company.
Since 1979, the PRC government has been making efforts to promote reforms of its economic system. These reforms have brought about
marked economic growth and social progress, and the economy of China has shifted from a planned economy to a market-oriented economy. Our
PRC subsidiaries have also benefited from the economic reforms implemented by the PRC government and the economic policies and measures.
However, economic, legal and social policies in the PRC are not similar to those of Western governments and revisions or amendments may be
made to these policies and measures from time to time, and we are not in a position to predict whether any change in the political, economic or
social conditions may adversely affect our operating results, and how those changes may impact on us.
The PRC legal system is a statutory law system. Unlike the common law system, decided legal cases have little significance for guidance,
and rulings by the court can only be used as reference with little value as precedents. Since 1979, the PRC government has established a commercial
law system, and significant progress has been made in promulgating laws and regulations relating to economic affairs. The PRC government is still
in the process of developing a comprehensive set of laws and regulations. Examples are the organization of companies and their regulation, foreign
investment, commerce, taxation and trade. However, these regulations are relatively new and the availability of public cases as well as the judicial
interpretation of them is limited in number. Moreover, as they are not binding, both the implementation and interpretation of these regulations are
uncertain in many areas. Also, more stringent environmental regulations may also affect our ability to comply with, or our costs to comply with,
such regulations. Such changes, if implemented, may adversely affect our business operations and may reduce our profitability.
The interpretation of PRC laws may also be subject to policy changes reflecting domestic political changes, and new laws, changes to
existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors. The activities of our subsidiaries in
China are subject to PRC regulations governing PRC companies.
6
We face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to
conduct in the PRC and the profitability of such business.
The PRC’s economy is in a transition from a planned economy to a market-oriented economy subject to five-year and annual plans adopted
by the government that set national economic development goals. Policies of the PRC government can have significant effects on the economic
conditions of the PRC. During this transition, we believe that the PRC will continue to strengthen its economic and trading relationships with
foreign countries and business development in the PRC will follow market forces. While we believe that this trend will continue, we cannot assure
you that this will be the case. A change in policies by the PRC government could adversely affect our interests by, among other factors: changes in
laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the
expropriation or nationalization of private enterprises. Although the PRC government has been pursuing economic reform policies for more than
three decades, we cannot assure you that the government will continue to pursue such policies or that such policies may not be significantly altered,
especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC's political, economic and
social life.
PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Any changes in such laws and
regulations may have a material and adverse effect on our business.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to,
the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers in the event of the
imposition of statutory liens, death, bankruptcy and criminal proceedings. We and any future subsidiaries are considered foreign persons or foreign-
funded enterprises under PRC laws, and as a result, we are required to comply with PRC laws and regulations. These laws and regulations are
sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The
effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws
and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the
interpretation of existing or new PRC laws or regulations may have on our businesses.
Inflation in the PRC could negatively affect our profitability and growth.
While the PRC economy has experienced rapid growth, such growth has been uneven among various sectors of the economy and in
different geographical areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our
products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on our profitability. In
order to control inflation in the past, the PRC government has imposed controls on bank credit, limits on loans for fixed assets and restrictions on
bank lending. Such an austere policy can lead to a slowing of economic growth, and recent statistics have, indeed, suggested that China’s high
annual economic growth will slow down. According to China National Bureau of Statistics released data, China's consumer price index (CPI)
remained stable for 2018, rising 2.1 percent year on year — well below the government's 3.0 percent target. As CPI is the main gauge of inflation,
the lower than targeted CPI increase reflects that inflation in China remains largely in check.
Our PRC subsidiaries are subject to restrictions on paying dividends and making other payments to us.
We are a holding company incorporated in the BVI. As a result of our holding company structure, divdends and other distributions to our
shareholders, if any, will depend primarily upon dividend payments from our subsidiaries. However, PRC regulations currently permit the payment
of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and regulations. Our subsidiaries in China
are also required to set aside a portion of their after-tax profits as certain reserve funds according to PRC accounting standards and regulations. The
PRC government also imposes controls on the conversion of Renminbi into foreign currencies and the remittance of currencies out of China. We
may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. Furthermore, if our
subsidiaries in China incur debt in the future, the debt covenants may restrict their ability to pay dividends or make other payments. If we or our
subsidiaries are unable to receive dividend from the operating companies due to contractual or other limitations on the payment of dividends, we
may be unable to pay dividends or make other distribuions on our common shares.
7
Governmental control of currency conversion may affect payment of our obligations and the value of your investment.
The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of
currency out of the PRC. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay
dividends, or otherwise satisfy foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current
account items, including profit distributions, interest payments and expenditures can be made in foreign currencies without prior approval from the
PRC State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However, approval from appropriate
governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of the PRC to pay capital expenses
such as the repayment of bank loans denominated in foreign currencies.
The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future. If the
foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay
certain of our expenses as they come due.
See Item 10.D. “ADDITIONAL INFORMATION – Exchange Controls” for further details of exchange controls in the PRC.
The fluctuation of the Renminbi may materially and adversely affect your investment.
The exchange rate of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things,
changes in the PRC's political and economic conditions. As most of our operating expenses are denominated in Renminbi, any significant
revaluation of the Renminbi may materially and adversely affect our cash flows and financial condition. Conversely, if we convert our Renminbi
into U.S. dollars, should we determine to pay dividends on our common shares or for other business purposes, appreciation of the Renminbi against
the U.S. dollar could affect the amount of U.S. dollars we convert. For example, to the extent that we need to convert U.S. dollars we receive from
an offering of our securities into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar could have a material adverse
effect on our business, financial condition and results of operations resulting in a lower income, a charge to our income statement and a reduction in
the value of these U.S. assets.
In 2018, the annual cumulative depreciation of the exchange rate of the Renminbi against the U.S. dollar was 5.71%. Since the beginning
of 2019 to March 31, 2019, the exchange rate of the Renminbi against the U.S. dollar appreciated by 2.42%.
Recent PRC SAFE Regulations regarding offshore financing activities by PRC residents, have undergone continuous changes which may
increase the administrative burden we face and create regulatory uncertainties that could adversely affect the implementation of our acquisition
strategy, and a failure by our shareholders who are PRC residents to make any required applications and filings pursuant to such regulations
may prevent us from being able to distribute profits and could expose us and our PRC resident shareholders to liability under PRC law.
In 2005, the SAFE promulgated regulations in the form of public notices, which require registrations with, and approval from, the SAFE on
direct or indirect offshore investment activities by PRC resident individuals. The SAFE regulations require that if an offshore company directly or
indirectly formed by or controlled by PRC resident individuals, known as “SPC,” intends to acquire a PRC company, such acquisition will be
subject to strict examination by the SAFE. The regulation also requires PRC resident individuals to repatriate all dividends of the SPC. Without
registration with the SAFE by PRC resident individuals, the PRC entity may not be able to remit any of its profits out of the PRC as dividends or
otherwise. Violation of the regulation may be deemed an evasion of foreign exchange rules and implicated PRC resident individuals may be liable
for a penalty. However, there are uncertainties regarding the interpretation and application of current or future PRC laws and regulations, including
the regulations established by the SAFE. To date, no registration has been filed with the SAFE. Even if it is determined that registration with the
SAFE is required, management believes that applicable filings with the SAFE can be made at any time, and management does not foresee
significant difficulties in obtaining the SAFE’s approval should it be required.
8
Our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections without the approval of the PRC
authorities, and as such, investors may be deprived of the benefits of such inspection.
Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as an
auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board
(United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by PCAOB to assess its compliance with the
laws of the United States and professional standards. Our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct
inspections without the approval of the PRC authorities. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding
on Enforcement Cooperation with the China Securities Regulation Commission, or the CSRC, and the Ministry of Finance, which establishes a
cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB,
the CSRC or the Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the CSRC and the
Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on
U.S. exchanges. On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S.
regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. The joint statement reflects a
heightened interest in an issue that has vexed U.S. regulators in recent years. However, it remains unclear what further actions the SEC and PCAOB
will take to address the problem.
Inspections of other firms that PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and
quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of PCAOB to
conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our
auditor’s audit procedures or quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.
Proceedings instituted by the SEC against certain PRC-based accounting firms, including our independent registered public accounting firm,
could result in financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act.
In December 2012, the SEC brought administrative proceedings against five accounting firms in China, including our independent
registered public accounting firm, alleging that they had refused to produce audit work papers and other documents related to certain other China-
based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting
firms and suspending four of these firms from practicing before the SEC for a period of six months. The decision is neither final nor legally
effective unless and until reviewed and approved by the SEC. On February 12, 2014, four of these PRC-based accounting firms appealed to the SEC
against this decision. In February 2015, each of the four PRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the
dispute and avoid suspension of their ability to practice before the SEC. The settlement requires the firms to follow detailed procedures to seek to
provide the SEC with access to Chinese firms’ audit documents via the CSRC. If the firms fail to meet specified criteria, during a period of four
years starting from the settlement date, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the
nature of the failure. Additional remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s
performance of certain audit work, commencement of additional proceedings against a firm, or in extreme cases the resumption of the current
proceeding against all four firms.
In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States
with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in
financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover,
any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed
companies and the market price of our shares may be adversely affected.
If our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were
unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements
could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to our delisting
from the NASDAQ Stock Market or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of
our shares in the United States.
9
Risks Relating to Foreign Private Issuer Status
Because our assets are located outside of the United States and all of our directors and all our officers reside outside of the United States, it may
be difficult for you to enforce your rights based on U.S. Federal Securities Laws against us and our officers and directors or to enforce a
judgment of a United States court against us or our officers and directors in the PRC.
We are a BVI company, our officers and directors are non-residents of the United States, our assets are located in the PRC, and our
operations are conducted in the PRC. We do not maintain a business presence in the United States. Therefore, it may not be possible to effect
service of process on such persons in the United States, and it may be difficult to enforce any judgments rendered against us or them. Moreover,
there is doubt whether courts in the BVI or the PRC would enforce (a) judgments of United States courts against us, or our directors or officers
based on the civil liability provisions of the securities laws of the Unites States or any state, or (b) in original actions brought in the BVI or the PRC,
liabilities against us or any non-residents based upon the securities laws of the United States or any state.
Our status as a “foreign private issuer” results in less information being available about us than about domestic reporting companies.
We are a foreign private issuer and are not required to file as much information about us as domestic issuers are required to file. In this
regard:
we are not required to file quarterly reports on Form 10-Q and our annual reports on Form 20-F are subject to disclosure requirement
that differ from annual reports on Form 10-K;
we are exempt from the provisions of Regulation FD aimed at preventing issuers from making selective disclosures;
the SEC proxy statement and information statement rules do not apply to us; and
our officers, directors and principal shareholder are not required to file reports under Section 16 of the Exchange Act detailing their
beneficial ownership of our shares; and they are not subject to the shortswing profit provisions under Section 16.
Since there is generally greater information available about domestic issuers than about foreign private issuers such as us, it may be more
difficult to make investment decisions about us.
Our status as a “foreign private issuer” allows us to adopt IFRS accounting principles, which are different than accounting principles under
U.S. GAAP.
We have adopted and presented our financial statements in accordance with IFRS accounting principles. IFRS is an internationally
recognized body of accounting principles that are used by many companies outside of the United States to prepare their financial statements; and the
SEC recently permitted foreign private issuers such as the Company to prepare and file their financial statements in accordance with IFRS rather
than U.S GAAP. IFRS accounting principles are different from those of U.S. GAAP, and SEC rules do not require us to provide a reconciliation of
IFRS accounting principles to those of U.S GAAP. Accordingly, we suggest that readers of our financial statements familiarize themselves with the
provisions of IFRS accounting principles in order to better understand the differences between these two sets of principles.
As a “foreign private issuer” we are not subject to certain requirements that other NASDAQ listed issuers are required to comply with, some of
which are designed to provide information to and protect investors.
Our common shares are currently listed on the NASDAQ Capital Market and, for so long as our securities continue to be listed, we will
remain subject to the rules and regulations established by NASDAQ applicable to listed companies. However, we have elected to claim certain
exemptions afforded to foreign private issuers by relevant NASDAQ rules, and as a result:
a majority of the members on our Board of Directors are not independent as defined by NASDAQ rules;
our independent directors do not hold regularly scheduled meetings in executive session;
while executive compensation is recommended by our Compensation Committee which is comprised of independent directors, the
compensation of our executive officers is ultimately determined by the Board of Directors rather than an independent committee of
the board or by the independent members of the Board of Directors;
related party transactions are not required to be reviewed or approved by our audit committee or other independent body of the Board
of Directors;
10
we are not required to solicit shareholder approval of stock plans, including those in which our officers or directors may participate;
stock issuances that will result in a change in control; the issuance of our stock in related party acquisitions or other acquisitions in
which we may issue 20% or more of our outstanding shares; or, below market issuances of 20% or more of our outstanding shares to
any person; and
we are not required to hold an in-person annual meeting to elect directors and transact other business customarily conducted at an
annual meeting.
Due to an exemption from NASDAQ rules applicable to “foreign private issuers,” our related party transactions may not receive the type of
independent review process that other NASDAQ-listed companies receive; the terms of these transactions are not negotiated at arms-length and
may not be as favorable as could be obtained from unrelated parties.
We have historically engaged in a substantial number of transactions with related parties in the ordinary course of business, predominantly
with our principal beneficial owner and former Chairman and Chief Executive Officer and/or companies that he owns or controls. These
transactions are described in greater detail elsewhere in this Annual Report. In general, NASDAQ rules require that related party transactions be
reviewed by an audit committee or other committee comprised of independent directors. However, under NASDAQ rules applicable to foreign
private issuers such as our company, we are exempt from certain NASDAQ requirements, including requirements applicable to independent director
review of related party transactions. This exemption is available to us because the laws of the British Virgin Islands, our home jurisdiction, do not
mandate independent review of related party transactions.
Notwithstanding the foregoing, non-recurring related party transactions (i.e., related party transactions that are not in the ordinary course of
business) are submitted for approval by our Board of Directors, following disclosure of the related party’s interest in the transaction, and, in all
cases, board approval has historically included the unanimous approval of our independent directors. In addition, our annual audited financial
statements, including the related party transactions reported therein, are approved by our audit committee, which is comprised solely of independent
directors. However, except to the limited extent described above, these transactions are not individually reviewed or approved solely by independent
directors. While management believes that related party transactions are on terms at least as favorable to the Company as could be obtained from
unrelated parties, there is no assurance that such is the case, or that shareholders would not be better protected if we were not exempt from, or we
chose to voluntarily comply with, the NASDAQ rule.
Risks Related to our Common Shares
There are a limited number of our common shares in the public float and trading in our shares is not active; therefore, our common shares tend
to experience price volatility.
There are currently approximately 9,448,397 of our common shares in the public float and, in general, there has not been an active trading
market for our shares. Our shares tend to trade along with other shares of public companies whose operations are based in the People’s Republic of
China, and, at times, in tandem with other natural resource companies. These shares tend to exhibit periods of extreme volatility and price
fluctuations, even when there are no events peculiar to the Company that appear to warrant price changes. We cannot assure you that price volatility
will not continue in the future or, as a result thereof, that market prices will reflect actual values of our company.
As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately
influence the price of those shares in either direction. The share price could, for example, decline precipitously in the event that a large number of
shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without
adverse impact on its share price. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative new or lack of progress, be more inclined to sell their shares on the market more quickly and at greater
discounts than would be in the case with the stock of a seasoned issuer.
Our principal beneficial owner and his affiliates control us through their stock ownership; and their interests may differ from other
shareholders.
Mr. Li Feilie, beneficial owner of a majority of our outstanding common shares, beneficially owns approximately 59% of our outstanding
common shares, and as a result, Mr. Li is and will continue to be able to influence the outcome of shareholder votes on various matters, including
the election of directors and extraordinary corporate transactions such as business combinations. Through his related companies, Mr. Li also
provides funding to support the Company’s operating expenses and holds a substantial amount of the Company’s debt (see Item 7.B. “MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS – Related Party Transactions,” below). Mr. Li’s interests may differ from those of
other shareholders. Additional information relating to the beneficial ownership of our securities is contained elsewhere in this Annual Report under
Item 6.E. “DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – Share Ownership.”
11
The rights of our shareholders are governed by BVI law, the provisions of which may not be as favorable to shareholders as under U.S. law.
Our directors have the power to take certain actions without shareholder approval, including an amendment of our Memorandum of
Association or Articles of Association (unless such amendment varies the rights attached to shares) or an increase or reduction in our authorized
capital, which would require shareholder approval under the laws of most jurisdictions in the United States. In addition, the directors of a BVI
company, subject in certain cases to court approval but without shareholder approval, may, among other things, implement a reorganization, certain
mergers or consolidations with a subsidiary, the sale, transfer, exchange or disposition of any assets, property, part of the business, or securities of
the company, or any combination (provided the assets do not represent more than 50% of the total assets of the company and the sale is not outside
of the usual or ordinary course of the company’s business), if they determine it is in the best interests of the company. Our ability to amend our
Memorandum of Association and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a
change in our control without any further action by the shareholders, including a tender offer to purchase our common shares at a premium over
then current market prices.
The elimination of monetary liability against our directors, officers and employees under our articles of association and the existence of
indemnification of our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our
directors, officers and employees.
Our articles of association contain provisions which eliminate the liability of our directors for monetary damages to us and to our
stockholders to the maximum extent permitted under the corporate laws of the BVI. We may provide contractual indemnification obligations under
agreements with our directors, officers and employees. These indemnification obligations could result in our incurring substantial expenditures to
cover the cost of settlement or damage awards against directors, officers and employees, which we may be unable to recoup. These provisions and
resultant costs may also discourage us from bringing a lawsuit against directors, officers and employees for breach of their fiduciary duties, and may
similarly discourage the filing of derivative litigation by our shareholders against our directors, officers and employees even though such actions, if
successful, might otherwise benefit us Company and our shareholders.
Risks Related to the Spin-Off
We face uncertainties with respect to the applicability of PRC withholding tax on the Distribution.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises
(‘‘SAT Circular 698’’) issued by the State Administration of Taxation (‘‘SAT’’) on December 10, 2009 with retroactive effect from January 1,
2008, if a non-PRC resident enterprise transfers its indirect equity interests in a PRC resident enterprise by disposing of its equity interests in an
overseas holding company (‘‘Indirect Transfer’’), and such overseas holding company is located in a tax jurisdiction that has an effective tax rate of
less than 12.5% or does not tax foreign income of its residents, the non-PRC resident enterprise, as the transferor, is required to report the Indirect
Transfer to the relevant PRC tax authorities.
SAT issued an announcement in February 2015, i.e., the Notice of SAT on Several Issues Concerning the Corporate Income Tax on the
Indirect Transfers of Properties by PRC Non-Residents or “Circular7,” which abolishes certain provisions in SAT Circular 698 as well as certain
other rules providing clarification on Circular 698 and stipulates in greater detail how to evaluate the “reasonable commercial substance.” Circular 7
provides comprehensive guidelines relating to, and also heightens the PRC tax authorities’ scrutiny over, indirect transfers by a non-resident
enterprise of assets (including equity interest) of a PRC resident enterprise (“PRC Taxable Assets”). Pursuant to Circular 7, an “indirect transfer” of
assets, including equity interests in a PRC resident enterprise, by non- PRC resident enterprise may be re-characterized and treated as a direct
transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding
payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax.
On October 17, 2017, SAT issued the Announcement on Matters Concerning Withholding of Income Tax of Non-resident Enterprises at
Source (the “Circular 37”), which was implemented on December 1, 2017. Circular 37 replaced and supplemented certain previous provisions in
Circular 7 and further reduced the burden of a withholding obligator who is a non-resident enterprise and transfers PRC taxable assets indirectly by
disposing of equity interests in an overseas holding company directly or indirectly holding such PRC taxable assets, such as revocation of contract
filing requirements and tax liquidation procedures, strengthens the cooperation of tax authorities in different places, and clarifies the calculation of
tax payable and mechanism of foreign exchange. Pursuant to Circular 37, where the income on which enterprise income tax shall be withheld at
source as obtained by a non-resident enterprise are dividends, bonuses or other income from equity investments, the date when the obligation of
withholding the relevant payable taxes occurs shall be the date of the actual payment of the dividends, bonuses or income from other equity
investments.
12
It remains uncertain whether any of our transactions involving PRC taxable assets outside of the PRC will be reclassified by applying
Circular 7 and Circular 37. If any of our transactions involving PRC taxable assets outside of the PRC constitutes an indirect transfer of the PRC
taxable assets and is subject to the enterprise income tax obligation under Circular 7 and Circular 37, the amount of the enterprise income tax shall
be calculated based on the “ income from the transfer” (the difference between the consideration for transfer and costs of equity interests) and
applicable tax rate (a withholding tax rate of 10% shall be applicable, unless otherwise provided in the relevant tax treaty). However, as Circular 7
and Circular 37 became effective in February 2015 and December 2017, respectively, after completion of the Spin-Off, and are not retrospective, we
believe the risk is remote.
It is not possible to foresee all risks that may affect us. Moreover, we cannot predict whether we will successfully effectuate our current
business plan. Each prospective purchaser is encouraged to carefully analyze the risks and merits of an investment in the shares and should
take into consideration when making such analysis, among others, the Risk Factors discussed above.
ITEM 4.
INFORMATION ON THE COMPANY
A.
History and Development of the Company
From Inception Until 2006
China Resources was incorporated as Magenta Corp. on January 15, 1986, in the State of Nevada. China Resources had no operating
business until control of it was acquired in December 1994, by the former shareholders of CHNR, who exchanged all of the issued and outstanding
shares of capital stock of CHNR for 108,000 shares of China Resources' common stock. As a result of the acquisition, the former shareholders of
CHNR acquired 90% of the then issued and outstanding shares of common stock of China Resources, and CHNR became a wholly-owned
subsidiary of China Resources. CHNR was incorporated in the BVI on December 14, 1993.
On December 9, 2004, China Resources merged with and into CHNR (the “Redomicile Merger”). The Redomicile Merger was
consummated through an exchange of shares of China Resources for shares of CHNR on a one-for-one basis. As a result of the Redomicile Merger,
the Company became domiciled in the BVI and CHNR succeeded to the rights and obligations of China Resources under its existing agreements
and relationships. Prior to the Redomicile Merger, the Company’s common shares were traded on the NASDAQ Capital Market under the symbol
“CHRB.” Following the Redomicile Merger, the trading symbol was changed to “CHNR.”
Reverse Acquisition of Feishang Mining
On February 3, 2006, the Company consummated the Acquisition of all of the issued and outstanding capital stock of Feishang Mining.
Feishang Mining beneficially owns 100% of the capital stock of Wuhu Feishang, a company established under the laws of the PRC, which is
principally engaged in the mining of zinc, iron and other minerals for distribution in the PRC. We acquired the capital stock of Feishang Mining
from Feishang Group, a BVI company. Feishang Group is ultimately controlled by its sole beneficial owner, Mr. Li Feilie, our principal beneficial
owner and our former Chief Executive Officer and Chairman. In consideration for our receipt of the shares of Feishang Mining, the Company issued
9,980,593 of its common shares to Feishang Group, representing approximately 86.4% of the Company’s then issued and outstanding common
shares (after giving effect to the exchange of 320,000 outstanding preferred shares for 320,000 common shares), and issued to Feishang Group
warrants (the “Warrants”) to purchase an additional 4,500,000 common shares. Ching Lung Po, director, Chief Executive Officer and Chairman of
the Company resigned at the closing of the Acquisition, and Mr. Li Feilie, Chairman of Feishang Mining, was appointed as director, Chief
Executive Officer and Chairman of the Company. The Company’s other directors and executive officers were not changed as a result of the
Acquisition. The Warrants were fully exercised by Feishang Group, our principal shareholder, and the Company received gross proceeds of
US$8,000,000, US$6,750,000 and US$5,000,000 in connection therewith during the years ended December 31, 2008, 2009 and 2010, respectively.
13
Non-ferrous Metal Exploration and Mining; Coal Mining and Production; Copper Smelting; and Other Activities
At various times during the period from February 2006 through December 2017, we:
wned and operated a copper smelting plant located in Western Bolivia. We conducted our copper smelting operations through
Double Grow and its direct and indirect subsidiaries, including Antay Pacha. On December 29, 2017, we sold our interest in Double
Grow and its subsidiaries to an unrelated third party (see “DISCONTINUED SEGMENT – Copper Smelting Operations,” below).
Engaged in the exploration, mineral extraction, processing and sales of iron, zinc and other non-ferrous metals extracted or produced
at mines primarily located in Anhui Province in the PRC, as well as our operation of related businesses. On December 27, 2015, we
temporarily suspended our metals mining operations due to the low market price for non-ferrous metals and because we had
substantially depleted minable ore at Yangchong Mine, our sole operating mine. We sold our non-ferrous mining operations to an
unrelated third party in March 2017 after concluding that market prices for non-ferrous metals, and the related costs of extraction and
processing, did not warrant continued operations at Yangchong Mine (see “DISCONTINUED SEGMENT – Exploration and Mining
of Non-ferrous Metals,” below).
Engaged in the mining and production of anthracite coal at mines located in Guizhou Province in the PRC. We conducted these
activities through our indirect wholly-owned subsidiary, Feishang Anthracite. We disposed of our coal mining and related businesses
in connection with the January 2014 Spin-Off and listing on the Main Board of the Hong Kong Stock Exchange of the shares of
Feishang Anthracite (see “DISCONTINUED SEGMENT - Coal-Mining and Related Businesses,” below).
Engaged in copper smelting operations through our subsidiary Mark Faith Technology Development Limited in Inner Mongolia. We
sold our copper smelting operations to an unrelated third party in September 2009.
Exploration Activities in Inner Mongolia
The Board of Directors has determined to focus the Company’s resources on metals explorations and mining activities and other business
opportunities in the PRC. We are currently exploring for lead, silver and other metals in the Inner Mongolia Autonomous Region of the PRC.
In November 2017, we acquired all of the issued and outstanding capital stock of Bayannaoer Mining for a purchase price of CNY716,900.
Bayannaoer Mining holds an exploration permit issued by the Land and Resources Department of Inner Mongolia Autonomous Region covering
Moruogu Tong Mine, located in Wulatehouqi, Bayannaoer City, Inner Mongolia. The exploration permit evidences Bayannaoer Mining’s right to
explore for minerals at Moruogu Tong Mine (see “BUSINESS SEGMENT – Metal Exploration Activities in Inner Mongolia,” below). Initial results
of the exploration program indicate the presence of a “mid-size” deposit of lead and silver ore and resources sufficient in quantity and quality to
warrant further exploration, which is designed to confirm and increase measured resources, and identify other minable metal resources such as
copper. We anticipate that our working capital and capital expenditures for our exploration activities will be funded through internally generated
cash in prior years, non-interest bearing loans from related parties, and funds provided pursuant to the Cooperation Agreement.
Other Matters
During 2018, we invested CNY5.00 thousand (US$0.73 thousand) in capital expenditures.
The Company has not been a party to any bankruptcy, receivership or similar proceedings, trade suspensions or cease trade orders by any
regulatory authority.
The Company’s executive offices are located at Room 2205, 22/F, West Tower, Shun Tak Centre, 168-200 Connaught Road Central,
Sheung Wan, Hong Kong, telephone +852 28107205. The Company does not currently maintain an agent in the United States.
The SEC maintains an Internet website that contains reports, information statements and other documents that we furnish to or file with the
SEC. Those documents may be viewed, downloaded and/or printed. The address of the SEC website is http://sec.gov.
We maintain a company website at http://www.chnr.net. The information on our website is not a part of this report.
14
B.
Business Overview
BUSINESS SEGMENT – Metal Exploration Activities in Inner Mongolia
Acquisition of Bayannaoer Mining
On November 30, 2017, CHNR’s subsidiary Yangpu Shuanghu entered into separate agreements with Feishang Enterprise and Shenzhen
Chaopeng Investment Co., Ltd. (“Shenzhen Chaopeng”), each of which is a related party. Pursuant to the agreement with Feishang Enterprise (the
“Feishang Enterprise Agreement”), the Company consummated its acquisition of approximately 98.32% of the issued and outstanding capital shares
of Bayannaoer Mining. Pursuant to the agreement with Shenzhen Chaopeng (together with the Feishang Enterprise Agreement, the “Acquisition
Agreements”), the Company consummated its acquisition of approximately 1.68% of the issued and outstanding capital shares of Bayannaoer
Mining. The Acquisition Agreements are identical to each other except as to the name of seller, the amount of consideration and similar information.
The purchase price for all of the issued and outstanding capital shares of Bayannaoer Mining (the “BM Acquired Shares”) is CNY716,900,
which is approximately equal to the net asset value of Bayannaoer Mining as of September 30, 2017. The purchase price was paid by delivery to
Feishang Enterprise and Shenzhen Chaopeng of Yangpu Shuanghu’s several promissory notes (the “Notes”) in the aggregate principal amount of
CNY716,900, payable without interest. The Notes were paid in December 2017.
The Acquisition Agreements contain customary representations, warranties and covenants covering such matters as ownership of the BM
Acquired Shares by the sellers free and clear of all liens, charges and encumbrances and due authorization, execution and enforceability of the
Acquisition Agreements, as well as covering the historical operations of Bayannaoer Mining, including without limitation, its organization,
capitalization, financial condition, tax payments and compliance with applicable laws, rules and regulations. The Acquisition Agreements also
contain indemnification provisions in favor of the Company in the event of breaches of the sellers’ representations, warranties and covenants.
Bayannaoer Mining holds an exploration permit issued by the Land and Resources Department of Inner Mongolia Autonomous Region
covering Moruogu Tong Mine, located in Wulatehouqi, Bayannaoer City, Inner Mongolia. Based upon preliminary geologic surveys, it is believed
that Moruogu Tong Mine contains minable amounts of lead and silver resources, with the prospect that further surveying and exploration may
indicate the presence of other minable ore such as copper.
Feishang Enterprise and Shenzhen Chaopeng are each beneficially owned by Mr. Li Feilie, the principal beneficial owner of the Company,
and members of his family. Mr. Li is also the former Chief Executive Officer and Chairman of the Company and currently serves as an executive
officer and director of certain subsidiaries of the Company (see Item 7.B. “MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS – Related Party Transactions,” below). Wong Wah On Edward, the Chief Executive Officer and Chairman of the Company, and
Bonaventure Yue, the Company’s Chief Financial Officer and a Director, are each also executive officers of Feishang Enterprise and/or certain of its
affiliates.
The foregoing description of the Acquisition Agreements is only a summary and is qualified in its entirety by reference to the Acquisition
Agreements, copies of which have been translated into English and incorporated by reference as Exhibits 4.16 and 4.17, respectively, to this Annual
Report.
Lead and Silver Industry and Market
Lead (chemical element symbol Pb) is a supple and ductile heavy metal that is denser than most common materials. In its pure state, lead is
bluish-white; it tarnishes to a dull gray color when exposed to air. It is extensively used in construction, plumbing, batteries, bullets and shot,
weights, solders, pewters, fusible alloys, white paints, leaded gasoline, and radiation shielding. Lead's properties of high density, low melting point,
ductility and relative inertness to oxidation allow it to be used in a wide range of applications, of which uses in lead-acid batteries are by far the
most prevalent. The reactions in the battery between lead, lead dioxide, and sulfuric acid provide a reliable source of voltage. Despite having lower
energy density and charge-discharge efficiency than lithium-ion batteries, lead-acid batteries have stable electromotive force when discharging and
steady working voltage, while being significantly cheaper. These properties and their ability to supply high surge currents and operate under a wide
range of temperatures make them by far irreplaceable in the automobile industry.
15
Lead is an internationally traded commodity, the price of which is effectively established on commodity markets throughout the world.
During 2018, world lead production output increased steadily, especially in the second half of the year, but lead was still in short supply globally for
most of the year. In China, lead imports have surged since 2017 and remained high during 2018. Due to the global economy upturn, lead prices have
increased rapidly since mid-2016. During 2018, lead prices remained volatile at relatively high levels, but generally followed a decreasing trend. It
reached an annual high of CNY20,810 (US$3,025) per tonne in June 2018 before it started to decline. The closing price at the end of 2018 was
CNY18,050 (US$2,624) per tonne, representing a decrease of approximately 6% compared with the opening price at the beginning of the year.
The following table shows the world refined production and world refined usage of lead over the past five years:
World refined production (in thousand tonnes)
World refined usage (in thousand tonnes)
China’s refined production (in thousand tonnes)
China’s refined usage (in thousand tonnes)
LME average price (US$/tonne)
SHFE average price (CNY/tonne)
———————
Source: ILZSG, LME, SHFE, Wind Economic Database.
2014
2015
2016
2017
2018
11,139
11,127
4,946
4,951
1,857
12,375
10,310
10,244
4,068
4,076
1,783
13,145
10,832
10,828
4,483
4,447
2,015
17,555
11,678
11,857
5,028
5,144
2,531
19,160
11,817
11,972
4,955
5,145
2,021
18,005
Silver (chemical element symbol Ag) is a soft, ductile, and malleable metal with the highest electrical conductivity, thermal conductivity
and reflectivity of any metal. It has a brilliant white metallic luster that can take a high polish and has similar physical and chemical properties with
copper and gold. Most silver is produced as a byproduct during refining of copper, gold, lead, or zinc. Despite being more abundant than gold, silver
has long been valued as a precious metal and used in currency and as an investment medium (bullion coins) alongside gold. It is also used in
jewelry, silverware, medicine, electronics, brazing alloys, chemical equipment, catalysis, and photography, etc.
Silver is an internationally traded commodity, the price of which is effectively established on commodity markets throughout the world.
Before 2018, silver was in short supply globally, but excess supply occurred in 2018 due to sluggish industrial demand and a slowing global
economy. Silver prices have been declining since 2011. Although a slight rebound occurred in 2016, the downward trend continued in the second
half of 2016. During 2018, silver prices remained volatile at relatively low levels and generally followed a decreasing trend. It reached an annual
high of CNY3,939 (US$573) per kg in January 2018 before it started to decline. The closing price at the end of 2018 was CNY3,700 (US$538) per
kg, representing a decrease of approximately 5% compared with the opening price at the beginning of the year.
The following table shows the world refined production and world refined usage of silver over the past five years:
World production from mines (in tonnes)
World total production (in tonnes)
World total demand (in tonnes)
COMEX average price (US$/oz)
SHFE average price (CNY/kg)
———————
Source: COMEX, SHFE, Wind Economic Database.
Metal Exploration Activities
Overview of Bayannaoer Mining
2014
2015
2016
2017
2018
27,112
32,680
34,783
15.6
3,524
27,406
32,338
35,815
13.8
3,294
26,147
31,324
31,968
16.0
4,102
25,043
31,103
30,360
17.1
3,885
24,071
31,041
30,170
15.5
3,674
Bayannaoer Mining was established in 2005 to engage in mineral exploration activities in Bayannaoer City, located in the Inner Mongolia
Autonomous Region of the PRC. The registered capital of Bayannaoer Mining is CNY59.48 million, approximately 98.32% of which was
contributed by Feishang Enterprise and approximately 1.68% by Shenzhen Chaopeng.
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In 2005, Bayannaoer Mining obtained 11 exploration rights from the Land and Resources Department of Inner Mongolia Autonomous
Region. Following completion of preliminary exploration activities and evaluation, management determined to retain exploration rights solely to
Moruogu Tong Mine; and, to date, has received a series of license renewals. Total exploration expenses (other than non-current assets and
administrative expense) incurred to date amount to approximately CNY35.50 million. The current exploration permit for Moruogu Tong Mine runs
from September 14, 2017 to September 13, 2019 and covers a site area of 10.43 square kilometers.
Moruogu Tong Mine is located in Wulatehouqi, Bayannaoer City, in the Inner Mongolia Autonomous Region of the PRC. In 2006,
Bayannaoer Mining engaged the Land and Resources Exploration and Development Institute of Inner Mongolia to carry out prospecting, including
geophysical and drilling works; and, to date, has incurred exploration expenses of approximately CNY16.70 million, which were paid from internal
funds. To date, the exploration program at Moruogu Tong Mine primarily involved the completion of mine geological surveying and mapping at
1:2000 covering an area of 2.73 square kilometers, which included trenching exploration works totaling 982.94 cubic meters in nine trenches and 76
drill holes for a total of 22,272.86 meters. 1,467 different samples, including basic analysis samples, chemical analysis samples, spectra samples and
aqueous analysis samples, etc., were collected during the exploration program.
Initial results of the exploration program indicate the presence of a “mid-size” deposit of lead and silver ore and resources sufficient in
quantity and quality to warrant further exploration designed to confirm and increase measured resources, with the prospect of identifying other
minable metal resources such as copper. Further exploration is subject to negotiation with Jijincheng Mining (based on a number of factors
including, inter alia, the economic, geological and technical viability of mining) as to whether to continue exploration of potential copper resources
in 2019. Thereafter, a final appraisal and application for mining rights will be scheduled.
The future budgeted amount for the exploration project, including drilling expenses, site construction costs, grassland compensation fees
and simple infrastructure construction costs, is anticipated to be approximately CNY11.40 million. This project is expected to be financed by bank
borrowings, funds received pursuant to the Cooperation Agreement, and loans from a related party. While the results of preliminary prospecting
suggest that Moruogu Tong Mine contains mineable quantities of lead and silver, until further exploration and analysis is completed, the Company
cannot predict the nature and extent of minerals contained at the mine or the commercial viability of pursuing a plan of extraction. It is possible that
further exploration and analysis will not confirm initial findings and that continued activities in furtherance of mining operations will cease.
Mutual Cooperation Agreement
On August 20, 2017, Bayannaoer Mining entered into the Cooperation Agreement with Jijincheng Mining, an unrelated third party. The
Cooperation Agreement is intended to provide for financial support by Jijincheng Mining for the operating expenses of Moruogu Tong Mine during
the exploration stage, and the allocation of rights and responsibilities between Bayannaoer Mining and Jijincheng Mining. Pursuant to the
Cooperation Agreement: (i) Bayannaoer Mining contributed the existing exploration results for Moruogu Tong Mine; (ii) Jijincheng Mining
provides the necessary funds for further exploration at the mine; (iii) Bayannaoer Mining enjoys full rights to any resources already discovered and
confirmed by its independent exploration works conducted prior to commencement of the cooperative exploration project; (iv) Bayannaoer Mining
and Jijincheng Mining will each receive a 50% interest in any newly discovered resources from the first 10 drilling holes in the cooperative
exploration project; and (v) Bayannaoer Mining and Jijincheng Mining will receive 30% and 70% interests, respectively, in any newly discovered
resources from drilling works beyond the first 10 drilling holes in the cooperative exploration project. Other details of the Cooperation Agreement,
including allocations and distributions upon completion of exploration works, remain the subject of continuing discussion between the parties. To
date, total exploration expenses paid by Jijincheng Mining amount to approximately CNY6.70 million.
The foregoing description of the Cooperation Agreement is only a summary and is qualified in its entirety by reference to the Cooperation
Agreement, a copy of which has been translated into English and incorporated by reference as Exhibit 4.21 to this Annual Report.
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Geography
The following diagram shows the geography of Bayannaoer Mining’s exploration site and its surrounding areas:
Moruogu Tong Mine of Bayannaoer Mining is located in Wulatehouqi, Bayannaoer City, in the Inner Mongolia Autonomous Region of the
PRC. The mine is approximately 45 kilometers to Chaogewenduer Town and 40 kilometers to Qingshan Town. The Qingxian Road passes through
the southern part of the mine and transportation is very convenient. Connectivity to water, electric and other necessary services will be addressed at
the time of mine construction and development. The current exploration permit for Moruogu Tong Mine runs from September 14, 2017 to
September 13, 2019 and covers a site area of 10.43 square kilometers.
18
Government Regulation of Mineral Exploration Activities
Under the “Mineral Resources Law,” all mineral resources in the PRC are owned by the State. Exploration and mining rights granted by
the State permit recipients to conduct exploration or mining activities in a specific mining area during the specified license period. Although
Bayannaoer Mining believes its exploration licenses will continue to be renewed, as necessary, there can be no assurance that such will be the case
or that Bayannaoer Mining will be able to obtain a mining license in the future and exploit the entire mineral resources of Moruogu Tong Mine
during its license period. If Bayannaoer Mining fails to renew its exploration rights upon expiry or if it cannot obtain a mining license and
effectively extract the resources within the license period, the operation and performance of Bayannaoer Mining will be adversely affected.
Bayannaoer Mining’s exploration permit entitles it to undertake exploration activities in compliance with applicable laws and regulations,
within the specific area covered by the license during the license period. Bayannaoer Mining is required to complete a prospecting report and a final
appraisal and file with the relevant government authority before it can apply for mining rights and proceed to mine construction. A mining rights
permit entitles the holder to undertake mining activities and infrastructure and ancillary work, in compliance with applicable laws and regulations,
within the specific area covered by the license during the license period. Holders are required to submit a mining proposal and feasibility studies to
the Land and Resources Department of Inner Mongolia Autonomous Region. Entities seeking mining rights are also obligated to pay natural
resources fees and resources compensation fees in relation to sales of metal concentrates.
The State Administration for Environmental Protection is responsible for the supervision of environmental protection in, the
implementation of national standards for environmental quality and discharge of pollutants for, and the supervision of the environmental
management system of the PRC. Environmental protection bureaus at the county level or above are responsible for environmental protection within
their jurisdictions.
The laws and regulations governing environmental protection require each applicant to lodge environmental impact statements for a
construction project with the environmental protection bureaus at the county level. These statements must be filed prior to the commencement of
construction, expansion or modification of a project. The environmental protection bureaus inspect new production facilities and determine
compliance with applicable environmental standards, prior to the commencement of operations.
The “Environmental Protection Law” requires all operations that may cause pollution or produce other hazards to take environmental
protection measures and to establish an environmental protection responsibility system. Such system includes the adoption of effective measures to
prevent and control exhaust gas, sewage, waste residues, dust or other waste materials. Entities discharging pollutants must report to and register
with the Ecology and Environment Department of Inner Mongolia Autonomous Region.
If an enterprise fails to report or register the environmental pollution caused by it, it is subject to receiving a warning or penalty. Enterprises
which fail to restore the environment or remedy the effects of the pollution within the prescribed time are also subject to penalty or termination of
their business licenses. Enterprises which have polluted and endangered the environment are responsible for remedying the danger and effects of the
pollution, as well as for the payment of compensation for any losses or damages suffered as a result of such environmental pollution. A material
violation of the Environmental Protection Law that causes a material loss to public and private belongings or personal injuries or death may result in
criminal liabilities.
Management believes that Bayannaoer Mining is in material compliance with all applicable environmental protection requirements of the
State.
NON-BUSINESS SEGMENT – Corporate Activities
Active Subsidiaries
Feishang Management
Feishang Management was incorporated in the PRC in October 2008. It is a wholly-owned subsidiary of Yunnan Mining and was engaged
in providing of management and consulting services to the other companies in the Group. Feishang Management currently serves as a cost center for
the Group.
Inactive Subsidiaries
The following subsidiaries are not currently engaged in active operations but remain in good standing in their home jurisdictions and are
poised to participate in future opportunities, should they arise:
19
China Coal
China Coal was incorporated in Hong Kong in January 2008. It is a wholly-owned subsidiary of CHNR.
Feishang Dayun
Feishang Dayun was incorporated in Hong Kong in June 2008. It is a wholly-owned subsidiary of Pineboom.
Feishang Mining
Feishang Mining was incorporated in the BVI in September 2004. It is a wholly-owned subsidiary of CHNR.
Feishang Yongfu
Feishang Yongfu was incorporated in Hong Kong in June 2008. It is a wholly-owned subsidiary of Newhold.
Newhold
Newhold was incorporated in the BVI in July 2008. It is a wholly-owned subsidiary of CHNR.
Pineboom
Pineboom was incorporated in the BVI in May 2008. It is a wholly-owned subsidiary of CHNR.
Yangpu Lianzhong
Yangpu Lianzhong was incorporated in the PRC in January 2008. It is a wholly-owned subsidiary of China Coal.
Yangpu Shuanghu
Yangpu Shuanghu was incorporated in the PRC in May 2004. It is a wholly-owned subsidiary of Feishang Yongfu.
Yunnan Mining
Yunnan Mining was incorporated in the PRC in June 2007. It is a wholly-owned subsidiary of Yangpu Shuanghu.
FMH Services
FMH Services is a Florida company incorporated in November 2007 in connection with a proposed transaction that was not consummated.
FMH Services, which is wholly-owned by CHNR, is currently dormant.
Silver Moon
Silver Moon is a BVI company incorporated in March 2000. Silver Moon, which is 80%-owned by CHNR, is currently dormant.
Sunwide
Sunwide was incorporated in the BVI in January 2001. Sunwide is a wholly-owned subsidiary of CHNR and is currently dormant.
DISCONTINUED SEGMENT – Exploration and Mining of Non-ferrous Metals
Metals mining operations included the exploration for, and extraction, production and sale of, non-ferrous metals. Our metal mining
operations were conducted by Wuhu Feishang, a PRC company that was wholly-owned by Feishang Mining. Wuhu Feishang is principally engaged
in the mining of zinc, iron, and other minerals and non-ferrous metals, and their sale in the PRC.
On February 24, 2017, Feishang Mining together with Wuhu City Feishang Industrial Development Co., Ltd. (“Wuhu Industrial”), as
nominee for Feishang Mining (collectively “WH Sellers”), entered into an agreement (the “WH Purchase Agreement”) with Mr. Shen Yandi, an
unrelated individual (“WH Purchaser”), pursuant to which WH Sellers sold and WH Purchaser purchased, all of WH Sellers’ right, title and interest
in and to the outstanding capital stock (the “WH Equity Interests”) of Wuhu Feishang.
20
The CNY1.00 million purchase price for the WH Equity Interests was delivered to WH Sellers, and WH Sellers delivered the WH Equity
Interests to WH Purchaser, at a closing held on March 3, 2017, following receipt of regulatory approval for transfer of the WH Equity Interests to
WH Purchaser. Pursuant to the WH Purchase Agreement:
Wuhu Feishang remains responsible for all of its liabilities and financial obligations other than those expressly undertaken by WH
Sellers.
WH Sellers established a joint bank account and WH Purchaser contributed CNY3.00 million into the account as an earnest money
deposit. The account will also include funds to be deposited by Wuhu Feishang to fund certain of Wuhu Feishang’s on-going
financial obligations under the WH Purchase Agreement. The funds in the account will be disbursed with the approval of WH
Sellers, upon the attainment of milestones and in the manner described in the WH Purchase Agreement.
The parties allocated responsibility for certain on-going negotiations and settlements with employees and various townspeople
affected by Wuhu Feishang’s mining operations; as well as for certain on-going litigation.
WH Purchaser and Wuhu Feishang are prohibited from using the name “Feishang” in their operations.
A schedule of penalties is established to compensate a party for the other party’s breach of the terms of the WH Purchase Agreement.
In some cases, penalties are in addition to indemnification and/or performance obligations of a breaching party.
The foregoing description of the WH Purchase Agreement is only a summary and is qualified in its entirety by reference to the WH
Purchase Agreement, a copy of which has been translated into English and incorporated by reference as Exhibit 4.14 to this Annual Report.
DISCONTINUED SEGMENT – Copper Smelting Operations
On December 23, 2016, the Company entered into an agreement with Feishang Hesheng, a related party, and completed the acquisition of
all of the issued and outstanding capital stock of Double Grow (the “DG Acquired Shares”), its direct and indirect subsidiaries Easy Gain and Full
Profit, each of which is organized under the laws of the BVI, and their operating subsidiary, Antay Pacha. Antay Pacha principally engages in
copper smelting and the production of copper cathodes for sales to customers located primarily in Bolivia, Germany and the PRC.
The US$1,541,129 purchase price for the DG Acquired Shares includes the assumption of US$1,441,129 of indebtedness owed by Double
Grow to Feishang Hesheng (the “Loan”). The Company paid the purchase price by delivery of its check in favor of Feishang Hesheng in the amount
of US$100,000 and is required under the agreement to assume Double Grow’s obligation to repay the Loan. In consideration of the Company’s
assumption of the Loan, Feishang Hesheng delivered its Deed of Assignment of the Loan in favor of the Company.
Feishang Hesheng is beneficially owned by Mr. Li Feilie, the principal beneficial owner of the Company, and members of his family. Mr.
Li is also the former Chief Executive Officer and Chairman of the Company. Mr. Wong Wah On Edward, currently the Chief Executive Officer and
Chairman of the Company, is also the Company Secretary of Feishang Hesheng.
On December 23, 2016, Feishang Hesheng waived payment of a US$8,000,000 indebtedness owed to it by Double Grow.
On December 29, 2017, the Company and Double Grow entered into an agreement (the “DG Purchase Agreement”) with Shanghai
Kangzheng Investment Management Co., Ltd. (“DG Purchaser”), an unrelated third party, pursuant to which the Company sold all of the
Company’s right, title and interest in and to the outstanding capital stock (the “DG Equity Interests”) of Double Grow and its subsidiaries to the DG
Purchaser.
The DG Purchase Agreement provides that the purchase price for the DG Equity Interests is US$2,641,129 (the “Purchase Price”),
including the payment of US$1,441,129 in indebtedness of Double Grow to the Company. The Purchase Price was paid (a) US$1,200,000 in cash,
delivered in December 2017, and (b) US$1,441,129 by the DG Purchaser’s delivery of its promissory note payable, without interest, on January 28,
2018 (the “Note”). At the time the DG Purchase Agreement was signed, the parties also executed a Deed of Assignment of Loan (the “Deed of
Assignment”) pursuant to which the Company assigned to the DG Purchaser its right to receive repayment of the US$1,441,129 loan from Double
Grow. Following the disposition, the Company ceased its copper smelting business in Bolivia.
The Board of Directors authorized the DG Purchase Agreement following its determination to focus its resources on metals mining and
other business operations in the PRC. Following disposition of the DG Equity Interests in Double Grow, CHNR’s operations consist of the
exploration for lead, silver and other metals in the Inner Mongolia Autonomous Region of the PRC.
21
The foregoing description of the DG Purchase Agreement is only a summary and is qualified in its entirety by reference to the DG
Purchase Agreement, a copy of which has been translated into English and incorporated by reference as Exhibit 4.18 to this Annual Report.
DISCONTINUED SEGMENT - Coal-Mining and Related Businesses
On December 31, 2013, the Board of Directors approved a conditional special interim dividend to the shareholders of CHNR satisfied by
way of a distribution in specie of the entire issued share capital of Feishang Anthracite to all shareholders of CHNR in proportion to their respective
shareholdings in CHNR on the Distribution Record Date. Pursuant to the Distribution, each shareholder of CHNR became entitled to five shares of
Feishang Anthracite for every share of CHNR held on the Distribution Record Date. Following completion of the Distribution, CHNR no longer
holds any shares in Feishang Anthracite and discontinued its acquisition and exploitation of mining rights, including the exploration, construction,
development and operation of coal mines located in Guizhou Province, the PRC.
The Spin-Off did not involve any offering of new shares of Feishang Anthracite or a public offering of any other securities and no funds
were raised pursuant to the Spin-Off. The Distribution became unconditional upon successful listing by way of introduction on the Main Board of
the Hong Kong Stock Exchange of Feishang Anthracite on January 22, 2014.
In preparation for the Distribution, the Board of Directors passed resolutions in writing on December 6, 2013 to approve the following
matters:
-
-
-
change of the authorized share capital of Feishang Anthracite from US$50,000 divided into 50,000 ordinary shares of US$1.00 each
to HK$10,000,000 divided into 1,000,000,000 shares of HK$0.01 each;
repurchase and cancellation of all issued shares of US$1.00 each from CHNR for US$1.00; and
issue of a total of 124,554,580 shares of HK$0.01 each to CHNR for HK$98,380,000.
These transactions were completed on December 12, 2013.
Prior to the Spin-Off, Feishang Anthracite and its direct and indirect subsidiaries operated the Company’s coal segment, including the
exploration, construction, development and operation of coal mines located in Guizhou Province, the PRC.
C.
Organizational Structure
CHNR is a holding company directly or indirectly owning the following subsidiaries, to the extent indicated (as of April 25, 2019):
100%
100%
80%
FMH Services
(Florida, US)
Feishang Mining
(BVI)
Silver Moon
(BVI)
CHNR
(BVI)
100%
China Coal
(HK)
100%
Yangpu
Lianzhong
(PRC)
100%
Sunwide
(BVI)
100%
Bayannaoer
Mining
(PRC)
100%
Pineboom
(BVI)
100%
Feishang
Dayun
(HK)
100%
Newhold
(BVI)
100%
Feishang
Yongfu
(HK)
100%
Yangpu
Shuanghu
(PRC)
100%
Yunnan Mining
(PRC)
100%
Feishang
Management
(PRC)
All current operations are conducted by Bayannaoer Mining. See Item 4.B. “BUSINESS SEGMENT – Metal Exploration Activities in
Inner Mongolia,” above, and Exhibit 8 for descriptions of the Company’s subsidiaries.
22
D.
Property, Plant and Equipment
The Company’s administrative offices and its principal subsidiaries are located in Hong Kong, Shenzhen (Guangdong Province) and
Bayannaoer City (Inner Mongolia Autonomous Region) in the PRC.
On April 1, 2017, the Company signed an office sharing agreement with Anka which superseded all previously signed agreements between
the parties, pursuant to which the Company shares 184 square meters of the total area of the office premises. The agreement also provides that the
Company shares certain costs and expenses in connection with their use of the office, in addition to certain accounting and secretarial services and
day-to-day office administration services provided by Anka. For the years ended December 31, 2016, 2017 and 2018, the Company paid its share of
rental expenses and rates to Anka amounting to approximately CNY631,000, CNY949,000 and CNY1,036,000 (US$150,614), respectively.
The offices and exploration site of Bayannaoer Mining are located in Bayannaoer City, Inner Mongolia Autonomous Region in the PRC.
The property, plant and equipment of Bayannaoer Mining mainly includes vehicles, office equipment and furniture, with a total net value as of
December 31, 2019 of approximately CNY0.27 million (US$0.04 million). On May 11, 2016, May 11, 2017 and May 11, 2018, Bayannaoer Mining
signed annual lease agreements with private individuals pursuant to which Bayannaoer Mining leases office premises located at 10/F, Huaao
Building, Shengli North Road in Bayannaoer City. The office covers an area of 274 square meters and annual rent in each of 2016, 2017 and 2018
was CNY82,200, CNY82,200 and CNY82,200 (US$11,950), respectively. It is anticipated that Bayannaoer Mining will renew this lease for an
additional year commencing May 11, 2019.
The Moruogu Tong Mine exploration site is located in Northwestern Qingshan Town, Wulatehouqi in Bayannaoer City and covers an area
of approximately 10.43 square kilometers. As is typical in the PRC, the PRC government owns all of the land on which the exploration activities are
carried out. Bayannaoer Mining assumed the rights to use the land when it obtained the exploration right from the Land and Resources Department
of Inner Mongolia Autonomous Region in 2005.
For the years ended December 31, 2016, 2017, and 2018, the Company incurred capital expenditures (excluding fees for renewal of mining
rights) of CNY4.95 million, CNY4.21 million and CNY5.00 thousand (US$0.73 thousand), respectively.
See Item 5.F. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS – Tabular Disclosure of Contractual Obligations” for the
Company’s material commitments for capital expenditures. In the event we determine to pursue a mining permit and thereafter engage in mining at
Moruogu Tong Mine, we will be required, among other things, for mine construction and development, including to build roads and make provision
for water and electricity at the mine site. There will be significant capital expense for these and other projects. We intend to fund those capital
expenditures from the proceeds of loans from our Related-Party Debtholders, payments pursuant to the Cooperation Agreement and, to the extent
deemed necessary, bank borrowings.
ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
23
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Forward-Looking Statements
The following discussion contains statements that constitute forward-looking statements within the meaning of Federal securities laws.
These statements include, without limitation, statements regarding the intentions, beliefs and current expectations of Company management with
respect to the Company's policies regarding investments, dispositions, financings, conflicts of interest and other matters; and trends affecting the
Company's financial condition or results of operations. Forward-looking statements are not a guarantee of future performance and involve risks and
uncertainties, and actual results may differ materially from those in the forward-looking statement as a result of various factors. Among the risks and
uncertainties that could cause our actual results to differ from our forward-looking statements are our intent, belief and current expectations as to
business operations and operating results, uncertainties regarding the governmental, economic and political circumstances in the People’s Republic
of China, uncertainties concerning the viability of mining at the Company’s Moruogu Tong Mine in Inner Mongolia, uncertainties regarding the
estimates of reserves contained in Moruogu Tong Mine in Inner Mongolia, uncertainties associated with volatility in the market price of lead, silver
and other metals, uncertainties relating to possible future increases in operating expenses, including costs of labor and materials, and other risks
detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including without limitation the information set
forth in Item 3.D. of this Annual Report under the heading, “Risk Factors.” With respect to forward-looking statements that include a statement of
its underlying assumptions or bases, the Company cautions that, while it believes its assumptions or bases are reasonable and have formed them in
good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can
be material depending on the circumstances. When, in any forward-looking statement, the Company, or its management, expresses an expectation or
belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no
assurance that the stated expectation or belief will result or be achieved or accomplished.
The following discussion and analysis of the results of operations and the Company’s financial position should be read in conjunction with
the consolidated financial statements and accompanying notes for the years ended December 31, 2016, 2017 and 2018 included elsewhere herein.
The consolidated financial statements of the Company have been prepared in accordance with IFRS as issued by the International Accounting
Standards Board (“IASB”).
A.
Operating Results
Continuing operations
On December 23, 2016, CHNR acquired all of the issued and outstanding capital stock of Double Grow, its direct and indirect subsidiaries
Easy Gain and Full Profit, and their operating subsidiary, Antay Pacha. Antay Pacha proposed to principally engage in the smelting of copper ore
and production of copper cathodes for sale in markets including China, Germany and Bolivia. On December 29, 2017, CHNR disposed all of the
issued and outstanding capital stock of Double Grow and its subsidiaries and ceased its copper smelting business in Bolivia.
On March 3, 2017, Feishang Mining disposed of its entire interest in Wuhu Feishang to Mr. Shen Yandi, an unrelated individual, for a
consideration of CNY1.00 million, after concluding that current market prices for non-ferrous metals, and the related costs of extraction and
processing, did not permit us to engage in profitable mining operations. As a result of the disposition of Wuhu Feishang, the Company no longer
engages in the acquisition and exploitation of mining rights covering iron, zinc and other non-ferrous metals.
On November 30, 2017, CHNR acquired all of the issued and outstanding capital stock of Bayannaoer Mining, a PRC company established
in 2005 to engage in mineral exploration activities in Bayannaoer City, in the Inner Mongolia Autonomous Region of the PRC. Bayannaoer Mining
currently holds an exploration permit issued by the Land and Resources Department of Inner Mongolia Autonomous Region covering Moruogu
Tong Mine, located in Wulatehouqi, Bayannaoer City, Inner Mongolia. Based upon preliminary geologic surveys, it is believed that Moruogu Tong
Mine contains minable amounts of lead and silver resources, with the prospect that further surveying and exploration may indicate the presence of
other minable ore such as copper.
The Board of Directors has determined to focus the Company’s resources on metals explorations and mining activities and other business
operations in the PRC. Following disposition of the DG Equity Interests in Double Grow, our sole operations consist of the exploration for lead,
silver and other metals in the Inner Mongolia Autonomous Region of the PRC.
As both Wuhu Feishang and Antay Pacha were disposed of during 2017, and the recently acquired Bayannaoer Mining is still in the
exploration stage, the Group did not generate any revenue during the 2018 and 2017 fiscal years. The following discussion reflects only the
continuing operations of the Company:
24
Administrative Expenses
2018 vs 2017
Administrative expenses are mainly comprised of salaries and staff welfare expenses, depreciation expenses, travel and entertainment
expenses, legal and professional fees, rental expenses, and office expenses.
Administrative expenses were CNY6.21 million (US$0.90 million) in 2018 as compared with CNY6.20 million in 2017. No material
fluctuation was noted for the comparative periods, as the decrease of audit fee in 2018 was offset by the inclusion of the administrative expenses of
Bayannaoer Mining which was acquired in November 2017.
2017 vs 2016
Administrative expenses increased by CNY1.68 million, or 37.17%, to CNY6.20 million in 2017 and from CNY4.52 million in 2016. The
increase in administrative expenses was primarily caused by the increase in audit fee and the inclusion of the administrative expenses of Bayannaoer
Mining which was acquired in November 2017.
Discontinued Operations
Discontinued operations for the year ended December 31, 2017 arose from the disposal of 100% of Wuhu Feishang and Double Grow (and
its subsidiaries) in 2017.
2017 vs 2016
Administrative expenses decreased by CNY3.54 million, or 33.71%, to CNY6.96 million in 2017 from CNY10.50 million in 2016. The
decrease was primarily due to the inclusion of only three months’ administrative expenses of Wuhu Feishang, amounting to CNY0.99 million, in
2017, as compared with the inclusion of 12 months’ administrative expenses, amounting to CNY6.59 million, in 2016, as Wuhu Feishang was
disposed of on March 3, 2017. The decrease was partly offset by the increase in administrative expenses of Antay Pacha, amounting to CNY2.10
million, caused by the expansion of Antay Pacha’s operations.
Losses arising from the temporary suspension of production of Wuhu Feishang decreased by CNY3.43 million or 84.28% to CNY0.64
million in 2017 from CNY4.07 million in 2016. The decrease was due to the inclusion of only three months’ temporary suspension costs of Wuhu
Feishang in 2017, as compared with the inclusion of 12 months’ temporary suspension costs in 2016. If compared on a pro rata basis, there is no
material fluctuation between the two periods.
Reversal of write-down of inventories to net realizable value decreased by CNY1.74 million or 100% to nil in 2017 from CNY1.74 million
in 2016. The reversal of write-down of inventories was due to the recovery of the selling price of iron concentrates during 2016.
Other operating income (expenses) increased by CNY3.24 million or 101.89% to income of CNY0.06 million in 2017 from expenses of
CNY3.18 million in 2016. Other operating expenses in 2016 mainly represented equipment testing and fine-tuning expenses incurred in anticipation
of the trial run and commercial production of Antay Pacha.
In addition, we recorded a CNY12.34 million gain on the disposal of Wuhu Feishang and a CNY27.91 million loss on the disposal of
Double Grow in 2017, respectively.
Income Tax Expenses
Management believes that the Company is not subject to taxes in the United States.
Under the current laws of the BVI, dividends and capital gains arising from the Company’s investments in the BVI are not subject to
income taxes and no withholding tax is imposed on payments of dividends to the Company.
The Company’s subsidiaries in the PRC are subject to a PRC enterprise income tax rate of 25% applicable to both foreign investment
enterprises and domestic companies.
2018 vs 2017
There are no income tax expenses in 2018 and in 2017, due to the losses in both years.
25
2017 vs 2016
There are no income tax expenses in 2017 and in 2016, due to the losses in both years.
Loss For The Year
2018 vs 2017
Loss for the year decreased from CNY30.00 million in 2017 to CNY6.18 million (US$0.90 million) in 2018. The decreased loss was
mainly attributable to the inclusion of the discontinued operations of Wuhu Feishang and Double Grow in 2017, amounting to CNY23.82 million.
2017 vs 2016
Loss for the year increased from CNY23.04 million in 2016 to CNY30.00 million in 2017. The increased loss was mainly attributable to (i)
the increase of CNY1.68 million in administrative expenses from continuing operations as a result of increased audit fees and other administrative
expenses; and (ii) the increase of loss amounting to CNY5.23 million arising from the discontinued operations of Wuhu Feishang and Double Grow.
Critical Accounting Policies
Our financial statements reflect the selection and application of accounting policies which require management to make significant
estimates and assumptions. We believe that the following are some of the more significant judgment areas in the application of our accounting
policies that currently affect our financial condition and results of operations.
Revenue recognition
Revenue from contracts with customers is recognized when control of goods or services is transferred to the customers at an amount that
reflects the consideration to which we expect to be entitled in exchange for those goods or services.
When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which we will be entitled in
exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it
is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty
with the variable consideration is subsequently resolved.
When the contract contains a financing component which provides the customer a significant benefit of financing the transfer of goods or
services to the customer for more than one year, revenue is measured at the present value of the amount receivable, discounted using the discount
rate that would be reflected in a separate financing transaction between us and the customer at contract inception. When the contract contains a
financing component which provides us a significant financial benefit for more than one year, revenue recognized under the contract includes the
interest expense accreted on the contract liability under the effective interest method. For a contract where the period between the payment by the
customer and the transfer of the promised goods or services is one year or less, the transaction price is not adjusted for the effects of a significant
financing component, using the practical expedient in IFRS 15.
There was no revenue generated by us during the years ended December 31, 2018 and December 31, 2017.
Property, plant and equipment and depreciation
Property, plant and equipment comprise buildings, mining structures, mining rights, machinery and equipment, motor vehicles, exploration
rights and construction in progress.
Exploration rights are capitalized and amortized over the term of the license granted to us by the authorities.
When proved and probable coal reserves have been determined, costs incurred to develop coal mines are capitalized as part of the cost of
the mining structures.
Buildings, mining structures, machinery and equipment, and motor vehicles are stated at cost less accumulated depreciation and any
impairment losses. Expenditures for routine repairs and maintenance are expensed as incurred.
26
Mining rights are stated at cost less accumulated amortization and any impairment losses. The costs of mining rights are initially
capitalized when purchased. If proved and probable reserves are established for a property and it has been determined that a mineral property can be
economically developed, costs are capitalized and are amortized upon production based on actual units of production over the estimated proved and
probable reserves of the mines. For mining rights in which proved and probable reserves have not yet been established, we assess the carrying value
for impairment at the end of each reporting period. Our rights to extract minerals are contractually limited by time. However, we believe that we will
be able to extend our licenses.
Mining related buildings, mining structures and mining related machinery and equipment are stated at cost less accumulated depreciation
and any impairment losses. Those mining related assets for which proved and probable reserves have been established are depreciated upon
production based on actual units of production over the estimated proved and probable reserves of the mines.
Reserve estimates are reviewed when information becomes available that indicates a reserve change is needed, or at a minimum once a
year. Any material effect from changes in estimates is considered in the period the change occurs.
Depreciation for the following items is calculated on the straight-line basis over each asset’s estimated useful life down to the estimated
residual value of each asset.
Estimated useful lives are as follows:
Non-mining related buildings
Non-mining related machinery and equipment
Motor vehicles
8 - 35 years
3 - 15 years
4 - 8 years
Residual values, useful lives and the depreciation method are reviewed and, adjusted if appropriate, at each reporting date.
When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective
accounts and any profit or loss on disposition is recognized in the statement of profit or loss.
Construction in progress is carried at cost and is to be depreciated when placed into service over the estimated useful lives or units of
production of those assets. Construction costs are capitalized as incurred. Interest is capitalized as incurred during the construction period.
Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is
normally charged to the statement of profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the
expenditure for a major inspection is capitalized in the carrying amount of the asset as a replacement. Where significant parts of property, plant and
equipment are required to be replaced at intervals, we recognize such parts as individual assets with specific useful lives and depreciate them
accordingly.
Exploration and evaluation costs
Exploration and evaluation assets include topographical and geological surveys, exploratory drilling, sampling and trenching and activities
in relation to commercial and technical feasibility studies, and expenditure incurred to secure further mineralization in existing bodies and to expand
the capacity of a mine. Expenditure incurred prior to acquiring legal rights to explore an area is expensed as incurred.
Once the exploration right to explore has been acquired, exploration and evaluation expenditure is charged to the consolidated statement of
profit or loss as incurred, unless a future economic benefit is more likely than not to be realized. Exploration and evaluation assets acquired in a
business combination are initially recognized at fair value. They are subsequently stated at cost less accumulated impairment.
When it can be reasonably ascertained that a mining property is capable of commercial production, exploration and evaluation costs are
transferred to tangible or intangible assets according to the nature of the exploration and evaluation assets. If any project is abandoned during the
evaluation stage, the total expenditure thereon will be written off.
27
Income taxes
Income tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit or
loss, either as other comprehensive income or loss, or directly in equity.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates
and tax laws used to compute the amount are those that are enacted or substantially enacted, by the end of the reporting date, taking into
consideration interpretations and practices prevailing in the countries where we operate and generate taxable income.
Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
when the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and unused tax losses,
to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of
unused tax credits and unused tax losses can be utilized, except:
where the deferred tax assets relating to the deductible temporary differences arise from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized to
the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available
against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed
at each reporting date and are recognized to the extent that it is probable that it has become probable that sufficient taxable profit will be available to
allow all or part of the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset if and only if we have a legally enforceable right to set off current tax assets and
current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets
and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be
settled or recovered.
Asset retirement obligations
Our legal or constructive obligations associated with the retirement of non-financial assets are recognized at fair value at the time the
obligations are incurred and if it is probable that an outflow of resources will be required to settle the obligation, and a reasonable estimate of fair
value can be made. Upon initial recognition of a liability, a corresponding amount is capitalized as part of the carrying amount of the related
property, plant and equipment. Asset retirement obligations are regularly reviewed by management and are revised for changes in future estimated
costs and regulatory requirements. Changes in the estimated timing of retirement or future estimated costs are dealt prospectively by recording an
adjustment against the carrying value of the provision and a corresponding adjustment to property and equipment. Depreciation of the capitalized
asset retirement cost is generally determined on a units-of-production basis. Accretion of the asset retirement obligation is recognized over time and
generally will escalate over the life of the producing asset, typically as production declines. Accretion is included in the finance costs in the
consolidated statement of profit or loss. Any difference between the recorded obligation and the actual costs of reclamation is recorded in the
consolidated statement of profit or loss in the period the obligation is settled.
28
Impairment of non-financial assets
Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial
assets, etc.), the asset’s recoverable amount is estimated.
An impairment exists when the carrying value of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of its
fair value less costs of disposal and its value in use, and is determined for an individual asset, unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit
to which the asset belongs. The calculation of fair value less costs of disposal is based on available data from binding sales transactions in arm’s
length transactions of similar assets or observable market prices less incremental costs for disposing of the asset or other appropriate valuation
techniques. The value in use calculation is based on a discounted cash flow model, using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the consolidated statement of profit or
loss in the period in which it arises in those categories consistent with the function of the impaired asset.
An assessment is made at the end of each reporting period as to whether there is an indication that previously recognized impairment losses
may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment
loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that
asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no
impairment loss been recognized for the asset in prior years.
Changes in Accounting Policies and Disclosures
We have adopted the following new and revised IFRSs for the first time for the current year's financial statements.
Amendments to IFRS 2
Amendments to IFRS 4
IFRS 9
IFRS 15
Amendments to IFRS 15
Amendments to IAS 40
IFRIC 22
Annual Improvements 2014-2016 Cycle
Classification and Measurement of Share-based Payment Transactions
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
Financial Instruments
Revenue from Contracts with Customers
Clarifications to IFRS 15 Revenue from Contracts with Customers
Transfers of Investment Property
Foreign Currency Transactions and Advance Consideration
Amendments to IFRS 1 and IAS 28
Except for the amendments to IFRS 2, amendments to IFRS 4, amendments to IAS 40, IFRIC 22 and Annual Improvements 2014-2016 Cycle,
which are not relevant to the preparation of the consolidated financial statements, the nature and the impact of the new and revised IFRSs are
described below:
(a)
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement from January 1, 2018.
The comparative information is not restated and we recognized any transition adjustments in relation to the adoption of IFRS 9
against the opening balance of equity at January 1, 2018 as further disclosed below.
(1) Classification and measurement
On January 1, 2018 (the date of initial application of IFRS 9), our management has classified its financial assets into the appropriate
IFRS 9 categories. There was no significant effect resulting from this reclassification
29
(2) Impairment
IFRS 9 requires an impairment on debt instruments recorded at amortized cost or at fair value through other comprehensive income,
lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss
under IFRS 9, to be recorded based on an expected credit loss model either on a twelve-month basis or a lifetime basis. We have no
trade receivables and only has other receivables, and thus, we have applied the general approach and recorded twelve-month expected
credit losses that were estimated based on the probability of default by applying a loss rate approach to its other receivables within the
next twelve months. The effect of adoption on the consolidated financial statements was minimal.
(b)
IFRS 15 Revenue from Contracts with Customers and its amendments
IFRS 15 and its amendments replace IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations and it applies, with
limited exceptions, to all revenue arising from contracts with customers. IFRS 15 establishes a new five-step model to account for
revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to
which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide
a more structured approach for measuring and recognizing revenue. The standard also introduces extensive qualitative and
quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes
in contract asset and liability account balances between periods and key judgements and estimates. As a result of the application of
IFRS 15, we have changed the accounting policy with respect to revenue recognition in Note 2.4(p) to the consolidated financial
statements. We have adopted the standard from January 1, 2018. The effect of adoption of the standard on the consolidated financial
statements was minimal.
We had no revenue generated during the years ended December 31, 2018 and 2017.
Issued but not yet effective International Financial Reporting Standards
We have not applied the following new and revised IFRSs, that have been issued but are not yet effective, in these financial statements:
Amendments to IFRS 3
Amendments to IFRS 9
Amendments to IFRS 10 and IAS 28
IFRS 16
IFRS 17
Amendments to IAS 1 and IAS 8
Amendments to IAS 19
Amendments to IAS 28
IFRIC 23
Annual Improvements 2015-2017 Cycle Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 1
———————
Effective for annual periods beginning on or after January 1, 2019
Effective for annual periods beginning on or after January 1, 2020
Definition of a Business 2
Prepayment Features with Negative Compensation 1
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 4
Leases 1
Insurance Contracts 3
Definition of Material 2
Plan Amendment, Curtailment or Settlement1
Long-term Interests in Associates and Joint Ventures1
Uncertainty over Income Tax Treatments 1
1
2
3
4
Effective for annual periods beginning on or after January 1, 2021
No mandatory effective date yet determined but available for adoption
Of those standards, IFRS 16 will be applicable for the financial year ending December 31, 2019 and is expected to have some impact upon
adoption. Whilst management has performed a detailed assessment of the estimated impacts of these standards, that assessment is based on the
information currently available to the Group, including expectations of the application of transitional provision options and policy choices. The
actual impacts upon adoption could be different to those below, depending on additional reasonable and supportable information being made
available to the Group at the time of applying the standard and the transitional provisions and policy options finally adopted.
30
IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives
and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires lessees to recognize assets and liabilities for most leases. The standard includes two
elective recognition exemptions for lessees – leases of low-value assets and short-term leases. At the commencement date of a lease, a lessee will
recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease
term (i.e., the right-of-use asset). The right-of-use asset is subsequently measured at cost less accumulated depreciation and any impairment losses
unless the right-of-use asset meets the definition of investment property in IAS 40, or relates to a class of property, plant and equipment to which the
revaluation model is applied and the lessee elects to apply that model to the right-of-use asset. The lease liability is subsequently increased to reflect
the interest on the lease liability and reduced for the lease payments. Lessees will be required to separately recognize the interest expense on the
lease liability and the depreciation expense on the right-of-use asset. Lessees will also be required to remeasure the lease liability upon the
occurrence of certain events, such as change in the lease term and change in future lease payments resulting from a change in an index or rate used
to determine those payments. Lessees will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-
of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from the accounting under IAS 17. Lessors will continue to classify all
leases using the same classification principle as in IAS 17 and distinguish between operating leases and finance leases. IFRS 16 requires lessees and
lessors to make more extensive disclosures than under IAS 17. Lessees can choose to apply the standard using either a full retrospective or a
modified retrospective approach. We will adopt IFRS 16 from January 1, 2019. We plan to adopt the transitional provisions in IFRS 16 to recognize
the cumulative effect of initial adoption as an adjustment to the opening balance of retained earnings at January 1, 2019 and will not restate the
comparatives. In addition, we plan to apply the new requirements to contracts that were previously identified as leases applying IAS 17 and measure
the lease liability at the present value of the remaining lease payments, discounted using our incremental borrowing rate at the date of initial
application. The right-of-use asset will be measured at the amount of the lease liability, adjusted by the amount of any prepaid or accrued lease
payments relating to the lease recognized in the statement of financial position immediately before the date of initial application. We plan to use the
exemptions allowed by the standard on lease contracts whose lease terms end within 12 months as of the date of initial application. During 2018, we
have performed a detailed assessment on the impact of adoption of IFRS 16. We have estimated that right-of-use assets of CNY1.80 million and
lease liabilities of CNY1.80 million will be recognized at January 1, 2019.
B.
Liquidity and Capital Resources
The Company’s primary liquidity needs are to fund operating expenses, capital expenditures and acquisitions. To date, the Company has
financed its working capital requirements and capital expenditures through internally generated cash in prior years, non-interest bearing loans from
the Related-Party Debtholders, and funds provided pursuant to the Cooperation Agreement. In view of the disposition of our metals mining and
copper smelting operations, and since Moruogu Tong Mine is in the pre-revenue exploration stage, it can be expected that the availability of
internally generated funds to sustain operations will decrease until the commencement of commercial production at Moruogu Tong Mine. We will
continue to incur operating expenses prior to the commencement of revenue-producing activities and expect those expenses to continue to be funded
through internally generated cash in prior years, non-interest bearing loans from related parties, and funds provided pursuant to the Cooperation
Agreement. As of December 31, 2018, CHNR owed an aggregate of CNY11.01 million (US$1.60 million) to the Related-Party Debtholders.
In order to improve the Group’s liquidity and cash flows to sustain the Group as a going concern, the directors of the Company have
undertaken certain measures to improve the cash flows of the Group, which include but are not limited to obtaining confirmations for continuous
financial support from Feishang Group and Feishang Enterprise, entities controlled by Mr. Li Feilie, the principal beneficial shareholder of the
Company, which state that Feishang Group and Feishang Enterprise would provide continuous financial support to the Group in relation to the
going concern of its operations, including payments on debts and will not recall any amounts due to them until the Group is in a position to settle the
amounts due without having a detrimental impact on the financial resources of the Group.
See Item 5.F. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS – Tabular Disclosure of Contractual Obligations” for a
summary of our contractual obligations for future cash payments as at December 31, 2018.
Revenue and expenses of our PRC subsidiaries are denominated in Renminbi. We pay our corporate expenses in either Hong Kong dollars
or U.S. dollars. Conversion of Renminbi is strictly regulated by the Chinese Government. Under PRC foreign exchange rules and regulations,
payment of routine transactions under current accounts, including trade and service transactions and payment of dividends, may be made in foreign
currencies without prior approval from the SAFE but are subject to procedural requirements. Strict foreign exchange control continues to apply to
capital account transactions, such as direct investments and capital contributions. These transactions must be approved by the SAFE. See Item 3.D.
– “KEY INFORMATION - Risk Factors,” and Item 10.D. “ADDITIONAL INFORMATION – Exchange Controls” for a further discussion of
exchange controls in the PRC.
31
As of December 31, 2018, the breakdown of cash (in thousands) held in different currencies are as follows:
Currency and Amount
CNY1,910
HK$5,294
US$34
Total
CNY Equivalent
US$ Equivalent
1,910
4,650
233
6,793
278
676
34
988
The Company expects to maintain a balanced portfolio of foreign currencies in order to meet its cash obligations in different currencies for
its expenses, capital expenditures and acquisitions. Management does not anticipate the payment of dividends or any similar profit distribution from
the Company’s PRC subsidiaries in the foreseeable future.
The following table sets forth the Company’s cash flows for each of the three years ended December 31, 2016, 2017 and 2018 including
cash flows from discontinued operations:
Cash and cash equivalent at beginning of year
Net cash used in operating activities
Net cash (used in)/from investing activities
Net cash from/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of exchange rate changes on cash
Cash and cash equivalent at end of year
The following table sets forth the Company’s financial condition and liquidity at the dates indicated:
Current ratio
Working capital (CNY'000)
Gearing ratio
2018 vs 2017
Years Ended December 31,
2016
CNY'000
2017
CNY'000
2018
CNY'000
45,307
(28,269)
(4,936)
5,581
(27,624)
1,545
19,228
19,228
(14,746)
2,868
12,630
752
(1,102)
18,878
18,878
(7,527)
9,372
(13,813)
(11,968)
(117)
6,793
Years Ended December 31,
2016
2017
2018
0.48x
(40,054)
—
0.65x
(15,842)
—
0.25x
(22,073)
—
Net cash used in operating activities was CNY7.53 million (US$1.09 million) in 2018 and CNY14.75 million in 2017. The decrease of cash
outflow was mainly attributable to the losses from discontinued operations in 2017.
Net cash received in investing activities was CNY9.37 million (US$1.36 million) in 2018, as compared to net cash inflow of CNY2.87
million in 2017. The cash inflows in 2018 were primarily comprised of the consideration received for the disposal of Double Grow.
Net cash flows used in financing activities was CNY13.81 million (US$2.01 million) in 2018, as compared to net cash inflow of CNY12.63
million in 2017. The net cash flows of financing activities were primarily comprised of the net advances and repayments with related parties.
2017 vs 2016
Net cash used in operating activities was CNY14.75 million in 2017 and CNY28.27 million in 2016. They were mainly caused by the
operating losses for the corresponding years.
Net cash received in investing activities was CNY2.87 million in 2017, as compared to net cash outflow of CNY4.94 million in 2016. The
cash inflows in 2017 were primarily comprised of the payment received for the disposal of Wuhu Feishang and Double Grow.
Net cash flows from financing activities were CNY12.63 million in 2017, as compared to CNY5.58 million in 2016. The net cash flows
from financing activities were primarily comprised of the net advances from related parties.
32
Our liquidity, including our working capital, is affected by many factors including:
Funding of our on-going metal exploration activities through internally generated funds;
Our ability to secure bank financing as and when required, on acceptable terms;
Our difficulty in accessing US capital markets to fund PRC operations; and
A lack of development of US trading markets for our securities, which has hampered our ability to use our securities as currency to
fund acquisitions, business combinations and similar transactions.
See Item 5.F. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS – Tabular Disclosure of Contractual Obligations” for a
tabular payment schedule of capital commitments of the Company.
Except as disclosed above, there have been no significant changes in the Company’s financial condition and liquidity during the years
ended December 31, 2016, 2017 and 2018. The Company believes that bank borrowings, payments pursuant to the Cooperation Agreement and/or
borrowings from its Related-Party Debtholders will be sufficient to satisfy anticipated working capital needs for at least the next 12 months.
However, we continue to evaluate expansion and growth prospects as they are presented to us from time to time and will continue to do so in the
ordinary course.
In the event we determine to pursue a mining permit and thereafter engage in mining at Moruogu Tong Mine, we will be required, among
other things, for mine construction and development, including to build roads and make provision for water and electricity at the mine site. There
will be significant capital expense for these and other projects. We intend to fund those capital expenditures from the proceeds of loans from our
Related-Party Debtholders, payments pursuant to the Cooperation Agreement and, to the extent deemed necessary, bank borrowings.
C.
Research and development, patents and licenses, etc.
The Company did not incur any significant amounts on company-sponsored research and development activities during each of the last
three fiscal years.
D.
Trend information
The Company does not believe that there have been recent trends in production, sales and inventory, the state of the order book and costs
and selling prices since the latest financial year, nor any known trends, uncertainties, demands, commitments or events that are reasonably likely to
have a material effect of the Company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that
would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
E.
Off balance sheet arrangements
Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to
which any entity that is not consolidated with us is a party, under which we have:
Obligations under certain guarantee contracts;
A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity
or market risk support to that entity for such assets;
Any obligation under a derivative instrument that is both indexed to our stock and classified in stockholder’s equity, or not reflected,
in our statement of financial position; and
Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity,
market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.
As of December 31, 2018, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
33
F.
Tabular disclosure of contractual obligations
Contractual Obligations as at December 31, 2018
Operating lease obligations
Total
G.
Safe Harbor
Payments due by period
Total
CNY’000
2019
CNY’000
2020-2021
CNY’000
2021-2022
CNY’000
Later years
CNY’000
1,891
1,891
1,245
1,245
646
646
—
—
—
—
The safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act, or the statutory safe harbors, applies
to forward-looking information provided pursuant to Item 5.F above. For our cautionary statement on the use of forward-looking statements in this
Annual Report, see “Forward-Looking Statements” on page iii of this Annual Report.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
Executive Officers and Directors
The following table identifies the current directors and executive officers of the Company, and sets forth their ages and positions with the
Company:
Name
Wong Wah On Edward
Tam Cheuk Ho
Yue Ming Wai Bonaventure
Lam Kwan Sing
Ng Kin Sing
Yip Wing Hang
Li Feilie
Age
Position
55
56
51
49
56
52
53
Chairman of the Board of Directors, President
and Chief Executive Officer
Director
Director, Chief Financial Officer and Corporate
Secretary
Non-employee Director
Non-employee Director
Non-employee Director
Director of Subsidiaries
Mr. Wong Wah On Edward was appointed as a director in April 2015, and as Chairman of the Board of Directors, President and Chief
Executive Officer in August 2016. Mr. Wong has served as the director of Feishang Anthracite since February 2013. He served as a director of the
Company from January 1999 to January 2014, as its financial controller from December 2004 to January 2008, as its secretary from February 1999
to January 2014, and as its chief financial officer from January 2008 to January 2014. He served as secretary, financial controller and a director of
China Resources from December 1997 to December 2004. Mr. Wong is also an independent non-executive director of Quali-Smart Holdings
Limited, a company listed in Hong Kong since September 2015. He received a professional diploma in Company Secretaryship and Administration
from the Hong Kong Polytechnic University. He is a fellow member of both the Hong Kong Institute of Certified Public Accountants and the
Association of Chartered Certified Accountants, and an associate member of the Hong Kong Institute of Chartered Secretaries. He is also a certified
public accountant (practising) in Hong Kong.
Mr. Tam Cheuk Ho was appointed as a director in April 2015. Mr. Tam has served as the director of Feishang Anthracite since February
2013. He served as a director of the Company from December 1993 to December 1994 and from December 1997 to January 2014. He was also the
chief financial officer and executive vice president of the Company, from December 2004 to January 2008, and from January 2008 to January 2014,
respectively. He served as the chief financial officer and a director of China Resources from December 1994 to December 2004. He is a fellow
member of both the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants. He is also a
certified public accountant (practising) in Hong Kong. He holds a Bachelor of Business Administration degree from the Chinese University of Hong
Kong.
34
Mr. Yue Ming Wai Bonaventure was appointed as a director in August 2016, and as Chief Financial Officer and Corporate Secretary in
April 2015. Mr. Yue has been the chief financial officer and the company secretary of Feishang Anthracite since January 2014, and as an executive
director of Feishang Anthracite since May 2015. He served as the financial controller of the Company from April 2008 to January 2014. He has also
been appointed as an independent non-executive director of A.Plus Group Holdings Limited, a company listed in Hong Kong, since March 2016,
and an independent non-executive director of Palace Banquet Holdings Limited, a company listed in Hong Kong, since January 2019. Mr. Yue
graduated from Hong Kong Baptist University with a Bachelor of Business Administration degree and was awarded a Master of Science degree in
accounting and finance from the University of Manchester. He is a fellow member of the Hong Kong Institute of Chartered Secretaries, the Hong
Kong Institute of Certified Public Accountants, and the Institute of Chartered Accountants in England & Wales. Mr. Yue is also a member of
Chartered Accountants Australia & New Zealand, and a member certified in Enterprise and Intangible Valuations of the American Institute of
Certified Public Accountants.
Mr. Lam Kwan Sing has been a non-employee director and a member of CHNR’s audit committee and nominating and governance
committee since December 2004, and a member of its compensation committee since November 2007. He served as a director and a member of the
audit committee of China Resources from March 2003 until completion of the Redomicile Merger. From November 2016 to present, Mr. Lam has
been the chief executive officer and executive director of SFund International Holdings Ltd., a Hong Kong listed company. He is also an
independent non-executive director of Hao Tian Development Group Limited, a Hong Kong listed company, since August 2012. From August 2010
to August 2017, Mr. Lam was the executive director of China Smarter Energy Group Holdings Limited, a Hong Kong listed company, where he is
responsible for corporate development. Mr. Lam was the executive director and chief executive officer of Enterprise Development Holdings
Limited, a Hong Kong listed company, from February 2012 to May 2015 and from May 2013 to May 2015, respectively. Mr. Lam holds a
Bachelor’s degree in Accountancy from the City University of Hong Kong.
Mr. Ng Kin Sing has been a non-employee director and a member of CHNR’s audit committee and nominating and governance committee
since December 2004, and a member of its compensation committee since November 2007. He served as a director and a member of the audit
committee of China Resources from February 1999 until completion of the Redomicile Merger. From March 2012 to present, Mr. Ng has been the
director of Sky Innovation Limited, a private investment company. Mr. Ng holds a Bachelor’s degree in Business Administration from the Chinese
University of Hong Kong.
Mr. Yip Wing Hang has been a non-employee director and a member of CHNR’s audit committee and nominating and governance
committee since June 2006, and a member of its compensation committee since November 2007. From January 2018 to present, Mr. Yip has been
the senior director of Winsome Asset Management Ltd., where he is responsible for managing high-net-worth clients’ assets on discretionary basis.
Mr. Yip has served as adjunct associate professor at the Institute of China Business, the University of Hong Kong SPACE since 2013. From October
2010 to December 2017, Mr. Yip was the marketing director of Athena Financial Services Limited where he was responsible for the sale and
distribution of financial products. Mr. Yip holds a Master’s degree in Sustainability from Cambridge University and a Master Degree in Accounting
and Finance from the Lancaster University, United Kingdom. He is also a Chartered Banker in the United Kingdom.
Mr. Li Feilie served as a director, Chief Executive Officer and Chairman of the Board of CHNR from February 2006 to August 2016. He
currently serves as director of Feishang Mining, Newhold, Pineboom, China Coal, Feishang Dayun, Feishang Yongfu and FMH Services, each of
which is a subsidiary of CHNR. In addition to his directorships, Mr. Li provides strategic guidance relating to the various businesses in which he
and his controlled companies invest. Through his related companies, Mr. Li also provides funding to support the Company’s operating expenses and
holds a substantial amount of the Company’s debt (see Item 7.B. “MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS –
Related Party Transactions,” below). He served as a director of Feishang Anthracite from January 2010 to July 2016, its Chairman from December
2013 to July 2016, and its Chief Executive Officer from December 2013 to March 2016. Mr. Li has been the chairman of Feishang Enterprise,
WFID and Wuhu Port Co., Ltd., companies beneficially owned by him, since June 2000, from December 2001 to July 2011 and since October 2002,
respectively. Mr. Li graduated from Peking University with a Bachelor’s degree and a Master’s degree in Economics.
35
Key Employees
The following table identifies the senior management of Bayannaoer Mining, and their ages and positions:
Name
Yu Jun
Yao Yangli
Age
51
54
Position
General Manager of Bayannaoer Mining
Deputy Chief Engineer of Bayannaoer Mining
Mr. Yu Jun was appointed as general manager of Bayannaoer Mining in January 2015. He has served as finance manager and chief finance
officer of Bayannaoer Mining since 2005. Mr. Yu has over 25 years of experience in corporate finance. Prior to joining Bayannaoer Mining, he
served the positions of finance manager and financial controller of several companies including subsidiary companies of Sichuan University. Mr. Yu
graduated from the University of Electronic Science and Technology of China in 1989 and was awarded a bachelor’s degree from Southwestern
University of Finance and Economics in 2004.
Mr. Yao Yangli was appointed as deputy chief engineer of Bayannaoer Mining in charge of exploration work in April 2012. Mr. Yao has
almost 30 years of experience in mineral exploration. Prior to joining Bayannaoer Mining, he served as chief geological prospecting engineer,
exploration project leader and chief engineer in several companies. Mr. Yao has been appointed as distinguished geologist consultant for the Land
and Resources Department of Bayannaoer Municipal Government since 2012. Mr. Yao graduated from Guilin College of Geology (now known as
Guilin University of Technology) with a bachelor’s degree in 1988 and holds a senior engineer accreditation.
Family Relationships
There are no family relationships between any of the individuals identified above. There are no arrangements or understandings between
major shareholders, customers, suppliers or others pursuant to which any of the individuals identified above was selected as a director or member of
senior management.
B.
Compensation
Executive Compensation
The following table sets forth the amount of compensation that was paid, earned and/or accrued and awards made under the Company’s
equity compensation plan during the fiscal year ended December 31, 2018, to each of the individuals identified in Item 6.A. above.
Name
Directors and Executive Officers
Li Feilie1
Wong Wah On Edward2
Tam Cheuk Ho2
Yue Ming Wai Bonaventure
Lam Kwan Sing
Ng Kin Sing
Yip Wing Hang
Key Employees
Yu Jun
Yao Yangli
———————
1
Mr. Li serves as director of certain subsidiaries of the Company.
Compensation
(US$)
Number of
options
to purchase
Common Shares
Exercise price
(US$/share)
Expiration
date
1
1
1
1
15,385
15,385
15,385
10,031
28,299
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
Does not include payments to Anka under an office sharing agreement pursuant to which Anka provides certain accounting, administrative and secretarial
services to the Company (see Item 7.B. – “MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS – Related Party Transactions;
Commercial Transactions with Related Companies,” below). Anka is jointly owned by Wong Wah On Edward and Tam Cheuk Ho.
The Company and its subsidiaries have not set aside or accrued any amounts to provide pension, retirement or similar benefits to the
Company’s officers.
36
On April 2, 2015, we entered into service agreements with each of Mr. Yue Ming Wai Bonaventure (our Chief Financial Officer and a
director), Mr. Tam Cheuk Ho (a director) and Mr. Wong Wah On Edward (our Chairman, Chief Executive Officer and President). Each of the
agreements is for an initial term of one year and, thereafter, continues unless and until terminated by a party on not less than one months’ notice.
Each of the agreements also provides for the payment to the individual of an annual fee of US$1.00, plus such equity awards as may from time to
time be determined by our Compensation Committee.
There are no current contracts, agreements or understandings to increase the annual cash compensation payable to any of our executive
officers or directors. For each of the three years ended December 31, 2016, 2017 and 2018, no increases in cash compensation were determined by
the Compensation Committee under the service agreements, and we paid or accrued nil, nil and nil, respectively, for cash compensation to our
executive officers for their services as such.
The Company has no other employment contracts with any of its executive officers or directors and maintains no retirement, fringe benefit
or similar plans for the benefit of its executive officers or directors. The Company may, however, enter into employment contracts with its officers
and key employees, adopt various benefit plans and begin paying compensation to its officers and directors as it deems appropriate to attract and
retain the services of such persons.
Non-Employee Director Compensation
From July 1, 2006 to June 30, 2017, we paid our independent directors a monthly directors’ fee equal to HK$5,000. Commencing July 1,
2017, we pay our independent directors a monthly directors’ fee equal to HK$10,000. We do not otherwise pay fees to directors for their attendance
at meetings of the Board of Directors or of committees; however, we may adopt a policy of making such payments in the future. We reimburse out-
of-pocket expenses incurred by directors in attending board and committee meetings. During the fiscal year ended December 31, 2018, no long-term
incentive plans or pension plans were in effect with respect to any of the Company’s executive officers or directors.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information relating to our outstanding stock option plans as of December 31, 2018:
Plan Category
Equity compensation plans approved by security holders
2014 Equity Compensation Plan
Equity compensation plans not approved by security holders
Total
Stock Option Plan
Number of
securities to be
issued upon exercise of
outstanding options,
warrants
and rights
(a)
—
—
—
Weighted-average
exercise price of
outstanding options,
warrants and rights
N/A
N/A
N/A
Number of
securities remaining
available for future
issuance under equity
compensation
plans (excluding
securities reflected
in column (a))
4,982,183
—
4,982,183
The 2014 Equity Compensation Plan (the “2014 Plan”) was authorized by our Board of Directors on June 20, 2014 and was ratified and
approved by members on July 21, 2014.
The purposes of the 2014 Plan are to:
Encourage ownership of our common stock by our officers, directors, employees and advisors;
Provide additional inventive for them to promote our success and our business; and
Encourage them to remain in our employ by providing them with the opportunity to benefit from any appreciation of our common
shares.
37
The 2014 Plan is administered by the Board of Directors or a committee designated by the Board (the “Plan Committee”). The 2014 Plan
allows the Plan Committee to grant various incentive equity awards not limited to stock options. The Company has reserved a number of common
shares equal to 20% of the issued and outstanding common shares of the Company, from time-to-time, for issuance pursuant to options granted
(“Plan Options”) or for restricted stock awarded (“Stock Grants”) under the 2014 Plan. Stock Appreciation Rights may be granted as a means of
allowing participants to pay the exercise price of Plan Options. Stock Grants may be made upon such terms and conditions as the Plan Committee
determines. Stock Grants may include deferred stock awards under which receipt of Stock Grants is deferred, with vesting to occur upon such terms
and conditions as the Plan Committee determines.
The Plan Committee will determine, from time to time, those of our officers, directors, employees and consultants to whom Stock Grants
and Plan Options will be granted, the terms and provisions of the respective Stock Grants and Plan Options, the dates such Plan Options will
become exercisable, the number of shares subject to each Plan Option, the purchase price of such shares and the form of payment of such purchase
price. Plan Options and Stock Grants will be awarded based upon the fair market value of our common shares at the time of the award. All questions
relating to the administration of the 2014 Plan, and the interpretation of the provisions thereof are to be resolved at the sole discretion of the Plan
Committee.
A total of 4,982,183 common shares have been reserved for issuance under the 2014 Plan. No awards have yet been made under the 2014
Plan. The 2014 Plan terminates on June 19, 2024.
C.
Board Practices
As provided by our Amended and Restated Memorandum and Articles of Association each director is to hold office for a three-year term
expiring immediately following the annual meeting of shareholders held three years following the annual meeting at which he or she was elected.
At the annual meeting of shareholders in 2018, Messrs. Lam Kwan Sing and Yip Wing Hang were elected to serve as Class II directors
until immediately following the annual meeting to be held in 2021 and until their successors have been duly elected and qualified. Messrs. Yue
Ming Wai Bonaventure and Ng Kin Sing serve as Class I directors until immediately following the annual meeting to be held in 2020 and until their
successors have been duly elected and qualified. Messrs. Tam Cheuk Ho and Wong Wah On Edward serve as Class III directors until immediately
following the annual meeting to be held in 2019 and until their successors have been duly elected and qualified.
Messrs. Lam Kwan Sing, Yip Wing Hang and Ng Kin Sing are each “independent” directors as such term is used in applicable rules and
regulations of the Securities and Exchange Commission and in NASDAQ Marketplace Rule 5605(a)(2). We are not required to maintain a Board of
Directors consisting of a majority of independent directors based upon an exemption from NASDAQ requirements applicable to foreign private
issuers whose home jurisdiction does not require the board of directors to consist of a majority of independent directors.
Our officers are elected annually at the Board of Directors meeting following each annual meeting of shareholders, and hold office until
their respective successors are duly elected and qualified, subject to their earlier death, resignation or removal, and the terms of applicable
employment agreements.
Audit Committee
Our Board of Directors has established an audit committee that operates pursuant to a written charter. Our audit committee, whose
members currently consists of Yip Wing Hang, Lam Kwan Sing and Ng Kin Sing, is principally responsible for ensuring the accuracy and
effectiveness of the annual audit of the financial statements. The duties of the audit committee include, but are not limited to:
appointing and supervising our independent registered public accounting firm;
assessing the organization and scope of the company’s interim audit function;
reviewing the scope of audits to be conducted, as well as the results thereof;
approving audit and non-audit services provided to us by our independent registered public accounting firm; and
overseeing our financial reporting activities, including our internal controls and procedures and the accounting standards and
principles applied.
Each member of the Audit Committee is an independent director, as such term is used in applicable rules and regulations of the Securities
and Exchange Commission and in NASDAQ Marketplace Rule 5605(a)(2).
38
Nominating and Corporate Governance Committee; Shareholder Nominees for Director
Our Board of Directors has established a Nominating and Corporate Governance Committee that operates pursuant to a written charter. The
current members of the Nominating and Corporate Governance Committee are Ng Kin Sing, Lam Kwan Sing and Yip Wing Hang. Each member of
the Nominating and Corporate Governance Committee is an independent director, as such term is used in NASDAQ Marketplace Rule 5605(a)(2).
The Nominating and Corporate Governance Committee is responsible for providing oversight on a broad range of issues surrounding the
composition and operation of our Board of Directors. In particular, the responsibilities of the Nominating and Corporate Governance Committee
include:
identifying individuals qualified to become members of the Board of Directors;
determining the slate of nominees to be recommended for election to the Board of Directors;
reviewing corporate governance principles applicable to us, including recommending corporate governance principles to the Board of
Directors and administering our Code of Ethics;
assuring that at least one Audit Committee member is an “audit committee financial expert” within the meaning of regulatory
requirements; and
carrying out such other duties and responsibilities as may be determined by the Board of Directors.
The Nominating and Corporate Governance Committee is required to meet at least once annually, and more frequently if the committee
deems it to be appropriate. The committee may delegate authority to one or more members of the committee, provided that any decisions made
pursuant to such delegated authority are presented to the full committee at its next scheduled meeting. Discussions pertaining to the nomination of
directors are required to be held in executive session.
The Nominating and Corporate Governance Committee will consider candidates for directors proposed by shareholders, although no
formal procedures for submitting the names of candidates for inclusion on management’s slate of director nominees have been adopted. Until
otherwise determined by the Nominating and Corporate Governance Committee, a member who wishes to submit the name of a candidate to be
considered for inclusion on management’s slate of nominees at the next annual meeting of shareholders must notify our Corporate Secretary, in
writing, no later than June 30 of the year in question of its desire to submit the name of a director nominee for consideration. The written notice
must include information about each proposed nominee, including name, age, business address, principal occupation, telephone number, shares
beneficially owned and a statement describing why inclusion of the candidate would be in our best interests. The notice must also include the
proposing member’s name and address, as well as the number of shares beneficially owned. A statement from the candidate must also be furnished,
indicating the candidate’s desire and ability to serve as a director. Adherence to these procedures is a prerequisite to the board’s consideration of the
shareholder’s candidate. Once a candidate has been identified, the Nominating and Corporate Governance Committee reviews the individual’s
experience and background, and may discuss the proposed nominee with the source of the recommendation. If the Nominating and Corporate
Governance Committee believes it to be appropriate, committee members may meet with the proposed nominee before making a final determination
whether to include the proposed nominee as a member of management’s slate of director nominees to be submitted for election to the board.
Compensation Committee
Our Board of Directors has established a Compensation Committee that operates pursuant to a written charter. The current members of the
Compensation Committee are Ng Kin Sing, Lam Kwan Sing and Yip Wing Hang. Each member of the Compensation Committee is an independent
director, as such term is used in NASDAQ Marketplace Rule 5605(a)(2).
The Compensation Committee is responsible for:
Formulating corporate goals and objectives relevant to compensation payable to the CEO and other executive officers;
Evaluating the performance of the CEO and other executive officers in light of these goals and objectives;
Recommending to the board for its adoption and approval, compensation payable to the CEO and other executive officers, including
(a) annual base salary level, (b) annual incentive opportunity level, (c) long-term incentive opportunity level, (d) employment
agreements, severance arrangements, and change in control agreement/provisions, in each case as, when and if appropriate, and (e)
any special or supplemental benefits;
Administering and supervising the Company’s incentive compensation plans, including equity compensation plans;
Recommending to the board for its adoption and approval, awards to be made under the Company’s incentive compensation plans,
including equity compensation plans; and
39
Generally supporting the Board of Directors in carrying out its overall responsibilities relating to executive compensation.
The Compensation Committee is required to meet at least once annually, and more frequently if the committee deems it to be appropriate.
The committee may delegate authority to one or more members of the committee; provided that any decisions made pursuant to such delegated
authority are promptly communicated to all other committee members.
NASDAQ Requirements
Our common shares are currently listed on the NASDAQ Capital Market and, for so long as our securities continue to be listed, we will
remain subject to the rules and regulations established by NASDAQ Stock Market as being applicable to listed companies. NASDAQ has adopted,
and from time-to-time adopts, amendments to its Marketplace Rule 5600 that imposes various corporate governance requirements on listed
securities. Section (a)(3) of Marketplace Rule 5615 provides that foreign private issuers such as our company are required to comply with certain
specific requirements of Marketplace Rule 5600, but, as to the balance of Marketplace Rule 5600, foreign private issuers are not required to comply
if the laws of their home jurisdiction do not otherwise mandate compliance with the same or substantially similar requirement.
We currently comply with the applicable specifically mandated provisions of Marketplace Rule 5600. In addition, we have elected to
voluntarily comply with certain other provisions of Marketplace Rule 5600, notwithstanding that our home jurisdiction does not mandate
compliance with the same or substantially similar requirements; although we may in the future determine to cease voluntary compliance with those
provisions of Marketplace Rule 5600 that are not mandatory. However, we have elected not to comply with the following provisions of Marketplace
Rule 5600, since the laws of the BVI do not require compliance with the same or substantially similar requirements:
a majority of our directors are not independent as defined by NASDAQ rules (rather, one-half of the members of our Board of
Directors are independent);
our independent directors do not hold regularly scheduled meetings in executive session (rather, all board members may attend all
meetings of the Board of Directors);
the compensation of our executive officers is recommended but not determined by an independent committee of the board or by the
independent members of the Board of Directors; and our CEO is not prevented from being present in the deliberations concerning his
compensation;
related party transactions are not required to be reviewed and we are not required to solicit member approval of stock plans,
including: those in which our officers or directors may participate; stock issuances that will result in a change in control; the issuance
of our stock in related party acquisitions or other acquisitions in which we may issue 20% or more of our outstanding shares; or,
below market issuances of 20% or more of our outstanding shares to any person; and
we are not required to hold an in-person annual meeting to elect directors and transact other business customarily conducted at an
annual meeting (rather, we complete these actions by written consent of holders of a majority of our voting securities).
We may in the future determine to voluntarily comply with one or more of the foregoing provisions of Marketplace Rule 5600.
D.
Employees
As of the date of this Annual Report, we employed a total of 12 employees on a full-time basis consisting of (a) seven employees engaged
in metal exploration segment, and (b) five executive and administrative employees in the corporate segment. The Company believes that its relations
with employees are generally good.
The following table sets out the number of employees as of December 31, 2018, including their principal category of activity and
geographic location.
Hong Kong
Accounting, administration and management
Accounting, administration and management (Shenzhen)
Accounting, administration and management (Bayannaoer)
Cashier
Mining exploration
The PRC
Total
40
Years Ended December 31,
2018
2017
3
3
2
5
1
2
10
13
3
3
2
5
1
1
9
12
E.
Share Ownership
The following table sets forth, as of April 25, 2019, the share ownership of the Company’s common shares by each of individuals disclosed
in response to Item 6.B. of this Annual Report.
As of April 25, 2019, there were 24,910,916 common shares issued and outstanding. Unless otherwise indicated, each person has sole
investment and voting power with respect to all shares shown as beneficially owned. The term “beneficial owner” of securities refers to any person
who, even if not the record owner of the securities, has or shares the underlying benefits of ownership. These benefits include the power to direct the
voting or the disposition of the securities or to receive the economic benefit of ownership of the securities. A person also is considered to be the
“beneficial owner” of securities that the person has the right to acquire within 60 days by option or other agreement. Beneficial owners include
persons who hold their securities through one or more trustees, brokers, agents, legal representatives or other intermediaries, or through companies
in which they have a “controlling interest,” which means the direct or indirect power to direct the management and policies of the entity. The
Company’s directors and executive officers do not have different voting rights than other shareholders of the Company.
Name of Beneficial Owner
Li Feilie
Wong Wah On Edward
Tam Cheuk Ho
Yue Ming Wai Bonaventure
Lam Kwan Sing
Ng Kin Sing
Yip Wing Hang
Yu Jun
Yao Yangli
Officers and directors as a group (8 persons)
———————
(1)
Amount and Nature of
Beneficial Ownership
Percent of Class
14,780,593(1)
400,000
281,926
—
—
—
—
—
—
15,462,519
59.33%
1.61%
1.13%
—
—
—
—
—
—
62.07%
Mr. Li is not an officer or director of CHNR but is an officer and/or director of certain of our subsidiaries. Consists of (a) 14,480,593 outstanding common
shares held in the name of Feishang Group, a BVI corporation that is wholly-owned by Mr. Li, and (b) 300,000 outstanding common shares held by Mr. Li.
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
Major Shareholders
The following table sets forth, as of April 25, 2019, to the knowledge of management, the share ownership of each person who is the
beneficial owner of more than 5% of our outstanding common shares.
As of April 25, 2019, there were 24,910,916 common shares issued and outstanding. Unless otherwise indicated, each person has sole
investment and voting power with respect to all shares shown as beneficially owned. The term “beneficial owner” of securities refers to any person
who, even if not the record owner of the securities, has or shares the underlying benefits of ownership. These benefits include the power to direct the
voting or the disposition of the securities or to receive the economic benefit of ownership of the securities. A person also is considered to be the
“beneficial owner” of securities that the person has the right to acquire within 60 days by option or other agreement. Beneficial owners include
persons who hold their securities through one or more trustees, brokers, agents, legal representatives or other intermediaries, or through companies
in which they have a “controlling interest,” which means the direct or indirect power to direct the management and policies of the entity. The
Company’s major shareholders do not have different voting rights than other shareholders of the Company.
Name of Beneficial Owner
Li Feilie
———————
(1)
Consists of (a) 14,480,593 outstanding common shares held in the name of Feishang Group, a BVI corporation that is wholly-owned by Mr. Li, and (b)
300,000 outstanding common shares held by Mr. Li.
Significant Changes in Ownership
There have been no significant changes in the percentage ownership held by any major shareholder during the past three years.
41
Amount and Nature of
Beneficial Ownership
Percent of Class
14,780,593(1)
59.33%
Geographic Breakdown of Shareholders
Based upon a review of our shareholder records as of December 31, 2018, on that date our common shares were held of record by
approximately 174 persons, 150 of whom, holding approximately 28.9% of our outstanding common shares on that date, were located in the United
States (host country). Shares registered in the name(s) of intermediaries were assumed to be held by residents of the same country in which the
intermediary was located.
Control
To our knowledge (a) there are no arrangements the operation of which may, at a subsequent date, result in a change in control of the
Company and (b) except as otherwise disclosed in this Annual Report, we are not directly or indirectly owned or controlled by any other
corporation, by any foreign government or by any other natural or legal person, severally or jointly.
B.
Related Party Transactions
Commercial Transactions with Related Companies
Commercial transactions with related companies are summarized as follows:
2016
CNY’000
Years Ended December 31,
2017
CNY’000
2018
CNY’000
953
—
20
—
1,316
1,056
240
—
1,442
—
—
166
CHNR’s share of office rental, rates and others to Anka (1)
Sales of equipment to Wuhu Industrial (2)
Purchase of raw ore from Empressa Minera Jacha Uru S.A. (“Jacha Uru”) (3)
Feishang Management 's share of office rental to Feishang Enterprise (4)
———————
(1)
On April 1, 2017, the Company signed an office sharing agreement with Anka which superseded all previously signed agreements between the
parties, pursuant to which the Company shares 184 square meters of the total area of the office premises. The agreement also provides that the
Company shares certain costs and expenses in connection with their use of the office, in addition to some of certain accounting and secretarial
services and day-to-day office administration services provided by Anka. In 2018, Anka’s lease with the unrelated landlord was extended for
two years, from July 1, 2018 to June 30, 2020.
On February 22, 2017, Wuhu Feishang signed an agreement with Wuhu Industrial, controlled by Mr. Li Feilie, to dispose of certain equipment
with the carrying amount of CNY1.06 million. The disposal gain was CNY0.05 million.
In 2016 and 2017, Antay Pacha purchased copper ore from Jacha Uru, a copper mine located in Bolivia and controlled by Feishang Hesheng.
On January 1, 2018, Feishang Management signed an office sharing agreement with Feishang Enterprise, a related company controlled by Mr.
Li Feilie. Pursuant to the agreement, Feishang Management shares 40 square meters of the office premises. The agreement is for a term of 33
months, from January 1, 2018 to September 30, 2021.
(2)
(3)
(4)
Balances with Related Parties
Payables to related parties (5)
Jacha Uru (1)
Feishang Enterprise (2)
Feishang Hesheng (3)
Feishang Group (4)
As of December 31,
2016
CNY’000
2017
CNY’000
2018
CNY’000
1,298
7,832
11,877
12,565
—
3,719
10,028
11,573
—
4,041
—
6,973
———————
(1)
Payable to Jacha Uru for expenses paid on behalf of Antay Pacha and the purchase of copper ores from Jacha Uru. The balance is unsecured
and interest-free.
Payable to Feishang Enterprise by Feishang Management for the net amount of loans from Feishang Enterprise. The balance is unsecured and
interest-free. The balance is repayable when the Group is in a position to settle the amounts due without having a detrimental impact on the
financial resources of the Group.
Payable to Feishang Hesheng for the acquisition of Double Grow as well as the assumption of indebtedness due to Feishang Hesheng by
Double Grow. The balance is unsecured and interest-free. The balance as at December 31, 2017 was repaid during 2018.
(2)
(3)
42
(4)
(5)
C.
Payable to Feishang Group for the acquisition of Feishang Anthracite. The balance is unsecured and interest-free. The balance is repayable
when the Group is in a position to settle the amounts due without having a detrimental impact on the financial resources of the Group.
Feishang Enterprise, Feishang Group, Feishang Hesheng and Jacha Uru are entities controlled by Mr. Li Feilie, who is the principal beneficial
owner of the Company.
Interests of Experts and Counsel
No disclosure is required in response to this Item.
ITEM 8.
FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
The Company's consolidated financial statements for the fiscal years ended December 31, 2016, 2017 and 2018 are included herewith as
Appendix A and are incorporated herein by reference.
We have no direct business operations, other than through the ownership of our subsidiaries. Prior to December 31, 2013, we had not paid
any dividends on our common shares. On December 31, 2013, the Board of Directors approved a conditional special interim dividend to the
shareholders of CHNR satisfied by way of a distribution in specie of the entire issued share capital of Feishang Anthracite to all shareholders of
CHNR in proportion to their respective shareholdings in CHNR on the Distribution Record Date. Pursuant to the Distribution, each shareholder of
CHNR became entitled to five shares of Feishang Anthracite for every share of CHNR held on the Distribution Record Date. After the completion
of the Distribution, CHNR no longer holds any shares in Feishang Anthracite.
See Item 4.A. “INFORMATION ON THE COMPANY – History and Development of the Company” for the details of the Distribution and
Spin-Off.
Should we, as a holding company, decide in the future to pay any additional dividends, they will be paid at the discretion of the Company’s
Board of Directors and will be dependent upon distributions, if any, made by its subsidiaries, and on the Company’s results of operations, its
financial condition and other factors deemed relevant by the Board of Directors. In addition, our operating subsidiaries are subject to restrictions on
their ability to make distributions to us, including as a result of restrictions imposed under PRC laws.
See Item 3.A. “KEY INFORMATION – Selected Financial Data” for the details of reserve allocation of PRC’s subsidiaries.
There are no legal or arbitration proceedings (including governmental proceedings pending or known to be contemplated), including those
relating to bankruptcy, receivership or similar proceedings and those involving any third party, which may have, or have had in the recent past,
significant effects on the Company’s financial position or profitability. Moreover, there are no material proceedings in which any director, any
member of senior management, or any of our affiliates is either a party adverse to us or our subsidiaries or has a material interest adverse to us or
our subsidiaries.
B.
Significant Changes
Except as otherwise described in this Annual Report, there have been no significant changes that have occurred since the date of the annual
financial statements included in this Annual Report.
ITEM 9.
THE OFFER AND LISTING
A.
Offer and Listing Details
The principal United States market for our common shares, our only class of outstanding equity securities, is the NASDAQ Stock Market.
Our common shares are traded on the NASDAQ Stock Market under the symbol “CHNR.” We are not aware of any principal market for any of our
securities outside of the United States.
B.
Plan of Distribution
No disclosure is required in response to this Item.
43
C.
Markets
Our common shares have been listed on the NASDAQ Capital Market since November 22, 2004, under the symbol “CHNR.” From
August 7, 1995 until November 22, 2004, our common stock was listed on the NASDAQ Small Cap market under the symbol “CHRB.”
D.
Selling Shareholders
E.
F.
No disclosure is required in response to this Item.
Dilution
No disclosure is required in response to this Item.
Expenses of the Issue
No disclosure is required in response to this Item.
ITEM 10.
ADDITIONAL INFORMATION
A.
Share Capital
No disclosure is required in response to this Item.
B.
Amended and Restated Memorandum and Articles of Association
Charter
Our charter documents consist of our Amended and Restated Memorandum of Association (“Memorandum of Association”) and our
Amended and Restated Articles of Association (“Articles of Association”).
The Memorandum of Association loosely resembles the Articles or Certificate of Incorporation of a United States corporation, and the
Articles of Association loosely resembles the bylaws of a United States corporation. A brief description of our Memorandum of Association and
Articles of Association follows, including a summary of material differences between the corporate laws of the United States and those of the
British Virgin Islands. This description does not purport to be complete and does not address all differences between United States and British
Virgin Islands corporate laws. Copies of our Memorandum of Association and Articles of Association have been incorporated by reference as
exhibits to this Annual Report and readers are urged to review these exhibits in their entirety for a complete understanding of the provisions of our
charter documents.
Memorandum of Association
Corporate Powers
We have been registered in the BVI since December 14, 1993, with company number 102930. Clause 46 of our Memorandum of
Association states that the objects for which we are established are unrestricted and we shall have full power and authority to carry out any object
which is not prohibited by any laws in force in the BVI.
Authorized Shares
We are authorized to issue a maximum of 210 million shares of no par value, of which, 200 million shall be common shares and 10 million
shall be preferred shares. The directors of the Company or our shareholders may increase or decrease the maximum number of authorized shares by
amending the Memorandum of Association as provided by law.
Each common share is entitled to one vote on each matter submitted to a vote of shareholders. Common shares may be redeemed by the
Company for fair value. Common shares shall be entitled to receive such dividends and distributions as may be authorized by the directors. Subject
to the rights of holders of other classes of shares, the directors may declare and pay dividends on the common shares. Holders of common shares
shall be entitled to share in the assets of the Company available for distribution upon liquidation. Preferred shares shall carry such designations,
powers, preferences and rights, qualifications, limitations and restrictions as may be determined by the directors at the time of issuance.
44
In accordance with our Memorandum of Association, our Board of Directors has designated a series of preferred shares, consisting of
320,000 shares and designated Series B preferred shares. Series B preferred shares are entitled to one vote for each share, shall be entitled to vote on
each matter that is submitted for a vote of common shareholders and shall be aggregated with outstanding common shares for all voting purposes.
Series B preferred shares have no preemptive or other subscription rights and are not subject to future calls or assessments. There is no redemption
or sinking fund provisions applicable to the Series B preferred shares and holders thereof have no rights whatsoever to dividends or to distributions
upon our liquidation. No Series B preferred shares are outstanding.
Amendments to Memorandum and Articles of Association
Subject to the laws of the BVI and certain limited exceptions contained in the Memorandum of Association, the Memorandum of
Association and the Articles of Association may each be amended by a majority vote of members or by the directors.
Articles of Association
Issuance of Shares
The unissued shares of the Company shall be issued at the discretion of the directors, who may determine whether to issue shares, grant
options over or otherwise dispose of them, at such times and for such consideration (which may not be less than par value (if any) of the shares) as
the directors determine. Consideration may take any form acceptable to the directors, including money, promissory note, service rendered or
services to be rendered; provided that in the case of consideration other than money, the directors must adopt a resolution stating (a) the amount to
be credited for issuance of the shares, (b) a reasonable determination of the present cash value of the non-monetary consideration and (c) that, in
their opinion, the present cash value of the non-monetary consideration is not less the amount to be credited for the share issuance.
Redemption of Shares
The Company may purchase, redeem or acquire its own shares for such consideration as may be determined by the directors, and such
shares may, at the direction of the directors, be cancelled or held as treasury shares; provided, however, that the Company may not purchase, redeem
or acquire its shares unless, immediately following the purchase, redemption or acquisition (a) the value of the Company’s assets exceeds its
liabilities and (b) the Company is able to pay its debts as they become due.
Meetings of Shareholders
The directors may convene meetings of our shareholders at such times and in such manner and places as the directors consider necessary or
desirable. The directors shall convene such a meeting upon the written request of shareholders holding 30 percent or more of our outstanding voting
shares. At least seven days’ notice of the meeting shall be given to the shareholders whose names appear on the share register. A majority of our
outstanding shares entitled to vote must be present at a meeting of shareholders, in person or by proxy, in order to constitute a quorum and the
affirmative vote of a majority of those present and entitled to vote shall be required in order to approve action by shareholders. However, in the
event a meeting of shareholders is adjourned due to the absence of a quorum, the minimum number of shares that must be present in order to
constitute a quorum shall be reduced to one-third. Our Articles of Association provides that any action that may be taken at a meeting of
shareholders may be taken without a meeting if the action is approved by a written consent of shareholders.
Directors
Our Articles of Association provides that our Board of Directors shall consist of not less than three nor more than 25 directors; and
directors, solely for purposes of determining the term for which they will serve, are classified as Class I, Class II and Class III directors, with
approximately one-third of the total number of directors being allocated to each Class. Each director is to hold office for a three-year term expiring
immediately following the annual meeting of shareholders held three years following the annual meeting at which he or she was elected. Directors
may be removed by the shareholders, with or without cause, and by the directors, only with cause.
With the prior or subsequent approval by a resolution of shareholders, the directors may, by a resolution of directors, fix the emoluments of
directors with respect to services to be rendered in any capacity to us. At the annual meeting of shareholders held in 2008, the shareholders adopted
resolutions providing that (a) all emoluments to directors previously fixed by the Board of Directors are approved and ratified and (b) the Board of
Directors is empowered and authorized to fix all future emoluments to directors, for their services in all capacities to the Company, without further
approval or ratification by shareholders.
45
The directors may, by a resolution of directors, exercise all the powers of the Company to borrow money. There is no age limit requirement
for retirement or non-retirement of directors. A director shall not require a share qualification. Directors may be natural persons who have attained
the age of 18 years and are not undischarged bankrupts; or companies, in which event the company may designate a person as its representative as
director.
A director may, from time to time, appoint (and revoke the appointment of) another director or another person who is not a director, but
who is not disqualified from serving as a director, to be his or her alternate to exercise his or her powers and discharge his or her responsibilities. In
addition, in the event of resignation, a director may appoint his or her successor.
Directors are not disqualified from entering into contracts with the Company, and no such contract shall be void or require the interested
director to account for any profit under any such contract, provided that the fact of the director’s interest in the transaction is disclosed to the board.
A director who is interested in a contract with the Company may, nevertheless, attend meetings of the board at which the interested transaction is
discussed and/or approved, be counted towards a quorum at any such meeting and vote in favor of such transaction.
At least one-half the number of directors must be present for a duly constituted meeting. Action of directors shall require the affirmative
vote of a majority of the directors present in person or by alternate and entitled to vote on the resolution. Directors may act by written consent in lieu
of meeting provided that such consent is received from all of the directors. Subject to certain limitations set forth in the Articles of Association,
directors may appoint committees and agents. Directors do not have the authority to appoint new auditors – such appointment must be made by the
shareholders.
Indemnification
The Company shall indemnify every officer and director of the Company against any liability, action, proceeding, claim, demand, costs,
damages or expenses incurred as a result of any act or failure to act in carrying out their functions, except those incurred by reason of their own
fraud or wilful default. No indemnified person shall be liable to the Company for any loss or damage except due to the fraud or wilful default of the
indemnified person. Fraud or wilful default may only be found to exist by a court of competent jurisdiction. The Company must advance reasonable
attorney’s fees and other expenses to an indemnified person provided that the indemnified person executes an agreement to reimburse the Company
if a court of competent jurisdiction determines that indemnification was not available under the circumstances.
Dividends and Distribution
The directors may authorize the payment of dividends or other distributions to shareholders, if, the directors are satisfied, on reasonable
grounds that, immediately following the dividend or other distribution (a) the value of the Company’s assets exceeds its liabilities and (b) the
Company is able to pay its debts as they become due. Distributions, including dividends, may be declared and paid in cash, or in specie, in shares or
other assets.
Restrictions on Rights to Own Securities
There are no limitations on the rights to own our securities.
Change in Control Provisions
There are no provisions of our Memorandum of Association or Articles of Association that would have an effect of delaying, deferring or
preventing a change in our control and that would operate only with respect to a merger, acquisition or corporate restructuring involving us.
Disclosure of Share Ownership
There are no provisions of our Memorandum of Association or Articles of Association governing the ownership threshold above which
shareholder ownership must be disclosed.
Changes in Capital
Requirements to effect changes in capital are not more stringent than is required by law.
Arbitration
Our Articles of Association provides that any differences between us and our shareholders or their legal representatives relating to the
intent, construction, incidences or consequences of our Articles of Association or the British Virgin Islands Business Companies Act, including any
breach or alleged breach of our Articles of Association or the Business Companies Act, or relating to our affairs shall be resolved by arbitration
before two arbitrators (unless the parties agree to arbitrate before one arbitrator), who shall jointly appoint an umpire.
46
Discussion of Law
Under the laws of most jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary
responsibilities to the minority shareholders. Shareholder action must be taken in good faith and actions by controlling shareholders which are
obviously unreasonable may be declared null and void. BVI law protecting the interests of minority shareholders may not be as protective in all
circumstances as the law protecting minority shareholders under most jurisdictions in the United States.
While BVI law does permit a shareholder of a BVI company to sue its directors derivatively, that is, in the name of, and for the benefit of,
our Company and to sue a company and its directors for his benefit and for the benefit of others similarly situated, the circumstances in which any
such action may be brought, and the procedures and defenses that may be available in respect of any such action, may result in the rights of
shareholders of a BVI company being more limited than those of shareholders of a company organized in the United States.
Our directors have the power to take certain actions without shareholder approval, including an amendment of our Memorandum of
Association or Articles of Association (unless such amendment varies the rights attached to shares) or an increase or decrease of the maximum
number of shares that we are authorized to issue, which would require shareholder approval under the laws of most jurisdictions in the United
States. In addition, the directors of a BVI company, subject in certain cases to court approval but without shareholder approval, may, among other
things, implement a reorganization, certain mergers or consolidations with a subsidiary, the sale, transfer, exchange or disposition of any assets,
property, part of the business, or securities of the company, or any combination (provided the assets do not represent more than 50% of the total
assets of the company and the sale is not outside of the usual or ordinary course of the company’s business), if they determine it is in the best
interests of the company. Our ability to amend our Memorandum of Association and Articles of Association without shareholder approval could
have the effect of delaying, deterring or preventing a change in our control without any further action by the shareholders, including a tender offer to
purchase our common shares at a premium over then current market prices.
The Business Companies Act of the BVI permits the creation in our Memorandum and Articles of Association of staggered terms of
directors, cumulative voting, shareholder approval of corporate matters by written consent, and the issuance of preferred shares. Currently, our
Memorandum and Articles of Association provide for (a) shareholder approval of corporate matters by majority written consent, (b) staggered terms
of directors and (c) the issuance of preferred shares.
As in most United States’ jurisdictions, the Board of Directors of a BVI company is charged with the management of the affairs of the
company. In most jurisdictions in the United States, directors owe a fiduciary duty to the corporation and its shareholders, including a duty of care,
under which directors must properly apprise themselves of all reasonably available information, and a duty of loyalty, under which they must
protect the interests of the corporation and refrain from conduct that injures the corporation or its shareholders or that deprives the corporation or its
shareholders of any profit or advantage. Many US jurisdictions have enacted various statutory provisions which permit the monetary liability of
directors to be eliminated or limited.
Under BVI law, liability of a corporate director to the corporation is primarily limited to cases of willful malfeasance in the performance of
his duties or to cases where the director has not acted honestly and in good faith and with a view to the best interests of the company. However,
under our Memorandum of Association, we are authorized to indemnify any director or officer who is made or threatened to be made a party to a
legal or administrative proceeding by virtue of being one of our directors or officers, provided such person acted honestly and in good faith and with
a view to our best interests and, in the case of a criminal proceeding, such person had no reasonable cause to believe that his conduct was unlawful.
Our Memorandum of Association also enable us to indemnify any director or officer who was successful in such a proceeding against expenses and
judgments, fines and amounts paid in settlement and reasonably incurred in connection with the proceeding.
Unlike most corporate laws in the United States, directors of a BVI company may be companies. Moreover, any director may appoint an
alternate to attend meetings and vote in the place and stead of the director appointing the alternate. It is unclear of the effect of such an appointment
on the fiduciary obligations of the director making the appointment.
The foregoing discussion of BVI law does not purport to present a complete description of the differences between BVI law and the
corporate laws of the several states of the United States.
47
C.
Material Contracts
Other than contracts entered into the ordinary course of business, during the two preceding fiscal years the Company has entered into the
following material contracts (which are included as exhibits to this Annual Report):
Equity Transfer Agreement dated February 24, 2017 by and among Wuhu City Feishang Industrial Development Co., Ltd., Feishang
Mining Holdings Limited, Mr. Shen Yandi and Wuhu Feishang Mining Development Co., Limited.
Agreement dated November 30, 2017 by and between Yangpu Shuanghu Industrial Development Co., Limited and Feishang
Enterprise Group Co., Ltd.
Agreement dated November 30, 2017 by and between Yangpu Shuanghu Industrial Development Co., Limited and Shenzhen
Chaopeng Investment Co., Ltd.
Purchase and Sale Agreement dated December 29, 2017 by and among the Company, Double Grow International Limited and
Shanghai Kangzheng Investment Management Co., Ltd.
Deed of Assignment of Loan dated December 29, 2017 by and among the Company, Double Grow International Limited and
Shanghai Kangzheng Investment Management Co., Ltd.
Mutual Cooperation Agreement dated August 20, 2017 by and between Bayannaoer City Feishang Mining Company and Bayannaoer
Jijincheng Mining Co., Ltd.
D.
Exchange Controls
There are no material BVI laws, decrees, regulations or other legislation that impose foreign exchange controls on us or that affect our
payment of dividends, interest or other payments to non-resident holders of our shares. BVI law and our Memorandum of Association and Articles
of Association impose no limitations on the right of non-resident or foreign owners to hold or vote our common shares. However, we operate
through subsidiaries located in the PRC, and the payment of dividends by PRC companies is subject to certain restrictions imposed under PRC law.
The principal regulation governing foreign currency exchange in the PRC is the Foreign Currency Administration Rules (1996) as
amended. Conversion of Renminbi is strictly regulated by the PRC Government. Under PRC foreign exchange rules and regulations, payment of
routine transactions under current accounts, including trade and service transactions and payment of dividends, may be made in foreign currencies
without prior approval from the SAFE but are subject to procedural requirements. Strict foreign exchange control continues to apply to capital
account transactions, such as direct investment, loans or investments in securities outside the PRC and capital contribution. These transactions must
be approved by the SAFE.
Pursuant to the Foreign Currency Administration Rules, foreign-invested enterprises in the PRC may purchase foreign exchange without
the approval of the SAFE for trade and service-related exchange transactions by providing commercial documents evidencing these transactions.
They may also retain foreign exchange, subject to a cap approved by the SAFE, to satisfy foreign exchange liabilities or to pay dividends. However,
the relevant PRC authorities may limit or eliminate the ability of foreign-invested enterprises to purchase and retain foreign currencies in the future.
The principal regulations governing distribution of dividends by foreign-invested companies include:
The Sino-foreign Equity Joint Venture Law (1979), as amended;
The Regulations of Implementation of the Sino-foreign Equity Joint Venture Law (1983) as amended;
The Foreign Investment Enterprise Law (1986) as amended; and
The Regulations of Implementation of the Foreign Investment Enterprise Law (1990) as amended.
Under these regulations, foreign-invested enterprises in the PRC may pay dividends only out of their accumulated profits, if any,
determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in the PRC are required to
set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds unless such reserve funds have reached
50% of their respective registered capital. These reserves are not distributable as cash dividends.
In addition, our wholly-owned subsidiaries are required to allocate portions of their after-tax profits to their enterprise expansion funds and
staff welfare and bonus funds at the discretion of their boards of directors. Allocations to these statutory reserves and funds can only be used for
specific purposes and are not transferable to us in the forms of loans, advances or cash dividends.
48
E.
Taxation
The following is a summary of anticipated material U.S. federal income and BVI tax consequences of an investment in our common shares.
The summary has been prepared based upon management’s understanding of applicable tax consequences, but has not been reviewed by counsel or
other experts in U.S. or BVI taxation. The summary does not address all possible tax consequences relating to an investment in our common shares
and does not purport to deal with the tax consequences applicable to all categories of investors, some of which, such as dealers in securities,
insurance companies and tax-exempt entities, may be subject to special rules. In particular, the discussion does not address the tax consequences
under state, local and other non-U.S. and non-BVI tax laws. Accordingly, each prospective investor should consult its own tax advisor regarding the
particular tax consequences to it of an investment in the common shares. The discussion below is based upon laws and relevant interpretations in
effect as of the date of this Annual Report, all of which are subject to change.
CHNR completed the Spin-Off by way of a distribution in specie of the entire issued share capital of Feishang Anthracite to the holders of
the common shares of CHNR. It is not clear whether the Distribution should be treated as a tax-free spin-off under Section 355 of the Code or as a
taxable distribution of property. If we are required to report the Distribution to the IRS, we intend to take the view that the Distribution will be
treated as a taxable distribution. Under this treatment, for U.S. Federal income tax purposes, the Distribution should be a taxable event for holders of
CHNR common shares on the Distribution Record Date. Accordingly, subject to the passive foreign investment company rules discussed below, a
U.S. Holder:
should generally be treated as having received (at the time of receipt of the Feishang Anthracite ordinary shares) a taxable distribution
in an amount equal to the fair market value of the Feishang Anthracite ordinary shares received in the Distribution,
should have a tax basis in its Feishang Anthracite ordinary shares equal to their fair market value on the date of the Distribution, and
should have a holding period in its Feishang Anthracite ordinary shares that will commence on the day after the date of the
Distribution.
The amount distributed by CHNR to a U.S. Holder should be taxed as a “dividend” to the extent of such holder’s proportionate share of
CHNR’s current and accumulated earnings and profits (if any), and should otherwise be (i) a tax-free return of capital to the extent of such holder’s
adjusted tax basis in his or her CHNR common shares and (ii) thereafter as a capital gain. CHNR does not maintain calculations of its earnings and
profits in accordance with U.S. Federal income tax principles; accordingly, holders should assume that the entire amount of the Distribution should
be taxable as a dividend. CHNR intends to treat the distribution of Feishang Anthracite ordinary shares as a taxable dividend for U.S. Federal
income tax purposes, and the remainder of the disclosure assumes such treatment.
The dividend amount generally will be treated as foreign source ordinary dividend income, and generally will be eligible for reduced rates
of taxation applicable to qualified dividend income applicable to certain non-corporate U.S. Holders, but will not be eligible for the dividends
received deduction allowed to corporations. The dividend will be includable in “net investment income” for purposes of the Medicare contribution
tax applicable to certain non-corporate U.S. Holders.
United States Federal Income Taxation
The following discussion addresses only the material U.S. federal income tax consequences to a U.S. person, defined as a U.S. citizen or
resident, a U.S. corporation, or an estate or trust subject to U.S. federal income tax on all of its income regardless of source, making an investment in
the common shares. For taxable years beginning after December 31, 1996, a trust will be a U.S. person only if:
a court within the United States is able to exercise primary supervision over its administration; and
one or more United States persons have the authority to control all of its substantial decisions.
In addition, the following discussion does not address the tax consequences to a person who holds or will hold, directly or indirectly, 10%
or more of our common shares, which we refer to as a “10% Shareholder.” Non-U.S. persons and 10% Shareholders are advised to consult their own
tax advisors regarding the tax considerations incident to an investment in our common shares.
49
A U.S. investor receiving a distribution of our common shares will be required to include such distribution in gross income as a taxable
dividend, to the extent of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Any distributions
in excess of our earnings and profits will first be treated, for U.S. federal income tax purposes, as a nontaxable return of capital, to the extent of the
U.S. investor’s adjusted tax basis in our common shares, and then as gain from the sale or exchange of a capital asset, provided that our common
shares constitutes a capital asset in the hands of the U.S. investor. U.S. corporate shareholders will not be entitled to any deduction for distributions
received as dividends on our common shares.
Gain or loss on the sale or exchange of our common shares will be treated as capital gain or loss if our common shares are held as a capital
asset by the U.S. investor. Such capital gain or loss will be long-term capital gain or loss if the U.S. investor has held our common shares for more
than one year at the time of the sale or exchange.
A holder of common shares may be subject to “backup withholding” at the rate of 31% with respect to dividends paid on our common
shares if the dividends are paid by a paying agent, broker or other intermediary in the United States or by a U.S. broker or certain United States-
related brokers to the holder outside the United States. In addition, the proceeds of the sale, exchange or redemption of common shares may be
subject to backup withholding, if such proceeds are paid by a paying agent, broker or other intermediary in the United States.
Backup withholding may be avoided by the holder of common shares if such holder:
is a corporation or comes within other exempt categories; or
provides a correct taxpayer identification number, certifies that such holder is not subject to backup withholding and otherwise
complies with the backup withholding rules.
In addition, holders of common shares who are not U.S. persons are generally exempt from backup withholding, although they may be
required to comply with certification and identification procedures in order to prove their exemption.
Any amounts withheld under the backup withholding rules from a payment to a holder will be refunded or credited against the holder’s
U.S. federal income tax liability, if any, provided that amount withheld is claimed as federal taxes withheld on the holder’s U.S. federal income tax
return relating to the year in which the backup withholding occurred. A holder who is not otherwise required to file a U.S. income tax return must
generally file a claim for refund or, in the case of non-U.S. holders, an income tax return in order to claim refunds of withheld amounts.
British Virgin Islands Taxation
Under the Business Companies Act of the BVI as currently in effect, companies incorporated or registered under the Business Companies
Act are exempt from income and corporate tax. In addition, the BVI currently does not levy capital gains tax on companies incorporated or
registered under the Business Companies Act.
A holder of our common shares who is not a resident of BVI is exempt from BVI income tax on dividends paid with respect to the common
shares. In addition, the common shares are not subject to transfer taxes, stamp duties or similar charges for so long as we do not hold an interest in
real estate in the BVI.
There are no estate, gift or inheritance taxes levied by the BVI on companies incorporated or registered under the Business Companies Act.
There is no income tax treaty or convention currently in effect between the United States and the BVI that is applicable to any payments
made by or to a company incorporated or registered under the Business Companies Act of the BVI.
F.
Dividends and Paying Agents
No disclosure is required in response to this Item.
G.
Statement by Experts
No disclosure is required in response to this Item.
50
H.
Documents on Display
The documents concerning the Company that are referred to in this Annual Report may be inspected at the Company’s principal executive
offices at Room 2205, 22/F, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong. Certain documents
described in response to Item 19 of this Annual Report are filed with this Annual Report and others are incorporated by reference to documents
previously filed by the Company with the United States Securities and Exchange Commission. The documents that are filed herewith or
incorporated by reference can be viewed on the SEC’s website at www.sec.gov.
I.
Subsidiary Information
See Exhibit 8 for further information about our subsidiaries.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign currency exchange rate risk
Revenue and expenses of our PRC subsidiaries are denominated in Renminbi. The administrative expenses of the Company’s head office
in Hong Kong are denominated either in United States dollars or Hong Kong dollars. As the reporting currency of the Company’s consolidated
financial statements is Renminbi, the Company has material market risk with respect to currency fluctuation between Hong Kong dollars and United
States dollars to Renminbi and translation difference may arise on consolidation. The Company may also suffer an exchange loss when it converts
Renminbi to other currencies, such as Hong Kong dollars or United States dollars. If market conditions allow, the Company endeavors to match the
currency used in operating/investing activities with that used in financing activities. We have not engaged any foreign currency contract to hedge
our potential foreign currency exchange exposure, if any.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. We are not currently exposed to interest rate risk as we do not have any outstanding interest-bearing financial instruments.
Commodity price risk
We are not currently exposed to commodity price risk.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
No disclosure is required in response to this Item.
51
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
There are no defaults, dividend arrearages and delinquencies or other information required to be disclosed in response to this Item.
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
There have been no modifications to the rights of security holders and there is no other information to disclose in response to this Item.
ITEM 15.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934 (the “Exchange Act”). As of December 31, 2018, the Company carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures.
In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions.
Based upon that evaluation and subsequent evaluations conducted in connection with the audit of the Company’s consolidated financial
statements for the year ended December 31, 2018, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s
disclosure controls and procedures were effective to ensure that information required to be disclosed in our periodic reports filed under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s
rules and regulations.
Management’s Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Exchange Act defines internal control over financial reporting as a process
designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board
of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with IFRS issued by the IASB and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with IFRS issued by the International Accounting Standards Board, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
52
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making this
assessment, we used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organization of the
Treadway Commission (“COSO”) (2013 framework) (the COSO criteria). Based on our evaluation and the COSO criteria, we determined that, as of
December 31, 2018, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements in accordance with IFRS.
Since the Company is not an accelerated filer, the auditor’s attestation report pursuant to SOX Section 404(b) is not required in this Annual
Report.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting that occurred during the fiscal year 2018 and that has
materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting.
ITEM 16.
[Reserved]
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
In general, an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K, is an individual member of the
Audit Committee who:
understands generally accepted accounting principles and financial statements,
is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our
financial statements,
understands internal controls over financial reporting, and
understands audit committee functions.
An “audit committee financial expert” may acquire the foregoing attributes through:
education and experience as a principal financial officer, principal accounting officer, controller, public accountant, auditor or person
serving similar functions;
experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or
person serving similar functions; experience overseeing or assessing the performance of companies or public accounts with respect to
the preparation, auditing or evaluation of financial statements; or
other relevant experience.
Our Board of Directors has determined that Mr. Yip Wing Hang and Mr. Lam Kwan Sing is each an “audit committee financial expert”
within the meaning of Item 407(d)(5) of Regulation S-K. Each of our “audit committee financial experts” is independent as that term is used in
NASDAQ Marketplace Rule 5605(a)(2).
53
Item 16B.
CODE OF ETHICS
A Code of Ethics is a written standard designed to deter wrongdoing and to promote:
honest and ethical conduct,
full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements,
compliance with applicable laws, rules and regulations,
the prompt reporting violation of the code, and
accountability for adherence to the Code of Ethics.
We have adopted a Code of Ethics that is applicable to all of our employees, and also contains provisions that apply only to our Chief
Executive Officer, principal financial and accounting officers and persons performing similar functions. A copy of our Code of Ethics is
incorporated by reference as an exhibit to this Annual Report.
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table shows the fees that we paid for audit and other services provided by Ernst & Young Hua Ming LLP, our independent
registered public accounting firm, for fiscal years 2017 and 2018.
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
Fiscal 2017
Fiscal 2018
US$307,375
—
—
—
US$145,381
—
—
—
US$307,375
US$145,381
Audit Fees —This category includes the audit of our annual financial statements and services that are normally provided by the
independent auditors in connection with engagements for those fiscal years.
The Audit Committee has adopted a procedure for pre-approval of all fees charged by the Company’s independent registered public
accounting firm. Under the procedure, the Audit Committee approves the engagement letter with respect to audit, tax and review services. Other
fees are subject to pre-approval by the entire Committee, or, in the period between meetings, by a designated member of the Audit Committee. Any
such approval by the designated member is disclosed to the entire Audit Committee at the next meeting. The audit fees paid to Ernst & Young Hua
Ming LLP with respect to fiscal years 2017 and 2018 were approved by the Audit Committee.
ITEM 16D.
EXEMPTION FROM THE LISTING STANDARDS FOR THE AUDIT COMMITTEE
There have been no exemptions from listing standards required to be disclosed in response to this Item.
ITEM 16E.
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
There have been no purchases of equity securities required to be disclosed in response to this Item.
ITEM 16F.
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
No disclosure is required in response to this Item.
ITEM 16G.
CORPORATE GOVERNANCE
Our common shares are currently listed on the NASDAQ Capital Market and, for so long as our securities continue to be listed, we will
remain subject to the rules and regulations established by the NASDAQ Stock Market that apply to listed companies. NASDAQ rules include
various corporate governance requirements applicable to listed securities. While all NASDAQ-listed companies are subject to certain of these
corporate governance requirements, foreign private issuers such as our company are exempt from other corporate governance requirements if the
laws of their home jurisdiction do not otherwise require compliance. Since our home jurisdiction does not mandate compliance with some of these
NASDAQ rules, we have opted out of compliance with them. A more detailed description of the NASDAQ requirements that we are not subject to
is contained elsewhere in this Annual Report under Item 6.C – “DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – Board Practices;
NASDAQ Requirements.”
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
54
ITEM 17.
FINANCIAL STATEMENTS
No disclosure is required in response to this Item.
ITEM 18.
FINANCIAL STATEMENTS
PART III
The following financial statements are filed as a part of this Form 20-F in Appendix A hereto:
Reports of Independent Registered Public Accounting Firm, together with the consolidated financial statements for the Company
and subsidiaries, including:
Consolidated statements of financial position as of December 31, 2017 and 2018
Consolidated statements of profit or loss for the years ended December 31, 2016, 2017 and 2018
Consolidated statements of comprehensive income for the years ended December 31, 2016, 2017 and 2018
Consolidated statements of changes in equity for the years ended December 31, 2016, 2017 and 2018
Consolidated statements of cash flows for the years ended December 31, 2016, 2017 and 2018
Notes to consolidated financial statements.
a.
b.
c.
d.
e.
f.
EXHIBITS
ITEM 19.
The following Exhibits are included as part of this Form 20-F:
Exhibit No.
Exhibit Description
1.1
1.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Amended and Restated Memorandum and Articles of Association of the Registrant (included as Exhibit 99.1 to Form 6K filed January
30, 2014, and incorporated herein by reference).
Board of Directors Resolutions Designating Series B Preferred Stock and Establishing Rights, Preferences and Limitations (included
as Exhibit 1.3 to Annual Report on Form 20-F for the fiscal year ended December 31, 2004, and incorporated herein by reference).
Acquisition Agreement dated January 24, 2006 by and between China Natural Resources, Inc., Feishang Mining Holdings Limited and
Feishang Group Limited (included as Exhibit 10.1 to the Current Report on Form 6-K furnished January 25, 2006, and incorporated
herein by reference).
Agreement for the Sale and Purchase of the Entire Issued Share Capital in Pineboom Investments Limited dated July 11, 2008 by and
between Feishang Group Limited and China Natural Resources, Inc. (included as Exhibit 10.1 to the Current Report on Form 6-K
furnished July 15, 2008, and incorporated herein by reference).
Agreement for the Sale and Purchase of the Entire Issued Share Capital in Newhold Investments Limited dated August 11, 2008 by
and between Feishang Group Limited and China Natural Resources, Inc. (included as Exhibit 10.1 to the Current Report on Form 6-K
furnished August 13, 2008, and incorporated herein by reference).
Letter Agreement dated January 12, 2009 by and between Feishang Group Limited and China Natural Resources, Inc. (included as
Exhibit 10.2 to the Current Report on Form 6-K furnished January 20, 2009, and incorporated herein by reference).
Letter Agreement dated July 10, 2009 by and between Feishang Group Limited and China Natural Resources, Inc. (included as
Exhibit 10.2 to the Current Report on Form 6-K furnished July 17, 2009, and incorporated herein by reference).
Agreement for the Sale and Purchase of the Entire Issued Share Capital in Wealthy Year Limited dated April 30, 2010 by and between
Feishang Group Limited and China Natural Resources, Inc. (included as Exhibit 4.1 to the Current Report on Form 6-K furnished
May 11, 2010, and incorporated herein by reference).
2014 Equity Compensation Plan (included as Annex A of Exhibit 99.1 to the Current Report on Form 6-K furnished August 13, 2014,
and incorporated herein by reference).
Service Agreement dated as of April 2, 2015 by and between the Company and Tam Cheuk Ho (included as Exhibit 99.1 to the
Current Report on Form 6-K furnished April 6, 2015, and incorporated herein by reference).
Service Agreement dated as of April 2, 2015 by and between the Company and Wong Wah On Edward (included as Exhibit 99.2 to the
Current Report on Form 6-K furnished April 6, 2015, and incorporated herein by reference).
55
Exhibit No.
Exhibit Description
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
8
11
12.1
12.2
13.1
13.2
15
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Service Agreement dated as of April 2, 2015 by and between the Company and Yue Ming Wai Bonaventure (included as Exhibit 99.3
to the Current Report on Form 6-K furnished April 6, 2015, and incorporated herein by reference).
Sales and Purchase Master Contract dated January 1, 2015 by and between Fanchang County Jinfeng Mining Ltd. and Wuhu Feishang
Mining Development Co., Limited (included as Exhibit 4.17 to the Annual Report on Form 20-F furnished April 28, 2016, and
incorporated herein by reference).
Agreement dated December 23, 2016 by and between the Company and Feishang Hesheng Investment Limited (included as
Exhibit 99.1 to the Current Report on Form 6-K furnished December 23, 2016, and incorporated herein by reference).
Deed of Assignment dated December 23, 2016 by and among the Company, Double Grow International Limited and Feishang
Hesheng Investment Limited (included as Exhibit 99.2 to the Current Report on Form 6-K furnished December 23, 2016, and
incorporated herein by reference).
Equity Transfer Agreement dated February 24, 2017 by and among Wuhu City Feishang Industrial Development Co., Ltd., Feishang
Mining Holdings Limited, Mr. Shen Yandi and Wuhu Feishang Mining Development Co., Limited (English translation included as
Exhibit 10.1 to the Current Report on Form 6-K furnished March 7, 2017, and incorporated herein by reference).
License Agreement dated April 1, 2017 by and between Anka Consultants Limited and China Natural Resources, Inc. (included as
Exhibit 4.15 to the Annual Report on Form 20-F furnished June 19, 2017, and incorporated herein by reference).
Agreement dated November 30, 2017 by and between Yangpu Shuanghu Industrial Development Co., Limited and Feishang Enterprise
Group Co., Ltd. (included as Exhibit 99.1 to the Current Report on Form 6-K furnished on December 6, 2017, and incorporated herein
by reference).
Agreement dated November 30, 2017 by and between Yangpu Shuanghu Industrial Development Co., Limited and Shenzhen
Chaopeng Investment Co., Ltd. (included as Exhibit 99.2 to the Current Report on Form 6-K furnished on December 6, 2017, and
incorporated herein by reference).
Purchase and Sale Agreement dated December 29, 2017 by and among the Company, Double Grow International Limited and
Shanghai Kangzheng Investment Management Co., Ltd. (included as Exhibit 10.1 to the Current Report on Form 6-K furnished on
January 3, 2018, and incorporated herein by reference).
Deed of Assignment of Loan dated December 29, 2017 by and among the Company, Double Grow International Limited and Shanghai
Kangzheng Investment Management Co., Ltd. (included as Schedule 3 Exhibit 10.1 to the Current Report on Form 6-K furnished on
January 3, 2018, and incorporated herein by reference).
Promissory Note dated December 29, 2017 from Shanghai Kangzheng Investment Management Co., Ltd. in favor of the Company
(included as Schedule 4Exhibit 10.1 to the Current Report on Form 6-K furnished on January 3, 2018, and incorporated herein by
reference).
Mutual Cooperation Agreement dated August 20, 2017 by and between Bayannaoer City Feishang Mining Company Limited and
Bayannaoer Jijincheng Mining Co., Ltd. (included as Exhibit 4.25 to the Annual Report on Form 20-F furnished on April 30, 2018,
and incorporated herein by reference).
Subsidiaries of the Registrant (included herewith).
Code of Ethics (included as Exhibit 14 to Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003, and
incorporated herein by reference).
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (included herewith).
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (included herewith).
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (included herewith).
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (included herewith).
Press Release dated April 30, 2019 (included herewith).
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
56
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this Annual Report on its behalf.
SIGNATURES
Date: April 30, 2019
CHINA NATURAL RESOURCES, INC.
By:
/s/ WONG WAH ON EDWARD
Wong Wah On Edward, CEO
57
APPENDIX A
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firms, together with the consolidated financial statements for the Company and
subsidiaries, including:
a.
b.
c.
d.
e.
f.
Consolidated statements of financial position as of December 31, 2017 and 2018
Consolidated statements of profit or loss for the years ended December 31, 2016, 2017 and 2018
Consolidated statements of comprehensive income for the years ended December 31, 2016, 2017 and 2018
Consolidated statements of changes in equity for the years ended December 31, 2016, 2017 and 2018
Consolidated statements of cash flows for the years ended December 31, 2016, 2017 and 2018
Notes to consolidated financial statements.
CHINA NATURAL RESOURCES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
Report of Independent Registered Public Accounting Firm
Consolidated statements of financial position
Consolidated statements of profit or loss
Consolidated statements of comprehensive income
Consolidated statements of changes in equity
Consolidated statements of cash flows
Notes to consolidated financial statements
F-1
Pages
F-2
F-3 – F-4
F-5 – F-6
F-7
F-8
F-9 – F-10
F-11 – F-58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of China Natural Resources, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of China Natural Resources, Inc. (the “Company”) as of December
31, 2018 and 2017, the related consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for each of the
three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018
and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ Ernst & Young Hua Ming LLP
We have served as the Company’s auditor since 2015.
Beijing, People’s Republic of China
April 30, 2019
F-2
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2017 AND 2018
(Amounts in thousands)
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Prepayments
Other receivables
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
Notes
2017
CNY
December 31,
2018
CNY
2018
US$
5
6
337
337
39
10,494
18,878
29,411
29,748
275
275
39
636
6,793
7,468
7,743
40
40
6
92
988
1,086
1,126
continued/…
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 2017 AND 2018
(Amounts in thousands)
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables
Other payables and accrued liabilities
Taxes payable
Due to related companies
Due to the Shareholder
TOTAL CURRENT LIABILITIES AND TOTAL LIABILITIES
DEFICIENCY IN ASSETS
Issued capital
Other capital reserves
Accumulated losses
Other comprehensive loss
DEFICIENCY IN ASSETS
TOTAL LIABILITIES AND EQUITY
Notes
2017
CNY
December 31,
2018
CNY
2018
US$
7
8
15
15
16
16
215
2,926
16,792
13,747
11,573
100
1,639
16,788
4,041
6,973
45,253
29,541
15
238
2,441
587
1,014
4,295
312,081
692,518
(1,016,463 )
(3,641)
312,081
692,518
(1,022,639)
(3,758)
45,371
100,679
(148,673)
(546)
(15,505 )
(21,798)
(3,169)
29,748
7,743
1,126
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
Notes
2016
CNY
Year Ended December 31,
2017
CNY
2018
CNY
2018
US$
CONTINUING OPERATIONS
Administrative expenses
OPERATING LOSS
Finance costs
Interest income
LOSS BEFORE INCOME TAX FROM CONTINUING OPERATIONS
INCOME TAX EXPENSE
LOSS FOR THE YEAR FROM CONTINUING OPERATIONS
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations, net of tax
LOSS FOR THE YEAR
ATTRIBUTABLE TO:
Owners of the Company
From continuing operations
From discontinued operations
Non-controlling interests
From continuing operations
From discontinued operations
10
10
10
12
3
3
(4,519)
(6,204 )
(6,207)
(4,519)
(6,204 )
(6,207)
(1)
75
(14)
39
5
26
(4,445)
(6,179 )
(6,176)
—
—
—
(4,445)
(6,179 )
(6,176)
(18,591)
(23,817 )
—
(23,036 )
(29,996 )
(6,176)
(4,445)
(18,591)
(23,036)
(6,179 )
(23,817)
(29,996 )
—
—
—
—
—
—
(6,176)
—
(6,176)
—
—
—
(902)
(902)
1
4
(897)
—
(897)
—
(897)
(897 )
—
(897 )
—
—
—
(23,036)
(29,996)
(6,176)
(897 )
continued/…
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE
COMPANY:
Basic
- For loss from continuing operations
- For loss from discontinued operations
- Net loss per share
Diluted
- For loss from continuing operations
- For loss from discontinued operations
- Net loss per share
Notes
2016
CNY
2017
CNY
2018
CNY
2018
US$
Year Ended December 31,
13
13
13
13
(0.18)
(0.74)
(0.92)
(0.18)
(0.74)
(0.92 )
(0.25)
(0.95 )
(1.20)
(0.25)
(0.95 )
(1.20)
(0.25)
—
(0.25)
(0.25)
—
(0.25)
(0.04)
—
(0.04)
(0.04)
—
(0.04)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands)
LOSS FOR THE YEAR
Other comprehensive income/(loss):
2016
CNY
Year Ended December 31,
2017
2018
CNY
CNY
2018
US$
(23,036)
(29,996 )
(6,176)
(897)
Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent
periods:
Reclassification adjustments for a foreign operation disposed of during the year
Foreign currency translation adjustments
Total other comprehensive income/(loss) for the year, net of tax
—
(834)
(834)
3,280
(1,984)
1,296
—
(117)
(117)
—
(17)
(17)
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
(23,870)
(28,700 )
(6,293)
(914)
Attributable to:
Owners of the Company
From continuing operations
From discontinued operations
Non-controlling interests
From continuing operations
From discontinued operations
(4,445)
(19,425)
(23,870)
(5,758 )
(22,942 )
(28,700 )
(6,293)
—
(6,293)
—
—
—
—
—
—
—
—
—
(914)
—
(914)
—
—
—
(23,870)
(28,700 )
(6,293)
(914)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands)
Attributable to owners of the Company
Issued
capital
(Note 16)
CNY
Other
capital
reserves
CNY
Reserves
CNY
Accumulated
losses
CNY
Other
comprehensive
income/(loss)
CNY
Total
CNY
At January 1, 2016
Loss for the year
Foreign currency translation adjustments
Total comprehensive loss
Adjustment in relation to acquisition of Double Grow International
Limited (“Double Grow”)
Deemed contribution from a related party (Note 16(b))
Appropriation and utilization of safety fund, net
At December 31, 2016
Loss for the year
Foreign currency translation adjustments
Total comprehensive income /(loss)
Disposal of the discontinued operations
At December 31, 2017
Loss for the year
Foreign currency translation adjustments
Total comprehensive loss
At December 31, 2018
At December 31, 2018 (US$)
312,081
—
—
—
—
—
—
312,081
—
—
—
—
312,081
—
—
—
312,081
45,371
636,960
—
—
—
64,233
—
—
—
(1,026,970)
(23,036 )
—
(23,036 )
(694)
—
—
55,558
(359)
—
63,180
692,518
—
—
—
—
—
—
— (63,180)
692,518
—
—
—
692,518
100,679
—
—
359
(1,049,647)
(29,996 )
—
(29,996)
63,180
— (1,016,463 )
(6,176)
—
—
—
(6,176)
—
— (1,022,639)
(148,673)
—
(4,103)
(17,799 )
— (23,036 )
(834 )
(23,870 )
(834)
(834)
—
—
—
(4,937)
(694)
55,558
—
13,195
— (29,996 )
1,296
(28,700 )
—
(15,505 )
(6,176)
(117)
(6,293)
(21,798)
(3,169)
1,296
1,296
—
(3,641)
—
(117)
(117)
(3,758)
(546)
The accompanying notes are an integral part of these consolidated financial statements.
F-8
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands)
OPERATING ACTIVITIES
Loss for the year
From continuing operations
From discontinued operations
Adjustments for:
Depreciation and amortization (Note 10)
Gain on disposal of property, plant and equipment
Reversal of write-down of inventories to net realizable value, net
Accretion expenses
Decrease in deferred income
Loss on disposal of discontinued operations
Changes in working capital:
Rehabilitation fund
Inventories
Prepayments
Other receivables
Trade payables
Other payables and accrued liabilities
Taxes payable
2016
CNY
Year Ended December 31,
2017
CNY
2018
CNY
2018
US$
(4,445)
(18,591)
(6,179 )
(23,817 )
(6,176)
—
(897)
—
2,655
(1)
(1,744)
311
(287)
—
(15)
(1,452)
(144)
(1,401)
(65)
(3,088)
(2)
1,748
(45)
—
60
—
15,571
(11)
(746)
(354)
(10,376)
(1,426 )
10,727
102
67
—
—
—
—
—
—
—
—
(12)
(115 )
(1,287)
(4)
10
—
—
—
—
—
—
—
—
(2)
(17)
(186)
(1)
Net cash flows used in operating activities
(28,269)
(14,746 )
(7,527 )
(1,093)
INVESTING ACTIVITIES
Proceeds from disposal of subsidiaries
Net cash flows from acquisition of subsidiaries (Note 4)
Purchases of property, plant and equipment
Net proceeds from disposal of property, plant and equipment
Net cash flows (used in)/from investing activities
—
—
(4,946)
10
7,983
(86)
(5,029 )
—
(4,936)
2,868
9,377
—
(5)
—
9,372
1,363
—
(1)
—
1,362
continued/…
The accompanying notes are an integral part of these consolidated financial statements.
F-9
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands)
FINANCING ACTIVITIES
Repayments to the Shareholder
Repayments to related companies
Advances from related companies
Year Ended December 31,
2016
CNY
2017
CNY
2018
CNY
2018
US$
—
(2,020)
7,601
—
(2,385)
15,015
(4,600)
(11,392)
2,179
(669)
(1,656)
317
Net cash flows from/ (used in) financing activities
5,581
12,630
(13,813)
(2,008)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
(27,624)
752
(11,968)
(1,739)
NET FOREIGN EXCHANGE DIFFERENCE
1,545
(1,102)
(117)
(17)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
45,307
19,228
18,878
CASH AND CASH EQUIVALENTS AT END OF YEAR
19,228
18,878
6,793
Supplementary disclosures of cash flow information:
Cash receipt of government grants
Cash receipt of interest
52
194
—
48
—
26
2,744
988
—
4
The accompanying notes are an integral part of these consolidated financial statements.
F-10
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
China Natural Resources, Inc. (“CHNR” or the “Company”) is a British Virgin Islands (“BVI”) holding company incorporated in 1993. The
address of the principal executive office is Room 2205, 22/F, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan,
Hong Kong. The Company does not conduct any substantive operations on its own and conducts its primary business operations through its
subsidiaries (collectively with CHNR, the “Group”). A list of the Company's subsidiaries is included in Note 15.
CHNR's principal shareholder is Feishang Group Limited (“Feishang Group” or the “Shareholder”), a British Virgin Islands corporation. Mr.
Li Feilie is the beneficial owner of Feishang Group. In the opinion of the directors of the Company, the ultimate parent of CHNR is Laitan
Investment Limited, a British Virgin Islands corporation.
The consolidated financial statements of the Group for the year ended December 31, 2018 were authorized for issuance in accordance with a
resolution of the directors on April 30, 2019.
As at December 31, 2017 and 2018, the Company and its subsidiaries had net current liabilities of CNY15.84 million and CNY22.07 million
(US$3.21 million), respectively, and total assets less current liabilities of negative CNY15.51 million and CNY21.80 million (US$3.17
million), respectively.
2.1
BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued
by the International Accounting Standards Board (“IASB”).
The consolidated financial statements have been prepared on a historical cost basis. The consolidated financial statements are presented in
Chinese Yuan (“CNY”) and all values are rounded to the nearest thousand, except when otherwise indicated.
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended December 31,
2018.
A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the
Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).
When the Company has, directly or indirectly, less than a majority of the voting or similar right of an investee, the Group considers all
relevant facts and circumstances in assessing whether it has power over an investee, including:
(a)
(b)
(c)
the contractual arrangement with the other vote holders of the investee;
rights arising from other contractual arrangements; and
the Group’s voting rights and potential voting rights.
F-11
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.1
BASIS OF PREPARATION (CONTINUED)
The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies.
The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date
that such control ceases. All significant intercompany accounts and transactions have been eliminated in full.
Profit or loss and each component of other comprehensive income are attributed to owners of the Company and to the non-controlling
interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the
three elements of control above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction.
If the Group loses control over a subsidiary, it derecognizes (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying
amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognizes (i) the fair value of
the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s
share of components previously recognized in other comprehensive income is reclassified to profit or loss or retained earnings, as appropriate,
on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.
Going concern
As of December 31, 2018 and 2017, the Group had net current liabilities of CNY22.07 million (US$3.21 million) and CNY15.84 million, and
shareholder’s deficiency in assets of CNY21.80 million (US$3.17 million) and CNY15.51 million, respectively. In view of these
circumstances, the directors have given consideration to the future liquidity and performance of the Group and its available sources of finance
in assessing whether the Group will have sufficient financial resources to continue as a going concern. In order to improve the Group’s
liquidity and cash flows to sustain the Group as a going concern, the directors of the Company have undertaken certain measures to improve
the cash flows of the Group, which include but are not limited to obtaining confirmations for continuous financial support from Feishang
Group and Feishang Enterprise Group Co., Ltd. (“Feishang Enterprise”), entities controlled by Mr. Li Feilie, who is the principal beneficial
shareholder of the Company, which state that Feishang Group and Feishang Enterprise would provide continuous financial support to the
Group in relation to the going concern of its operations, including payments on debts and will not recall any amounts due to them until the
Group is in a position to settle the amounts due without having a detrimental impact on the financial resources of the Group. Accordingly, in
the opinion of the directors, it is appropriate for the consolidated financial statements to be prepared on a going concern basis.
F-12
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.2
CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Group has adopted the following new and revised IFRSs for the first time for the current year's financial statements.
Amendments to IFRS 2
Amendments to IFRS 4
IFRS 9
IFRS 15
Amendments to IFRS 15
Amendments to IAS 40
IFRIC 22
Annual Improvements 2014-2016 Cycle
Classification and Measurement of Share-based Payment Transactions
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
Financial Instruments
Revenue from Contracts with Customers
Clarifications to IFRS 15 Revenue from Contracts with Customers
Transfers of Investment Property
Foreign Currency Transactions and Advance Consideration
Amendments to IFRS 1 and IAS 28
Except for the amendments to IFRS 2, amendments to IFRS 4, amendments to IAS 40, IFRIC 22 and Annual Improvements 2014-2016 Cycle,
which are not relevant to the preparation of the consolidated financial statements, the nature and the impact of the new and revised IFRSs are
described below:
(a)
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement from January 1, 2018
The comparative information is not restated and the Group recognized any transition adjustments in relation to the adoption of IFRS 9
against the opening balance of equity at January 1, 2018 as further disclosed below.
(1)
Classification and measurement
On January 1, 2018 (the date of initial application of IFRS 9), the Group’s management has classified its financial assets into the
appropriate IFRS 9 categories. There was no significant effect resulting from this reclassification.
(2)
Impairment
IFRS 9 requires an impairment on debt instruments recorded at amortized cost or at fair value through other comprehensive
income, lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through
profit or loss under IFRS 9, to be recorded based on an expected credit loss model either on a twelve-month basis or a lifetime
basis. The Group has no trade receivables and only has other receivables, and thus, the Group has applied the general approach
and recorded twelve-month expected credit losses that were estimated based on the probability of default by applying a loss rate to
its other receivables within the next twelve months. The effect of adoption on the consolidated financial statements was minimal.
F-13
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.2
CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (CONTINUED)
(b)
IFRS 15 Revenue from Contracts with Customers and its amendments
IFRS 15 and its amendments replace IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations and it applies, with
limited exceptions, to all revenue arising from contracts with customers. IFRS 15 establishes a new five-step model to account for
revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to
which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a
more structured approach for measuring and recognizing revenue. The standard also introduces extensive qualitative and quantitative
disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset
and liability account balances between periods and key judgements and estimates. As a result of the application of IFRS 15, the Group
has changed the accounting policy with respect to revenue recognition in Note 2.4(p) to the consolidated financial statements. The
Group has adopted the standard from January 1, 2018. The effect of adoption of the standard on the consolidated financial statements
was minimal.
There was no revenue generated by the Group during the years ended December 31, 2018 and 2017.
2.3
ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Group has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in these financial statements:
Amendments to IFRS 3
Amendments to IFRS 9
Amendments to IFRS 10 and IAS 28
IFRS 16
IFRS 17
Amendments to IAS 1 and IAS 8
Amendments to IAS 19
Amendments to IAS 28
IFRIC 23
Annual Improvements 2015-2017 Cycle Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 1
———————
Effective for annual periods beginning on or after January 1, 2019
Effective for annual periods beginning on or after January 1, 2020
Definition of a Business 2
Prepayment Features with Negative Compensation 1
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 4
Leases 1
Insurance Contracts 3
Definition of Material 2
Plan Amendment, Curtailment or Settlement1
Long-term Interests in Associates and Joint Ventures1
Uncertainty over Income Tax Treatments 1
2
1
3
4
Effective for annual periods beginning on or after January 1, 2021
No mandatory effective date yet determined but available for adoption
Of those standards, IFRS 16 will be applicable for the Group’s financial year ending December 31, 2019 and is expected to have some impact
upon adoption. Whilst management has performed a detailed assessment of the estimated impacts of these standards, that assessment is based
on the information currently available to the Group, including expectations of the application of transitional provision options and policy
choices. The actual impacts upon adoption could be different to those below, depending on additional reasonable and supportable information
being made available to the Group at the time of applying the standard and the transitional provisions and policy options finally adopted.
F-14
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.3
ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED)
IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and
SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the
recognition, measurement, presentation and disclosure of leases and requires lessees to recognize assets and liabilities for most leases. The
standard includes two elective recognition exemptions for lessees – leases of low-value assets and short-term leases. At the commencement
date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the
underlying asset during the lease term (i.e., the right-of-use asset). The right-of-use asset is subsequently measured at cost less accumulated
depreciation and any impairment losses unless the right-of-use asset meets the definition of investment property in IAS 40, or relates to a class
of property, plant and equipment to which the revaluation model is applied and the lessee elects to apply that model to the right-of-use asset.
The lease liability is subsequently increased to reflect the interest on the lease liability and reduced for the lease payments. Lessees will be
required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will
also be required to remeasure the lease liability upon the occurrence of certain events, such as change in the lease term and change in future
lease payments resulting from a change in an index or rate used to determine those payments. Lessees will generally recognize the amount of
the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged
from the accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and
distinguish between operating leases and finance leases. IFRS 16 requires lessees and lessors to make more extensive disclosures than under
IAS 17. Lessees can choose to apply the standard using either a full retrospective or a modified retrospective approach. The Group will adopt
IFRS 16 from January 1, 2019. The Group plans to adopt the transitional provisions in IFRS 16 to recognize the cumulative effect of initial
adoption as an adjustment to the opening balance of retained earnings at January 1, 2019 and will not restate the comparatives. In addition, the
Group plans to apply the new requirements to contracts that were previously identified as leases applying IAS 17 and measure the lease
liability at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate at the date of initial
application. The right-of-use asset will be measured at the amount of the lease liability, adjusted by the amount of any prepaid or accrued lease
payments relating to the lease recognized in the statement of financial position immediately before the date of initial application. The Group
plans to use the exemptions allowed by the standard on lease contracts whose lease terms end within 12 months as of the date of initial
application. During 2018, the Group has performed a detailed assessment on the impact of adoption of IFRS 16. The Group has estimated that
right-of-use assets of CNY1.80 million and lease liabilities of CNY1.80 million will be recognized at January 1, 2019.
F-15
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Business combinations
The acquisition of subsidiaries and businesses under common control, where applicable, has been accounted for using merger
accounting. The financial statements of the combining entities or businesses under common control are prepared for the same reporting
period as the Company, using consistent accounting policies.
The merger method of accounting involves incorporating the financial statement items of the combining entities or businesses in which
the common control combinations occurs as if they had been combined from the date when the combining entities or businesses first
came under the control of the controlling shareholder. The net assets of the combining entities or businesses are combined using the
existing book values from the controlling shareholder’s perspective. No amount is recognized in respect of goodwill or the excess of the
acquirers’ interest in the net fair value of acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of investment at
the time of common control combination.
The consolidated statement of profit or loss includes the results of each of the combining entities or businesses from the earliest date
presented or since the date when the combining entities or businesses first came under common control or since their respective dates of
incorporation/establishment, where this is a shorter period, regardless of the date of the common control combination. All intra-group
balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated on consolidation.
Business combinations, other than business combinations under common control, are accounted for using the acquisition method. The
consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets
transferred by the Group, liabilities assumed by the Group to the former owner of the acquiree and the equity interests issued by the
Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling
interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of
liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling
interests are measured at fair value. Acquisition-related costs are expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the
separation of embedded derivatives in host contracts of the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the
acquiree is remeasured to fair value at the acquisition date through the consolidated statement of profit or loss.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent
consideration classified as an asset or liability is measured at fair value with changes in fair value recognized in profit or loss. If the
contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRSs. Contingent
consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized for non-
controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets
acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets of the
subsidiary acquired, the difference is, after reassessment, recognized in the consolidated statement of profit or loss as a gain on bargain
purchase.
F-16
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a)
Business combinations (continued)
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment
annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs
its annual impairment test of goodwill as at December 31. For the purpose of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that
are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned
to those units or groups of units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the
goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying
amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.
Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that
until is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when
determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the
operation disposed of and the portion of the cash-generating unit retained.
(b)
Related parties
A party is considered to be related to the Group if:
(1)
the party is a person or a close member of that person’s family and that person
(i)
(ii)
(iii)
has control or joint control over the Group;
has significant influence over the Group; or
is a member of the key management personnel of the Group or of a parent of the Group;
or
(2)
the party is an entity where any of the following conditions applies:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
the entity and the Group are members of the same group;
one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other
entity);
the entity and the Group are joint ventures of the same third party;
one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the
Group;
the entity is controlled or jointly controlled by a person identified in (1);
a person identified in (1)(i) has significant influence over the entity or is a member of the key management personnel of the
entity (or of a parent of the entity); and
the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to
the parent of the Group.
F-17
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c)
Property, plant and equipment and depreciation
Property, plant and equipment comprise buildings, mining structures, mining rights, machinery and equipment, motor vehicles,
exploration rights and construction in progress.
Exploration rights are capitalized and amortized over the term of the license granted to the Group by the authorities.
When proved and probable coal reserves have been determined, costs incurred to develop coal mines are capitalized as part of the cost
of the mining structures.
Buildings, mining structures, machinery and equipment, and motor vehicles are stated at cost less accumulated depreciation and any
impairment losses. Expenditures for routine repairs and maintenance are expensed as incurred.
Mining rights are stated at cost less accumulated amortization and any impairment losses. The costs of mining rights are initially
capitalized when purchased. If proved and probable reserves are established for a property and it has been determined that a mineral
property can be economically developed, costs are capitalized and are amortized upon production based on actual units of production
over the estimated proved and probable reserves of the mines. For mining rights in which proved and probable reserves have not yet
been established, the Group assesses the carrying value for impairment at the end of each reporting period. The Group’s rights to extract
minerals are contractually limited by time. However, the Group believes that it will be able to extend its licenses.
Mining related buildings, mining structures and mining related machinery and equipment are stated at cost less accumulated
depreciation and any impairment losses. Those mining related assets for which proved and probable reserves have been established are
depreciated upon production based on actual units of production over the estimated proved and probable reserves of the mines.
Reserve estimates are reviewed when information becomes available that indicates a reserve change is needed, or at a minimum once a
year. Any material effect from changes in estimates is considered in the period the change occurs.
Depreciation for the following items is calculated on the straight-line basis over each asset’s estimated useful life down to the estimated
residual value of each asset.
Estimated useful lives are as follows:
Non-mining related buildings
Non-mining related machinery and equipment
Motor vehicles
8 - 35 years
3 - 15 years
4 - 8 years
Residual values, useful lives and the depreciation method are reviewed and, adjusted if appropriate, at each reporting date.
F-18
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c)
Property, plant and equipment and depreciation (continued)
When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective
accounts and any profit or loss on disposition is recognized in the statement of profit or loss.
Construction in progress is carried at cost and is to be depreciated when placed into service over the estimated useful lives or units of
production of those assets. Construction costs are capitalized as incurred. Interest is capitalized as incurred during the construction
period.
Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is
normally charged to the statement of profit or loss in the period in which it is incurred. In situations where the recognition criteria are
satisfied, the expenditure for a major inspection is capitalized in the carrying amount of the asset as a replacement. Where significant
parts of property, plant and equipment are required to be replaced at intervals, the Group recognizes such parts as individual assets with
specific useful lives and depreciates them accordingly.
(d)
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or
transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most
advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair
value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by
using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair
value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable,
either directly or indirectly
Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers
have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair
value measurement as a whole) at the end of each reporting period.
F-19
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e)
Exploration and evaluation costs
Exploration and evaluation assets include topographical and geological surveys, exploratory drilling, sampling and trenching and
activities in relation to commercial and technical feasibility studies, and expenditure incurred to secure further mineralization in existing
bodies and to expand the capacity of a mine. Expenditure incurred prior to acquiring legal rights to explore an area is expensed as
incurred.
Once the exploration right to explore has been acquired, exploration and evaluation expenditure is charged to the consolidated statement
of profit or loss as incurred, unless a future economic benefit is more likely than not to be realized. Exploration and evaluation assets
acquired in a business combination are initially recognized at fair value. They are subsequently stated at cost less accumulated
impairment.
When it can be reasonably ascertained that a mining property is capable of commercial production, exploration and evaluation costs are
transferred to tangible or intangible assets according to the nature of the exploration and evaluation assets. If any project is abandoned
during the evaluation stage, the total expenditure thereon will be written off.
(f)
Impairment of non-financial assets
Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial
assets, etc.), the asset’s recoverable amount is estimated.
An impairment exists when the carrying value of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of
its fair value less costs of disposal and its value in use, and is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined
for the cash-generating unit to which the asset belongs. The calculation of fair value less costs of disposal is based on available data
from binding sales transactions in arm’s length transactions of similar assets or observable market prices less incremental costs for
disposing of the asset or other appropriate valuation techniques. The value in use calculation is based on a discounted cash flow model,
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An
impairment loss is charged to the consolidated statement of profit or loss in the period in which it arises in those categories consistent
with the function of the impaired asset.
An assessment is made at the end of each reporting period as to whether there is an indication that previously recognized impairment
losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously
recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine
the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any
depreciation/amortization) had no impairment loss been recognized for the asset in prior years.
F-20
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)
Investments and other financial assets
(i)
Policies under IFRS 9 applicable from January 1, 2018
The Group’s financial assets within the scope of IFRS 9 are all classified as financial assets at amortized cost. All financial assets
are recognized initially at fair value plus transaction costs that are attributable to the acquisition of the financial assets.
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other
comprehensive income, and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and
the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing
component or for which the Group has applied the practical expedient of not adjusting the effect of a significant financing
component, the Group initially measures a financial asset at its fair value, plus in the case of a financial asset not at fair value
through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the
Group has applied the practical expedient are measured at the transaction price determined under IFRS 15 in accordance with the
policies set out in Note 2.4(p) “Revenue recognition - Applicable from January 1, 2018” below.
In order for a financial asset to be classified and measured at amortized cost or fair value through other comprehensive income, it
needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding.
The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial
assets, or both.
All regular way purchases and sales of financial assets are recognized on the trade date, that is, the date that the Group commits to
purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets
within the period generally established by regulation or convention in the marketplace.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at amortized cost (debt instruments)
The Group measures financial assets at amortized cost if both of the following conditions are met:
The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual
cash flows.
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment.
Gains and losses are recognized in the statement of profit or loss when the asset is derecognized, modified or impaired.
F-21
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)
Investments and other financial assets (continued)
(i)
Policies under IFRS 9 applicable from January 1, 2018 (continued)
Fair value of financial assets at amortized cost
As at December 31, 2018, the carrying values of other financial assets approximated to their fair values due to the short-term
maturities of these instruments.
(ii)
Policies under IAS 39 applicable before January 1, 2018
The Group’s financial assets within the scope of IAS 39 are all classified as loans and receivables. All financial assets are
recognized initially at fair value plus transaction costs that are attributable to the acquisition of the financial assets.
All regular way purchases and sales of financial assets are recognized on the trade date, that is, the date that the Group commits to
purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets
within the period generally established by regulation or convention in the marketplace.
Subsequent measurement of 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 12 months after the reporting date, which
are classified as non-current assets. Loans and receivables are included in “prepayments”, “other receivables” and “cash and cash
equivalents” in the consolidated statement of financial position. These assets are subsequently carried at amortized cost using the
effective interest method less any provision for impairment. Gains and losses are recognized in interest income or finance costs in
the consolidated statement of profit or loss when the loans and receivables are derecognized as well as through the amortization
process.
Fair value of loans and receivables
The carrying values of other financial assets approximated to their fair values due to the short-term maturities of these
instruments.
F-22
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h)
Derecognition of financial assets (policies under IFRS 9 applicable from January 1, 2018 and policies under IAS 39 applicable before
January 1, 2018)
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized
(i.e., removed from the Group’s consolidated statement of financial position) when:
the rights to receive cash flows from the asset have expired; or
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred
substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it
evaluates if, and to what extent, it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor
retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the
transferred asset to the extent of the Group's continuing involvement. In that case, the Group also recognizes an associated liability. The
transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying
amount of the asset and the maximum amount of consideration that the Group could be required to repay.
(i)
Impairment of financial assets
(i)
Policies under IFRS 9 applicable from January 1, 2018
The Group recognizes an allowance for ECLs for all debt instruments not held at fair value through profit or loss. ECLs are based
on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group
expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash
flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
General approach
ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since
initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months
(a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the
timing of the default (a lifetime ECL).
At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial
recognition. When making the assessment, 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 and considers
reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking
information.
F-23
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Impairment of financial assets (continued)
(i)
Policies under IFRS 9 applicable from January 1, 2018 (continued)
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the
Group may also consider a financial asset to be in default when internal or external information indicates that the Group is
unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the
Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
Debt investments at fair value through other comprehensive income and financial assets at amortized cost are subject to
impairment under the general approach and they are classified within the following stages for measurement of ECLs except for
trade receivables which apply the simplified approach as detailed below:
Stage 1 – Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss
allowance is measured at an amount equal to 12-month ECLs
Stage 2 – Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-
impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs
Stage 3 – Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired)
and for which the loss allowance is measured at an amount equal to lifetime ECLs
Simplified approach
For trade receivables and contract assets that do not contain a significant financing component or when the Group applies the
practical expedient of not adjusting the effect of a significant financing component, the Group applies the simplified approach in
calculating ECLs. Under the simplified approach, the Group does not track changes in credit risk, but instead recognizes a loss
allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its
historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
F-24
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Impairment of financial assets (continued)
(ii)
Impairment of financial assets (policies under IAS 39 applicable before January 1, 2018)
Impairment of loans and receivables
The Group assesses at the end of each reporting date whether there is objective evidence that the loans and receivables are
impaired. The Group first assesses whether impairment exists individually for loans and receivables that are individually
significant, or collectively for loans and receivables that are not individually significant. If the Group determines that no objective
evidence of impairment exists for an individually assessed loans and receivables, whether significant or not, it includes the asset in
a group of loans and receivables with similar credit risk characteristics and collectively assesses them for impairment. Loans and
receivables that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are
not included in a collective assessment of impairment.
The amount of any impairment loss identified is measured as the difference between the asset's carrying amount and the present
value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the
estimated future cash flows is discounted at the financial asset's original effective interest rate (i.e., the effective interest rate
computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the loss
is recognized in the consolidated statement of profit or loss. Interest income continues to be accrued on the reduced carrying
amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the
impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect
of future recovery and all collateral has been realized or has been transferred to the Group.
If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after
the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance
account. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of profit or loss, to the extent
that the carrying value of the asset does not exceed amortized cost at the reversal date.
In relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the
probability of insolvency or significant financial difficulties of the debtor and significant changes in the technological, market,
economic or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all of the
amounts due under the original terms of an invoice.
F-25
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j)
Financial liabilities (policies under IFRS 9 applicable from January 1, 2018 and IAS 39 applicable before January 1, 2018)
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings,
payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly
attributable transaction costs.
The Group’s financial liabilities include trade payables, and financial liabilities included in other payables and accrued liabilities.
Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as follows:
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost, using the effective interest
rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognized
in the statement of profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of
the effective interest rate. The effective interest rate amortization is included in finance costs in the statement of profit or loss.
Derecognition of financial liabilities (policies under IFRS 9 applicable from January 1, 2018 and IAS 39 applicable before January 1,
2018)
A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a
recognition of a new liability, and the difference between the respective carrying amounts is recognized in the statement of profit or loss.
F-26
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k)
Offsetting of financial instruments (policies under IFRS 9 applicable from January 1, 2018 and IAS 39 applicable before January 1,
2018)
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a
currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets
and settle the liabilities simultaneously.
(l)
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and
short-term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of
changes in value, and have a short-term maturity of generally within three months when acquired, less bank overdrafts which are
repayable on demand and form an integral part of the Group’s cash management.
For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks,
including term deposits, and assets similar in nature to cash, which are not restricted as to use.
(m)
Employee benefits
Pension obligations
The Group contributes on a monthly basis to various defined contribution retirement benefit plans administered by the PRC government.
The relevant government agencies undertake to assume the retirement benefit obligation payable to all existing and future retired
employees under these plans and the Group has no further obligation for post-retirement benefits beyond the contributions made.
Further information is set out in Note 11.
Housing funds
All full-time employees of the Group are entitled to participate in various government-sponsored housing funds. The Group contributes
on a monthly basis to these funds based on certain percentages of the salaries of the employees. The Group's liability in respect of these
funds is limited to the contributions payable in each year.
(n)
Asset retirement obligations
The Group’s legal or constructive obligations associated with the retirement of non-financial assets are recognized at fair value at the
time the obligations are incurred and if it is probable that an outflow of resources will be required to settle the obligation, and a
reasonable estimate of fair value can be made. Upon initial recognition of a liability, a corresponding amount is capitalized as part of the
carrying amount of the related property, plant and equipment. Asset retirement obligations are regularly reviewed by management and
are revised for changes in future estimated costs and regulatory requirements. Changes in the estimated timing of retirement or future
estimated costs are dealt prospectively by recording an adjustment against the carrying value of the provision and a corresponding
adjustment to property and equipment. Depreciation of the capitalized asset retirement cost is generally determined on a units-of-
production basis. Accretion of the asset retirement obligation is recognized over time and generally will escalate over the life of the
producing asset, typically as production declines. Accretion is included in the finance costs in the consolidated statement of profit or
loss. Any difference between the recorded obligation and the actual costs of reclamation is recorded in the consolidated statement of
profit or loss in the period the obligation is settled.
F-27
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o)
Borrowing costs
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs
directly relating to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to
get ready for its intended use or sale are capitalized as part of the cost of the respective assets. The capitalization of such borrowing
costs ceases when the assets are substantially ready for their intended use or sale. All other borrowing costs are expensed in the period in
which they are incurred.
(p)
Revenue recognition
(i)
Applicable from January 1, 2018
Revenue from contracts with customers
Revenue from contracts with customers is recognized when control of goods or services is transferred to the customers at an
amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.
When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which the Group will
be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract
inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue
recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.
When the contract contains a financing component which provides the customer a significant benefit of financing the transfer of
goods or services to the customer for more than one year, revenue is measured at the present value of the amount receivable,
discounted using the discount rate that would be reflected in a separate financing transaction between the Group and the customer
at contract inception. When the contract contains a financing component which provides the Group a significant financial benefit
for more than one year, revenue recognized under the contract includes the interest expense accreted on the contract liability under
the effective interest method. For a contract where the period between the payment by the customer and the transfer of the
promised goods or services is one year or less, the transaction price is not adjusted for the effects of a significant financing
component, using the practical expedient in IFRS 15.
There was no revenue generated by the Group during the years ended December 31, 2018 and 2017.
Other income
Interest income is recognized on an accrual basis using the effective interest method by applying the rate that exactly discounts the
estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net
carrying amount of the financial asset.
F-28
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p)
Revenue recognition (continued)
(ii)
Applicable before January 1, 2018
Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic
benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in profit
or loss as follows:
The Group sells its products pursuant to sales contracts entered into with its customers. Revenue from all products is recognized
when the significant risks and rewards of ownership have been transferred to the customer, provided that the Group does not
maintain neither managerial involvement to the degree usually associated with ownership nor effective control over the goods
sold, and when collectability is reasonably assured. The transfer of the significant risks and rewards of ownership to the customer
is based on the terms of the sales contract, generally upon delivery and acceptance of the product by the customer.
In accordance with the relevant tax laws in the PRC, value-added tax (“VAT”) is levied on the invoiced value of sales and is
payable by the purchaser. The Group is required to remit the VAT it collects to the tax authority, but may deduct the VAT it has
paid on eligible purchases. The difference between the amounts collected and paid is presented as VAT recoverable or payable in
the consolidated statement of financial position. The Group recognizes revenues net of VAT.
Interest income is recognized on an accrual basis using the effective interest method by applying the rate that exactly discounts the
estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net
carrying amount of the financial asset.
(q)
Contract assets (applicable from January 1, 2018)
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by
transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is
recognized for the earned consideration that is conditional.
(r)
Contract liabilities (applicable from January 1, 2018)
A contract liability is the obligation to transfer goods or services to a customer for which the Group has received a consideration (or an
amount of consideration that is due) from the customer. If a customer pays the consideration before the Group transfers goods or
services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier).
Contract liabilities are recognized as revenue when the Group performs under the contract.
F-29
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s)
Government grants
Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attaching
conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the
period that the costs, which it is intended to compensate, are expensed.
Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the consolidated statement
of profit or loss over the expected useful life of the relevant asset by equal annual instalments or deducted from the carrying amount of
the asset and released to the consolidated statement of profit or loss by way of a reduced depreciation charge.
(t)
Income taxes
Income tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit
or loss, either as other comprehensive income or loss, or directly in equity.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax
rates and tax laws used to compute the amount are those that are enacted or substantially enacted, by the end of the reporting date, taking
into consideration interpretations and practices prevailing in the countries where the Group operates and generates taxable income.
Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
when the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
F-30
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(t)
Income taxes (continued)
Deferred tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and unused tax losses,
to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the
carryforward of unused tax credits and unused tax losses can be utilized, except:
where the deferred tax assets relating to the deductible temporary differences arise from the initial recognition of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit
nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized
to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be
available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are
reassessed at each reporting date and are recognized to the extent that it is probable that it has become probable that sufficient taxable
profit will be available to allow all or part of the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset if and only if the Group has a legally enforceable right to set off current tax
assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a
net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred
tax liabilities or assets are expected to be settled or recovered.
F-31
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(u)
Foreign currencies
The functional currency of substantially all the operations of the Group is the CNY, the national currency of the PRC. Transactions
denominated in currencies other than the CNY recorded by the entities of the Group are initially recorded using their respective
functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in other currencies have
been translated into CNY at the functional currency rates of exchange prevailing at the end of the reporting period. The resulting
exchange gains or losses are credited or charged to the consolidated statement of profit or loss. Non-monetary items that are measured in
terms of historical cost in a foreign currency are translated using the exchange rates at the date of the initial transactions.
The consolidated financial statements of certain overseas subsidiary operations with a functional currency other than the CNY have been
translated into CNY. The assets and liabilities of these entities have been translated using the exchange rates prevailing at the reporting
date and their consolidated statements of profit or loss have been translated using the weighted average exchange rate for the year.
Resulting translation adjustments are reported as a separate component of other comprehensive income.
On disposal of a foreign operation, the deferred cumulative amount recognized in equity relating to that particular foreign operation is
recognized in the consolidated statement of profit or loss.
(v)
Convenience translation
The consolidated financial statements are stated in CNY. The translation of amounts from CNY into US$ is supplementary information
and is included solely for the convenience of the readers and has been made at the rate of exchange quoted by UKForex on
December 31, 2018 of US$1.00 = CNY6.8785. No representation is made that the CNY amounts could have been, or could be,
converted into US$ at that rate on December 31, 2018 or at any other date.
(w)
Provisions
A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a
future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the
obligation.
When the effect of discounting is material, the amount recognized for a provision is the present value at the end of the reporting period
of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising
from the passage of time is included in finance costs in the consolidated statement of profit or loss.
F-32
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(x)
Leases
Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as
finance leases. At the inception of a finance lease, the cost of the leased asset is capitalized at the lower of its fair value of the present
value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase
and financing. Assets held under capitalized finance leases are included in property, plant and equipment, and depreciated over the
shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the consolidated
statement of profit or loss so as to provide a constant periodic rate of charge over the lease terms.
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases.
Where the Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to the
consolidated statement of profit or loss on the straight-line basis over the lease terms.
Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognized on the straight-line basis over
the lease terms.
(y)
Dividends
Final dividends are recognized as a liability when they are approved by the directors in a general meeting.
Interim dividends are simultaneously proposed and declared, because the Company's memorandum and articles of association grant the
directors the authority to declare interim dividends. Consequently, interim dividends are recognized immediately as a liability when
they are proposed and declared.
F-33
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2.5
SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Uncertainty about these assumptions and estimates
could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. The Group
has based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing
circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the
control of the Group. Such changes are reflected in the assumptions when they occur.
(i)
Income taxes
There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of
business. The Group recognizes liabilities based on estimates of whether additional taxes will be due. Where the final tax outcome of
these matters is different from the amounts that were initially recorded, the differences will be reflected in the income tax and deferred
tax provisions in the period in which the determination is made.
3.
DISCONTINUED OPERATIONS
On February 24, 2017, Feishang Mining Holdings Limited (“Feishang Mining”), a wholly-owned subsidiary of CHNR, and Wuhu City
Feishang Industrial Development Co., Ltd. (“Wuhu Industrial”), as nominee for Feishang Mining (collectively referred to as the “Sellers”),
entered into an agreement with Shen Yandi, an unrelated individual (the “Purchaser”), pursuant to which the Sellers sold and the Purchaser
purchased, all of the Sellers’ right, title and interest in and to the outstanding capital stock of Wuhu Feishang Mining Development Co.,
Limited (“Wuhu Feishang”), which had been previously included in the Group’s non-ferrous metals segment, at a cash consideration of
CNY1.00 million. The disposal was completed on March 3, 2017.
On December 29, 2017, CHNR sold all of CHNR’s rights, title and interest in and to the outstanding capital stock (the “Equity Interests”) of
Double Grow and its subsidiaries (including Planta Metalurgica Antay Pacha S.A., “Antay Pacha”) to Shanghai Kangzheng Investment
Management Co., Ltd., an unrelated third party. The purchase price for the Equity Interests was CNY17.19 million, including the payment of
CNY9.38 million in indebtedness of Double Grow to CHNR, which was recognized in other receivables (Note 6(a)) and cash consideration of
CNY7.81 million. The disposal was completed on December 29, 2017.
Wuhu Feishang and Double Grow were the primary contributors to the Group’s exploration and mining-non-ferrous metals segment and
copper smelting segment, respectively, which represented separate major lines of business with separately identifiable operations and cash
flows. Accordingly, the results of Wuhu Feishang and Double Grow are classified and separately reported as "discontinued operations" in the
consolidated statement of profit or loss for the year ended December 31, 2017. In addition, the gain or loss recognized on the disposal of
Wuhu Feishang and Double Grow were included in the results of the discontinued operations. With Wuhu Feishang and Double Grow being
classified as discontinued operations, the exploration and mining-non-ferrous metals segment and copper smelting segment businesses are no
longer included in the note for operating segment information.
F-34
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
3.
DISCONTINUED OPERATIONS (CONTINUED)
(a)
Discontinued operation of Wuhu Feishang
The results of Wuhu Feishang are presented below:
For the
period from
January 1,
2017 to
March 3,
2017
CNY
—
(991)
(641)
—
61
2016
CNY
(23)
(6,588)
(4,073)
1,744
393
(8,547)
(1,571)
(258)
119
(2,267)
(10,953)
(10,953)
—
(10,953)
(30)
9
230
(1,362)
(1,362)
12,340
10,978
Selling expenses
Administrative expenses
Losses arising from temporary suspension of production
Reversal of write-down of inventories to net realizable value
Other operating income
OPERATING LOSS
Finance costs
Interest income
Non-operating (expenses)/income, net
LOSS BEFORE INCOME TAX
LOSS FOR THE PERIOD FROM WUHU FEISHANG
Gain on disposal of Wuhu Feishang
(LOSS)/PROFIT FOR THE PERIOD FROM WUHU FEISHANG
F-35
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
3.
DISCONTINUED OPERATIONS (CONTINUED)
(a)
Discontinued operation of Wuhu Feishang (continued)
The details of the net assets of Wuhu Feishang as at March 3, 2017 are as follows:
Net assets disposed of:
Property, plant and equipment
Rehabilitation fund
Inventories
Prepayments
Other receivables
Cash and cash equivalents
Trade payables
Other payables and accrued liabilities
Taxes payable
Due to related companies
Asset retirement obligations
Net assets disposed of
Gain on disposal of Wuhu Feishang
Consideration
Satisfied by:
Cash received
March 3,
2017
CNY
7,613
3,983
5,644
73
47
18
(30)
(13,303)
(5,316)
(5,117)
(4,952)
(11,340)
12,340
1,000
1,000
The net cash flows incurred by Wuhu Feishang, excluding the cash consideration received from the disposal of Wuhu Feishang, are as
follows:
Operating activities
Investing activities
Financing activities
Net cash outflows
F-36
For the
period from
January 1,
2017 to
March 3,
2017
CNY
(2,727)
60
1,793
(874)
2016
CNY
(16,632)
(81)
1,920
(14,793)
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
3.
DISCONTINUED OPERATIONS (CONTINUED)
(a)
Discontinued operation of Wuhu Feishang (continued)
An analysis of the cash flows of cash and cash equivalents in respect of the disposal of Wuhu Feishang is as follows:
Cash consideration received
Less: Cash and cash equivalents disposed of
Net cash inflows from the disposal of Wuhu Feishang
(b)
Discontinued operation of Double Grow
The results of Double Grow are presented below:
Administrative expenses
Other operating expenses, net
OPERATING LOSS
Finance costs
Non-operating expenses, net
LOSS BEFORE INCOME TAX
LOSS FOR THE PERIOD FROM DOUBLE GROW
Loss on disposal of Double Grow
LOSS FOR THE PERIOD FROM DOUBLE GROW
F-37
March 3,
2017
CNY
1,000
(18)
982
For the
period from
January 1,
2017 to
December 29,
2017
CNY
(5,966)
—
(5,966)
(78)
(840)
(6,884 )
(6,884 )
(27,911)
(34,795 )
2016
CNY
(3,907)
(3,575)
(7,482)
(72)
(84)
(7,638)
(7,638)
—
(7,638)
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
3.
DISCONTINUED OPERATIONS (CONTINUED)
(b)
Discontinued operation of Double Grow (continued)
The details of the net assets of Double Grow as at December 29, 2017 are as follows:
Net assets disposed of:
Property, plant and equipment
Intangible assets
Inventories
Trade and bills receivables
Prepayments
Other receivables
Cash and cash equivalents
Trade payables
Other payables and accrued liabilities
Taxes payable
Due to related companies
Asset retirement obligations
Net assets disposed of
Exchange fluctuation reserve
Loss on disposal of Double Grow
Consideration
Satisfied by:
Cash received
December 29,
2017
CNY
45,442
5
5,659
340
572
5,962
807
(786)
(2,561)
(621)
(21,994)
(386)
32,439
3,280
35,719
(27,911)
7,808
7,808
The net cash flows incurred by Double Grow, excluding the cash consideration received from the disposal of Double Grow, are as
follows:
Operating activities
Investing activities
Financing activities
Net foreign exchange difference
Net cash outflows
F-38
For the
period from
January 1,
2017 to
December 29,
2017
CNY
(5,796)
(5,823)
10,173
(100)
(1,546)
2016
CNY
(11,879)
(4,453)
5,915
303
(10,114)
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
3.
DISCONTINUED OPERATIONS (CONTINUED)
(b)
Discontinued operation of Double Grow (continued)
An analysis of the cash flows of cash and cash equivalents in respect of the disposal of Double Grow is as follows:
Cash consideration received
Less: Cash and cash equivalents disposed of
Net cash inflows from the disposal of Double Grow
The results of the above discontinued operations are presented below:
Loss per share from the discontinued operations (Presented in CNY per share)
Basic
Diluted
The calculations of basic and diluted loss per share from the discontinued operations are based on:
For the
period from
January 1,
2017 to
December 29,
2017
CNY
7,808
(807)
7,001
For the
period from
January 1,
2017 to
December 29,
2017
CNY
2016
CNY
(0.74)
(0.74)
(0.95)
(0.95)
For the
period from
January 1,
2017 to
December 29,
2017
CNY
2016
CNY
Loss attributable to owners of the Company from the discontinued operations
(18,591)
(23,817)
Weighted average number of ordinary shares in issue during the period used in the loss per share
calculations:
Basic (Note 13)
Diluted (Note 13)
24,910,916
24,910,916
24,910,916
24,910,916
F-39
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
4.
BUSINESS ACQUISITIONS
Asset acquisition
On November 30, 2017, Yangpu Shuanghu Industrial Development Co., Limited, an indirect subsidiary of the Company, consummated its
acquisition of approximately 98.32% and 1.68% of the issued and outstanding capital shares of Bayannaoer City Feishang Mining Company
Limited (“Bayannaoer Mining”) from Feishang Enterprise and Shenzhen Chaopeng Investment Co., Ltd., respectively, each of which is a
related party. The total cash consideration was CNY716,900.
Bayannaoer Mining was established in 2005 and engages in mineral exploration activities in Bayannaoer City, in the Inner Mongolia
Autonomous Region of the PRC. In 2005, Bayannaoer Mining obtained 11 exploration rights from the Land and Resources Department of the
Inner Mongolia Autonomous Region. Management subsequently determined to focus solely on exploration of Moruogu Tong Mine. At
November 30, 2017, the underlying set of assets acquired was not capable of being conducted and managed as a business to generate revenue.
As such, the Company determined that the acquisition of Bayannaoer Mining did not constitute a business combination for accounting
purposes.
The details of the net assets of Bayannaoer Mining as at November 30, 2017 are as follows:
Cash and cash equivalents
Other current assets
Property, plant and equipment
Current liabilities
Net assets
An analysis of the cash flows in respect of the acquisition of Bayannaoer Mining in the year 2017 is as follows:
Cash consideration
Cash and bank balances acquired
Net cash outflows from the acquisition of Bayannaoer Mining
F-40
November 30,
2017
CNY
631
361
336
(611)
717
November 30,
2017
CNY
(717)
631
(86)
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
5.
PROPERTY, PLANT AND EQUIPMENT
At January 1, 2017
Acquisition of Bayannaoer Mining
Additions
Disposals
Exchange adjustment
Disposal of subsidiaries
At December 31, 2017
Additions
Exchange adjustment
At December 31, 2018
At December 31, 2018 (US$)
Mining
structures
and mining
rights
CNY
Machinery
and
equipment
CNY
Motor
vehicles
CNY
Construction
in progress
CNY
Total
CNY
33,942
—
—
(4,688)
(21)
(29,233)
—
—
—
—
—
7,654
12
71
(786)
(173)
(5,939)
839
5
45
889
129
7,356
280
—
(2,017)
(35)
(5,305)
279
—
—
279
40
36,060
—
4,137
—
(2,388)
(37,809)
—
—
—
—
—
113,725
335
4,208
(13,272)
(2,721)
(101,114)
1,161
5
45
1,211
175
Buildings
CNY
28,713
43
—
(5,781)
(104)
(22,828)
43
—
—
43
6
Accumulated depreciation and amortization and impairment losses
At January 1, 2017
Depreciation charge
Disposals
Exchange adjustment
Disposal of subsidiaries
At December 31, 2017
Depreciation charge
Exchange adjustment
At December 31, 2018
At December 31, 2018 (US$)
Net carrying amount
At December 31, 2017
At December 31, 2018
At December 31, 2018 (US$)
(14,605)
(530)
5,121
(84)
10,098
—
(3)
—
(3)
—
43
40
6
(33,608)
—
4,688
—
28,920
—
—
—
—
—
—
—
—
(7,541)
(25)
715
(69)
6,100
(820)
(5)
(45)
(870)
(126)
19
19
3
(3,448)
(1,193)
1,742
(46)
2,941
(4)
(59)
—
(63)
(9)
275
216
31
—
—
—
—
—
—
—
—
—
—
—
—
—
(59,202)
(1,748)
12,266
(199)
48,059
(824)
(67)
(45)
(936)
(135)
337
275
40
There is no impairment loss on property, plant and equipment during the years ended December 31, 2017 and 2018.
F-41
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
6.
OTHER RECEIVABLES
Withholding social insurance
Advance to a third party
Input VAT
Staff advances
Deposit
Receivables in relation to the disposal of Double Grow (a)
2017
CNY
December 31,
2018
CNY
2018
US$
6
493
597
—
21
9,377
10,494
6
—
597
13
20
—
636
1
—
86
2
3
—
92
———————
(a)
The amount represented receivables due from Shanghai Kangzheng Investment Management Co., Ltd. amounting to CNY9.38 million
in relation to the disposal of Double Grow on December 29, 2017 as disclosed in Note 3, and the amount was received on January 26,
2019.
Impairment under IFRS 9 for the year ended December 31, 2018
For the financial assets included above, an impairment analysis is performed at each reporting date by considering the probability of default by
applying a loss rate with reference to the historical loss record of the Group. The loss rate is adjusted to reflect the current conditions and
forecasts of future economic conditions, as appropriate. For staff advances and deposits, management considers the probability of default to be
minimal. The financial assets included in the above balances relate to receivables for which there was no recent history of default or
expectation of future losses and no impairment was provided during the year.
Impairment under IAS 39 for the year ended December 31, 2017
There was no impairment of the Group’s other receivables as at December 31, 2017. For the balances of other receivables of the Group,
management was of the opinion that the counterparties were with good credit quality and the balances were considered fully recoverable.
7.
TRADE PAYABLES
Trade payables
Trade payables are non-interest-bearing.
The aging analysis of trade payables as at December 31, 2017 and 2018 is as follows:
Within 1 year
1 to 2 years
Over 2 years
F-42
2017
CNY
December 31,
2018
CNY
2018
US$
215
100
15
2017
CNY
December 31,
2018
CNY
2018
US$
15
100
100
215
—
—
100
100
—
—
15
15
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
8.
OTHER PAYABLES AND ACCRUED LIABILITIES
Contract deposits
Social security payable (a)
Payroll payable
Welfare payable
Accrued expenses
Others
2017
CNY
December 31,
2018
CNY
2018
US$
102
68
376
1
2,372
7
2,926
102
102
442
14
964
15
1,639
15
15
64
2
140
2
238
———————
(a)
The social security represents amounts payable to the PRC government-managed retirement insurance, medical insurance, etc.
9.
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations primarily relate to the closure of mines of Wuhu Feishang, which includes dismantlement of mining related
structures and the reclamation of land upon exhaustion of coal or metal reserves. Asset retirement obligations also include the dismantlement
upon the closure of the copper smelting plant of Antay Pacha.
The following table describes the changes to the Group's asset retirement obligation liability:
At January 1, 2017
Accretion expenses
Disposal of subsidiaries
Exchange adjustment
At December 31, 2017 and 2018
At December 31, 2018 (US$)
Amount
CNY
5,302
60
(5,338)
(24)
—
—
The inflation rate, discount rate and market risk premium used for estimating the provision for asset retirement obligations of Wuhu Feishang
at January 1, 2017 were 2.53%, 9.91% and 6.09%, respectively. The inflation rate, discount rate and market risk premium used for estimating
the provision for asset retirement obligations of Antay Pacha at January 1, 2017 were 4.80%, 8.42% and 6.09%, respectively.
F-43
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
10.
LOSS BEFORE INCOME TAX FROM CONTINUING OPERATIONS
The Group's loss before tax from continuing operations is arrived at after charging/(crediting):
Crediting:
Interest income on bank deposits
Charging:
Finance costs*
Auditors' remuneration:
- Audit fee
Employee benefit expenses (Note 11)
Depreciation and amortization:
- Property, plant and equipment
Operating lease rental:
- Office properties
2016
CNY
Year Ended December 31,
2018
CNY
2017
CNY
2018
US$
75
1
1,480
715
2
948
39
14
2,000
697
26
(5)
1,000
1,878
4
(1)
145
273
8
67
10
747
1,189
173
———————
*
Finance cost from continuing operations mainly represented bank charges and foreign currency exchange differences. The amount of
bank charge was CNY28.00 thousand, CNY1.00 thousand and CNY6.00 thousand (US$1.00 thousand), and the foreign currency
exchange differences amounted to negative CNY27.00 thousand, CNY13.00 thousand and negative CNY11.00 thousand (negative
US$2.00 thousand) as of December 31, 2016, 2017 and 2018, respectively.
11.
EMPLOYEE BENEFITS
The Group’s employee benefits from continuing operations comprise the following:
Wages, salaries and allowances
Housing funds (a)
Contribution to pension plans (a)
Welfare and other expenses
2016
CNY
Year Ended December 31,
2018
CNY
2017
CNY
2018
US$
565
40
104
6
715
566
33
79
19
697
1,513
67
76
222
1,878
220
10
11
32
273
———————
(a)
According to the PRC state regulations, the employees of the Group's subsidiaries which operate in Mainland China are required to
participate in a central pension scheme operated by the local municipal government and government-sponsored housing funds. These
subsidiaries are required to contribute a certain percentage of their payroll costs for those qualified urban employees to the central
pension scheme as well as the housing funds.
F-44
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
12.
INCOME TAX EXPENSE
The Company is incorporated in BVI and conducts its primary business operations through its subsidiaries in the PRC. It also has intermediate
holding companies in the BVI and Hong Kong. Under the current laws of the BVI, the Company and its subsidiaries incorporated in the BVI
are not subject to tax on income or capital gains. The Hong Kong Profits Tax rate is 16.50%. The Company's Hong Kong subsidiaries have
both Hong Kong-sourced and non-Hong Kong-sourced income. The latter is not subject to Hong Kong Profits Tax and the related expenses
are non-tax-deductible. For the Hong Kong-sourced income, no provision for Hong Kong Profits Tax was made as such operations sustained
tax losses during the years ended December 31, 2016, 2017 and 2018. Furthermore, there are no withholding taxes in Hong Kong on the
remittance of dividends.
China
Under the Law of the PRC on corporate income tax and the Implementation Regulation of the Corporate Income Tax Law (collectively, the
“CIT Law”) collectively, the tax rate applicable for PRC group entities is 25% (2017: 25%).
Under the prevailing CIT Law and its relevant regulations, any dividends paid by the Company’s PRC subsidiaries from their earnings derived
after January 1, 2008 to the Company’s Hong Kong subsidiaries are subject to PRC dividend withholding tax of 5% or 10%, depending on the
applicability of the Sino-Hong Kong tax treaty.
Bolivia
The Company’s subsidiary in Bolivia before December 29, 2017 is subject to Bolivian enterprise income tax at a rate of 25% applicable to
both foreign investment enterprises and domestic companies.
Loss before income tax consists of:
PRC
BVI
Hong Kong
Total loss before income tax for the year from continuing operations
Total loss before income tax for the year from discontinued operations
F-45
2016
CNY
(1,171)
(3,225)
(49)
(4,445)
(18,591)
(23,036)
Year Ended December 31,
2017
CNY
2018
CNY
2018
US$
(1,071 )
(5,064)
(44)
(6,179 )
(23,817 )
(29,996 )
(2,321)
(3,805)
(50)
(6,176)
—
(6,176)
(337)
(553)
(7)
(897)
—
(897)
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
12.
INCOME TAX EXPENSE (CONTINUED)
A reconciliation of the income taxes computed at the PRC and Bolivian statutory tax rate of 25% to the actual income tax expense/(benefit) is
as follows:
Year Ended December 31,
2017
CNY
2018
CNY
2018
US$
Loss before income tax for the year from continuing operations
Loss before income tax for the year from discontinued operations
2016
CNY
(4,445)
(18,591)
(23,036)
(6,179 )
(23,817 )
(29,996 )
Tax at the statutory tax rate
25%
25%
Computed income tax benefit
Effect of different tax rates for the Company and overseas subsidiaries
Tax losses not recognized
Non-deductible expenses
Income tax expense
Income tax expense from continuing operations at the effective rate
Income tax expense from discontinued operations at the effective rate
(5,759 )
820
4,259
680
—
—
—
(7,499 )
1,269
6,230
—
—
—
—
As of December 31, 2017 and 2018, the Group did not recognize deferred tax assets or deferred tax liabilities.
(6,176)
—
(6,176)
25%
(1,544)
955
588
1
—
—
—
(897)
—
(897)
25%
(224)
139
85
—
—
—
—
The total amounts of unused tax losses for which no deferred tax assets were recognized amounted to CNY9.24 million and CNY6.74 million
(US$0.98 million) as of December 31, 2017 and 2018, respectively. As of December 31, 2018, unused tax losses of CNY1.08 million
(US$0.16 million), CNY1.10 million (US$0.16 million), CNY1.17 million (US$0.17 million), CNY1.07 million (US$0.15 million) and
CNY2.32 million (US$0.34 million), if unused, will expire by the end of 2019, 2020, 2021, 2022 and 2023 respectively.
F-46
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
13.
LOSS PER SHARE
Basic and diluted loss per share for the years ended December 31, 2016, 2017 and 2018 are calculated as follows:
Loss for the year:
From continuing operations
From discontinued operations
Weighted average number of common shares:
Basic and diluted
Loss per share:
Basic and diluted:
From continuing operations
From discontinued operations
2016
CNY
Year Ended December 31,
2017
CNY
2018
CNY
2018
US$
(4,445)
(18,591)
(6,179)
(23,817 )
(6,176)
—
(897)
—
24,910,916
24,910,916
24,910,916
24,910,916
(0.18)
(0.74)
(0.92)
(0.25)
(0.95)
(1.20)
(0.25)
—
(0.25)
(0.04)
—
(0.04)
The Company did not have any potential diluted shares throughout the years. Accordingly, the diluted loss per share amounts are the same as
the basic loss per share amounts.
14.
DIVIDEND
No dividend was paid or declared by the Company for the years ended December 31, 2016, 2017 and 2018.
F-47
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
15.
RELATED PARTY BALANCES AND TRANSACTIONS
The consolidated financial statements include the financial statements of the Company and the subsidiaries listed in the following table:
Name
China Coal Mining Investment Limited
FMH Corporate Services Inc.
Feishang Dayun Coal Mining Limited
Feishang Mining Holdings Limited
Feishang Yongfu Mining Limited
Newhold Investments Limited
Pineboom Investments Limited
Shenzhen Feishang Management and Consulting Co., Limited
(“Feishang Management”)
Silver Moon Technologies Limited
Sunwide Capital Limited
Yangpu Lianzhong Mining Co., Limited
Yangpu Shuanghu Industrial Development Co., Limited
Yunnan Feishang Mining Co., Limited
Bayannaoer City Feishang Mining Company Limited
Place of
incorporation /
registration and
operations
Hong Kong
United States
Hong Kong
BVI
Hong Kong
BVI
BVI
PRC/Mainland China
BVI
BVI
PRC/Mainland China
PRC/Mainland China
PRC/Mainland China
PRC/Mainland China
Nominal value
of issued
ordinary /
registered
share capital
(CNY)
Percentage
of equity
attributable to
the Company
Direct
Indirect
Principal
activities
—
—
—
—
—
—
—
10,000
1
—
115,008
1,000
50,000
59,480
100
100
—
100
—
100
100
—
80
100
—
—
—
—
— Investment holding
— Dormant
100 Investment holding
— Investment holding
100 Investment holding
— Investment holding
— Investment holding
100 Provision for management and
consulting services to other
companies in the Group
— Dormant
— Dormant
100 Investment holding
100 Investment holding
100 Investment holding
100 Exploration and development of
Lead Mine
In addition to the transactions detailed elsewhere in the consolidated financial statements, the Group had the following transactions and
balances with related parties:
(a)
Commercial transactions with related parties
CHNR's share of office rental, rates and others to Anka Consultants
Limited (“Anka”)
Sales of equipment to Wuhu Industrial
Purchase of raw ore from Empressa Minera Jacha Uru S.A. (“Jacha Uru”)
Feishang Management 's share of office rental to Feishang Enterprise
Notes
i
ii
iii
iv
Year Ended December 31,
2016
CNY
2017
CNY
2018
CNY
2018
US$
953
—
20
—
1,316
1,056
240
—
1,442
—
—
166
210
—
—
24
F-48
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
15.
RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
(a)
Commercial transactions with related parties (continued)
(i)
On April 1, 2017, the Company signed an office sharing agreement with Anka, a private Hong Kong company that is owned by
two Directors of the Company, which superseded all previously signed agreements between the parties, pursuant to which the
Company shares 184 square meters of the total area of the office premises. The agreement also provides that the Company shares
certain costs and expenses in connection with their use of the office, in addition to some of the accounting and secretarial services
and day-to-day office administration services provided by Anka. In 2018, Anka’s lease with the unrelated landlord was extended
for two years, from July 1, 2018 to June 30, 2020.
(ii)
On February 22, 2017, Wuhu Feishang signed an agreement with Wuhu Industrial, controlled by Mr. Li Feilie, to dispose of
certain equipment with the carrying amount of CNY1.06 million. The disposal gain was CNY0.05 million.
(iii)
In 2016 and 2017, Antay Pacha purchased copper ores from Jacha Uru, a copper mine located in Bolivia and controlled by
Feishang Hesheng.
(iv)
On January 1, 2018, Feishang Management signed an office sharing agreement with Feishang Enterprise, a related company
controlled by Mr. Li Feilie. Pursuant to the agreement, Feishang Management shared 40 square meters of the office premises. The
agreement was valid for 33 months from January 1, 2018 to September 30, 2021.
(b)
Balances with related parties
The Group has payables with related parties, which are all unsecured and non-interest-bearing. Balances with related companies are
summarized as follows:
Current:
Payable to related companies:
Feishang Enterprise (1)
Feishang Hesheng (2)
Payable to the Shareholder:
Feishang Group (3)
2017
CNY
December 31,
2018
CNY
2018
US$
3,719
10,028
13,747
11,573
4,041
—
4,041
6,973
587
—
587
1,014
Feishang Enterprise, Feishang Group and Feishang Hesheng are controlled by Mr. Li Feilie, who is the beneficial shareholder of the
Company.
———————
(1)
Payable to Feishang Enterprise by Feishang Management for the net amount of loans from Feishang Enterprise. The balance is
unsecured and interest-free. The balance is repayable when the Group is in a position to settle the amounts due without having a
detrimental impact on the financial resources of the Group.
Payable to Feishang Hesheng for the acquisition of Double Grow as well as the assumption of indebtedness due to Feishang
Hesheng by Double Grow. The balance is unsecured and interest-free. The balance as at December 31, 2017 was repaid during
2018.
Payable to Feishang Group for the acquisition of Feishang Anthracite. The balance is unsecured and interest-free. The balance is
repayable when the Group is in a position to settle the amounts due without having a detrimental impact on the financial resources
of the Group.
(2)
(3)
F-49
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
15.
RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
(c)
Compensation of key management personnel of the Group
Wages, salaries and allowances
Housing subsidies
Contribution to pension plans
Year Ended December 31,
2016
CNY
2017
CNY
2018
CNY
2018
US$
479
—
22
501
264
2
29
295
580
16
75
671
84
2
11
97
The amounts disclosed in the table are the amounts recognized as expenses during the years related to key management personnel.
16.
EQUITY
(a)
Issued capital
Authorized:
10,000,000 preferred shares, no par
200,000,000 ordinary shares, no par
Issued and fully paid:
2016
CNY
December 31,
2017
CNY
2018
CNY
2018
US$
—
—
—
—
—
—
—
—
24,910,916 (2016 and 2017: 24,910,916) common shares, no par
312,081
312,081
312,081
45,371
(b)
Other capital reserves
At January 1, 2016
Deemed contribution from a related party*
At December 31, 2016, 2017 and 2018
At December 31, 2018 (US$)
———————
*
Other capital
reserves
CNY
636,960
55,558
692,518
100,679
On December 23, 2016, Feishang Hesheng waived a payment of CNY55.56 million (US$8.00 million) indebtedness owed to it by
Double Grow.
F-50
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
16.
EQUITY (CONTINUED)
(c)
Dividend restrictions and reserves
Due to the Group's structure, the payment of dividends is subject to numerous controls imposed under PRC law, including foreign
exchange control on the conversion of the local currency into United States dollars and other currencies.
In accordance with the relevant PRC regulations and the Articles of Association of Wuhu Feishang, appropriations of net income as
reflected in its PRC statutory financial statements are to be allocated to each of the general reserve and enterprise expansion reserve,
respectively, as determined by the resolution of the Board of Directors annually. No amounts were appropriated to the general reserve
and enterprise expansion reserve in 2016, 2017 and 2018.
17.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Financial instruments of the Group primarily include cash, certain other current assets, trade payables, other payables and certain accrued
liabilities, amounts due from and due to related parties, and an amount due to the Shareholder.
The Group is exposed to credit risk, foreign currency risk, business and economic risk and liquidity risk. The Group has not used any
derivatives and other instruments for hedging purposes. The Group does not hold or issue derivative financial instruments for trading
purposes. The Group reviews and agrees policies for managing each of these risks and they are summarized below.
(a)
Credit risk
Maximum exposure and year-end staging as at December 31, 2018
The table below shows the credit quality and the maximum exposure to credit risk based on the Group's credit policy, which is mainly
based on past due information unless other information is available without undue cost or effort, and year-end staging classification as at
December 31, 2018. The amounts presented are gross carrying amounts for financial assets.
Financial assets included in other receivables
- Normal*
- Doubtful*
Cash and cash equivalents
- Not yet past due
Total
———————
*
12-month ECLs
Stage 1
CNY
Lifetime ECLs
Stage 2
CNY
Stage 3
CNY
Simplified
approach
CNY
Total
CNY
33
—
6,793
6,826
—
—
—
—
—
—
—
—
—
—
—
—
33
—
6,793
6,826
The credit quality of the financial assets included in other receivables is considered to be “normal” when they are not past due and
there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition.
Otherwise, the credit quality of the financial assets is considered to be “doubtful”.
F-51
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
17.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(a)
Credit risk (continued)
Maximum exposure as at December 31, 2017
The carrying amounts of the Group's cash and cash equivalents and other receivables represent the Group's maximum exposure to credit
risk in relation to its financial assets.
Cash and cash equivalents
The Group maintains its cash and cash equivalents primarily with various PRC State-owned banks and Hong Kong based financial
institutions, which management believes are of high credit quality. The Group performs periodic evaluations of the relative credit
standing of those financial institutions.
(b)
Foreign currency risk
The CNY is not freely convertible into foreign currencies. The State Administration for Foreign Exchange, under the authority of the
People's Bank of China, controls the conversion of the CNY into foreign currencies. The value of the CNY is subject to changes in PRC
government policies and to international economic and political developments affecting the supply and demand in the China Foreign
Exchange Trading System market. All foreign exchange transactions continue to take place either through the People's Bank of China or
other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People's Bank of China.
(c)
Business and economic risk
The Group's operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the
PRC government has been pursuing economic reform policies for more than 30 years, no assurance can be given that the PRC
government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a
change in leadership, social or political disruption or unforeseen circumstances affecting the political, economic and social conditions in
the PRC. There is also no guarantee that the PRC government's pursuit of economic reforms will be consistent or effective.
F-52
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
17.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(d)
Liquidity risk
The Group manages its liquidity risk by regularly monitoring its liquidity requirements and its compliance with debt covenants to ensure
that it maintains sufficient cash and cash equivalents, and adequate time deposits to meet its liquidity requirements in the short and long
term.
The table below summarizes the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:
December 31, 2018
Trade payables
Other payables and accrued liabilities
Due to related companies
Due to the Shareholder
December 31, 2018
Trade payables
Other payables and accrued liabilities
Due to related companies
Due to the Shareholder
December 31, 2017
Trade payables
Other payables and accrued liabilities
Due to related companies
Due to the Shareholder
On demand
CNY
Less than
1 year
CNY
1 to 5 years
CNY
More than
5 years
CNY
Total
CNY
—
—
—
—
—
100
1,081
4,041
6,973
12,195
—
—
—
—
—
—
—
—
—
—
100
1,081
4,041
6,973
12,195
On demand
US$
Less than
1 year
US$
1 to 5 years
US$
More than
5 years
US$
Total
US$
—
—
—
—
—
15
157
587
1,014
1,773
—
—
—
—
—
—
—
—
—
—
15
157
587
1,014
1,773
On demand
CNY
Less than
1 year
CNY
1 to 5 years
CNY
More than
5 years
CNY
Total
CNY
—
—
—
—
—
215
2,481
13,747
11,573
28,016
—
—
—
—
—
—
—
—
—
—
215
2,481
13,747
11,573
28,016
(e)
Capital management
There were no interest-bearing debts as at December 31, 2017 and 2018.
F-53
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
18.
COMMITMENTS
(a)
Operating lease
At the end of the reporting period, the Group had commitments for future minimum lease payments under a non-cancellable operating
lease in respect of the rented premises which fall due as follows:
Within the first year
After one year but not more than five years
(b)
Capital commitments
There was no capital commitment as at December 31, 2017 and 2018.
19.
SEGMENT INFORMATION
2017
CNY
December 31,
2018
CNY
2018
US$
476
—
476
1,245
646
1,891
181
94
275
Prior to the disposal of Wuhu Feishang and Double Grow (Note 3) and acquisition of Bayannaoer Mining, the Group operated in operating
segments: exploration and mining-non-ferrous metals and copper smelting. As at December 31, 2018, the Company had one operating
segment: exploration and mining. The accounting policies for the segment are as described in the summary of significant accounting policies.
The Group evaluates performance based on operating earnings of the respective business units. The segment analysis below is provided for
the Group's continuing operations, and does not include any amount for discontinued operations, namely the exploration and mining-non-
ferrous metals and copper smelting.
Management monitors the results of the Group's operating segments separately for the purpose of making decisions about resource allocation
and performance assessment. Segment performance is evaluated based on reportable segment profit/loss, which is a measure of adjusted
profit/loss before tax from continuing operations. The adjusted profit/loss before tax from continuing operations is measured consistently with
the Group's profit/loss before tax from continuing operations except that interest income, finance costs as well as head office and corporate
expenses are excluded from such measurement.
As disclosed in Note 3 to the consolidated financial statements, the Group disposed of its equity interests of Wuhu Feishang and Double Grow
in the exploration and mining-non-ferrous metals segment and the copper smelting segment on March 3, 2017 and December 29, 2017,
respectively. Accordingly, the exploration and mining-non-ferrous metals segment and the copper smelting segment have been classified as
discontinued operations and were excluded from the segment information for the years ended December 31, 2016 and 2017.
F-54
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
19.
SEGMENT INFORMATION (CONTINUED)
For the year ended December 31, 2018, the segment results were as follows:
From continuing operations:
Depreciation and amortization
Operating loss
Interest income
Finance costs
Loss for the year from continuing operations
Capital expenditure
Total assets
Total liabilities
From continuing operations:
Depreciation and amortization
Operating loss
Interest income
Finance costs
Loss for the year from continuing operations
Capital expenditure
Total assets
Total liabilities
Exploration and mining
CNY
Corporate activities
Total
63
1,523
(1)
1
1,523
—
527
1,854
4
4,684
(25)
(6)
4,653
5
7,216
27,687
Exploration and mining
US$
Corporate activities
Total
9
221
—
—
221
—
77
270
1
681
(4)
(1)
676
1
1,049
4,025
For the year ended December 31, 2017, the segment results were as follows:
Exploration and mining
CNY
Corporate activities
Total
From continuing operations:
Depreciation and amortization
Operating loss
Interest income
Finance costs
Loss for the year from continuing operations
Total assets
Total liabilities
For the year ended December 31, 2016, the segment results were as follows:
From continuing operations:
Depreciation and amortization
Operating loss
Interest income
Finance costs
Loss for the year from continuing operations
Total assets
Total liabilities
F-55
5
258
(1)
—
257
705
509
3
5,946
(38)
14
5,922
29,043
44,744
Corporate activities
Total
CNY
2
4,519
(75)
1
4,445
94,793
81,598
67
6,207
(26)
(5)
6,176
5
7,743
29,541
10
902
(4)
(1)
897
1
1,126
4,295
8
6,204
(39)
14
6,179
29,748
45,253
2
4,519
(75)
1
4,445
94,793
81,598
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
19.
SEGMENT INFORMATION (CONTINUED)
The reconciliation of loss for the year from continuing operations to net loss is as follows:
Loss for the year from continuing operations
Loss for the year from discontinued operations
Net loss
20.
NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
(a)
Major non-cash transactions
2016
CNY
2017
CNY
2018
CNY
2018
US$
(4,445)
(18,591)
(23,036 )
(6,179)
(23,817)
(29,996 )
(6,176)
—
(6,176)
(897)
—
(897)
In the year 2016, the Group received a deemed contribution from a related party of the Company amounting to CNY55.56 million (Note 16
(b)). No major non-cash transactions incurred in the years 2017 and 2018.
(b)
Changes in liabilities arising from financing activities
Year ended December 31, 2018
At January 1, 2018
Changes from financing cash flows
Changes from operating activities
At December 31, 2018
Year ended December 31, 2017
At January 1, 2017
Changes from financing cash flows
Decrease arising from disposal of discontinued operations
Changes from operating activities
Foreign exchange movement
At December 31, 2017
21.
SUBSEQUENT EVENTS
The Company has no material subsequent events.
F-56
Due to related
companies
Due to the
Shareholder
CNY
CNY
Total
CNY
13,747
(9,213)
(493)
4,041
11,573
(4,600)
—
6,973
25,320
(13,813)
(493)
11,014
Due to related
companies
CNY
21,007
12,630
(18,607)
271
(1,554 )
13,747
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
22.
CONDENSED FINANCIAL INFORMATION OF THE COMPANY
The following is the condensed financial information of the Company on a non-consolidated basis:
CONDENSED STATEMENTS OF FINANCIAL POSITION
ASSETS
NON-CURRENT ASSETS
Investments in subsidiaries
CURRENT ASSETS
Amounts due from subsidiaries
Cash and cash equivalents
Other receivables (Note 6(a))
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Other payables and accrued liabilities
Due to the Shareholder
Due to a related party
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Issued capital
Other capital reserves
Accumulated losses
Other comprehensive loss
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
F-57
2017
CNY
December 31,
2018
CNY
2018
US$
—
—
—
9,266
13,912
9,377
13,925
4,122
—
32,555
18,047
32,555
18,047
2,350
11,573
10,028
23,951
23,951
943
6,973
—
7,916
7,916
2,025
599
—
2,624
2,624
137
1,014
—
1,151
1,151
290,179
823,581
(1,087,839)
(17,317)
290,179
823,581
(1,091,633)
(11,996)
42,186
119,733
(158,702)
(1,744)
8,604
10,131
32,555
18,047
1,473
2,624
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
22.
CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED)
CONDENSED STATEMENTS OF PROFIT OR LOSS
Administrative expenses
Gain on disposal of a subsidiary
Profit/(loss) before income tax
Profit/(loss) for the year
CONDENSED STATEMENTS OF CASH FLOWS
Net cash flows used in operating activities
Net cash flows from investing activities
Net cash flows used in financing activities
NET INCREASE/(DECREASE) IN CASH
CASH AT BEGINNING OF THE YEAR
Net foreign exchange difference
CASH AT END OF THE YEAR
2016
CNY
(3,216 )
—
(3,216)
(3,216)
December 31,
2017
CNY
2018
CNY
2018
US$
(5,055)
7,114
2,059
2,059
(3,794)
—
(3,794)
(3,794)
(552)
—
(552)
(552)
2016
CNY
December 31,
2017
CNY
2018
CNY
2018
US$
(2,796)
—
(276 )
(3,072)
13,062
688
10,678
(3,647)
7,808
—
4,161
10,678
(927)
13,912
(5,200)
10,243
(15,811)
(10,768)
13,912
978
4,122
(756)
1,489
(2,299)
(1,566)
2,023
142
599
The above financial statements have been provided pursuant to the requirements of Rule 12-04(a) and 4-08(e)(3) of Regulation S-X, which
require condensed financial information as to financial position, results of operations and cash flows of a parent company as of the same dates
and for the same periods for which audited consolidated financial statements have been presented when the restricted net assets of the
consolidated and unconsolidated subsidiaries and the parent's equity in the undistributed earnings of 50 percent or less owned persons,
accounted for by the equity method, together exceed 25 percent of the consolidated net assets as of the end of the most recently completed
fiscal year. As of December 31, 2018, CNY13.78 million (US$2.00 million) of the restricted capital and reserves were not available for
distribution, and therefore, the condensed financial information of the Company has been presented for the years ended December 31, 2016,
2017 and 2018.
In the parent-company-only financial statements, the Company's investments in subsidiaries are stated at cost. The parent-company-only
financial statements should be read in conjunction with the Company's consolidated financial statements.
The Company does not have any significant commitments or long-term obligations as of any of the years presented, except for those disclosed
in the consolidated financial statements.
During the years ended December 31, 2016, 2017 and 2018, no cash dividends were declared and paid by the Company.
F-58
EXHIBIT INDEX
Exhibit Description
Subsidiaries of the Registrant
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Press Release dated April 30, 2019
Exhibit No.
8
12.1
12.2
13.1
13.2
15
Exhibit 8
Subsidiaries of the Registrant
Name
Jurisdiction of Incorporation
Percentage Ownership
(Direct Parent)
Bayannaoer City Feishang Mining
People’s Republic of China
100% (held by Yangpu Shuanghu)
Company Limited
China Coal Mining Investment Limited
Hong Kong Special Administrative
100% (held by Registrant)
Feishang Dayun Coal Mining Limited
Hong Kong Special Administrative
100% (held by Pineboom)
Region
Feishang Mining Holdings Limited
Feishang Yongfu Mining Limited
British Virgin Islands
Hong Kong Special Administrative
100% (held by Registrant)
100% (held by Newhold)
Region
FMH Corporate Services Inc.
Newhold Investments Limited
Pineboom Investments Limited
Shenzhen Feishang Management and
Consulting Co., Limited
Silver Moon Technologies Limited
Sunwide Capital Limited
Yangpu Lianzhong Mining Co., Limited
Yangpu Shuanghu Industrial
Development Co., Limited
Region
Florida, the United States
British Virgin Islands
British Virgin Islands
People’s Republic of China
British Virgin Islands
British Virgin Islands
People’s Republic of China
People’s Republic of China
100% (held by Registrant)
100% (held by Registrant)
100% (held by Registrant)
100% (held by Yunnan Mining)
80% (held by Registrant)
100% (held by Registrant)
100% (held by China Coal)
100% (held by Feishang Yongfu)
Yunnan Feishang Mining Co., Limited
People’s Republic of China
100% (held by Yangpu Shuanghu)
Exhibit 12.1
CERTIFICATION PURSUANT TO RULE 13a-15(e) OR 15d-15(e) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Wong Wah On Edward, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of China Natural Resources, Inc. (the “Registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;
and
5.
The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the Registrant’s auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal
control over financial reporting.
/s/ Wong Wah On Edward
Wong Wah On Edward
Chief Executive Officer
April 30, 2019
Exhibit 12.2
CERTIFICATION PURSUANT TO RULE 13a-15(e) OR 15d-15(e) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Yue Ming Wai Bonaventure, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of China Natural Resources, Inc. (the “Registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusion about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;
and;
The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the Registrant’s auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
5.
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal
control over financial reporting.
/s/ Yue Ming Wai Bonaventure
Yue Ming Wai Bonaventure
Chief Financial Officer
April 30, 2019
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.1
In connection with the Annual Report of China Natural Resources, Inc. (the "Company") on Form 20-F for the year ended December 31,
2018 as filed with the Securities and Exchange Commission (the "Report"), I, Wong Wah On Edward, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Wong Wah On Edward
Wong Wah On Edward
Chief Executive Officer
April 30, 2019
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.2
In connection with the Annual Report of China Natural Resources, Inc. (the "Company") on Form 20-F for the year ended December 31,
2018 as filed with the Securities and Exchange Commission (the "Report"), I, Yue Ming Wai Bonaventure, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Yue Ming Wai Bonaventure
Yue Ming Wai Bonaventure
Chief Financial Officer
April 30, 2019
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 15
CONTACT
Yue Ming Wai Bonaventure, Chief Financial Officer
011-852-2810-7205 or bonyue@chnr.net
FOR IMMEDIATE RELEASE
CHINA NATURAL RESOURCES, INC. ANNOUNCES
2018 RESULTS OF OPERATIONS
HONG KONG, April 30, 2019 – CHINA NATURAL RESOURCES, INC. (NASDAQ: CHNR), a company based in the People’s Republic of
China, today announced its results of operations for the year ended December 31, 2018 as follows.
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018
(Amounts in thousands, except share and per share data)
2016
CNY
Year Ended December 31,
2018
CNY
2017
CNY
2018
US$
CONTINUING OPERATIONS
Administrative expenses
OPERATING LOSS
Finance costs
Interest income
(4,519)
(6,204)
(6,207)
(4,519)
(6,204)
(6,207)
(1)
75
(14)
39
5
26
LOSS BEFORE INCOME TAX FROM CONTINUING OPERATIONS
(4,445)
(6,179)
(6,176)
INCOME TAX EXPENSE
—
—
—
LOSS FOR THE YEAR FROM CONTINUING OPERATIONS
(4,445)
(6,179)
(6,176)
(902)
(902)
1
4
(897)
—
(897)
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations, net of tax
LOSS FOR THE YEAR
ATTRIBUTABLE TO:
Owners of the Company
From continuing operations
From discontinued operations
Non-controlling interests
From continuing operations
From discontinued operations
LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY:
Basic
- For loss from continuing operations
- For loss from discontinued operations
- Net loss per share
Diluted
- For loss from continuing operations
- For loss from discontinued operations
- Net loss per share
(18,591)
(23,817)
—
—
(23,036)
(29,996)
(6,176)
(897)
(4,445)
(18,591)
(23,036)
(6,179)
(23,817)
(29,996)
(6,176)
—
(6,176)
—
—
—
—
—
—
—
—
—
(897)
—
(897)
—
—
—
(23,036)
(29,996)
(6,176)
(897)
(0.18)
(0.74)
(0.92)
(0.18)
(0.74)
(0.92)
(0.25)
(0.95)
(1.20)
(0.25)
(0.95)
(1.20)
(0.25)
—
(0.25)
(0.25)
—
(0.25)
(0.04)
—
(0.04)
(0.04)
—
(0.04)
The consolidated statements of profits or loss of the Company for the years ended December 31, 2016, 2017 and 2018 have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The
consolidated statements of profits or loss have been derived from and should be read in conjunction with the Company’s audited consolidated
financial statements for the year ended December 31, 2018 contained in the Company’s annual report on Form 20-F as filed with the Commission
on April 30, 2019.
Mr. Wong Wah On Edward, the Company's Chairman, commented on the results: "In late 2018, our wholly-owned subsidiary, Bayannaoer City
Feishang Mining Company Limited, completed initial exploration program which indicated the presence of a “mid-size” deposit of lead and silver
ore and resources sufficient in quantity and quality to warrant further exploration designed to confirm and increase measured resources, with the
prospect of identifying other minable metal resources such as copper. In addition, we will continue to explore new businesses opportunities to
contribute to revenues and enhance shareholder values."
For the convenience of the reader, amounts in Chinese Yuan (“CNY”) have been translated into United States dollars (“US$”) at the rate of
US$1.00=CNY6.8785 as quoted by www.ofx.com on December 31, 2018. The CNY is not freely convertible into foreign currencies and no
representation is made that the CNY amounts could have been, or could be, converted into US$ at that rate, or at all.
About China Natural Resources:
China Natural Resources, Inc., a British Virgin Islands corporation, through its operating subsidiaries in the People’s Republic of China, is currently
engaged in the acquisition and exploitation of mining rights in Inner Mongolia, including exploring for lead, silver and other nonferrous metal.
Forward-Looking Statements:
This press release includes forward-looking statements within the meaning of federal securities laws. These statements include, without limitation,
statements regarding the intent, belief and current expectations of the Company, its directors or its officers with respect to the Company's policies
regarding investments, dispositions, financings, conflicts of interest and other matters; and trends affecting the Company's financial condition or
results of operations. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and actual results
may differ materially from those in the forward-looking statement as a result of various factors. Among the risks and uncertainties that could cause
our actual results to differ from our forward-looking statements are our intent, belief and current expectations as to business operations and
operating results, uncertainties regarding the governmental, economic and political circumstances in the People’s Republic of China, uncertainties
associated with the metal price volatility; uncertainties related to our ability to fund operations; uncertainties associated with the Company’s reliance
on third-party contractors, uncertainties relating to possible future increases in operating expenses, including costs of labor and materials, and other
risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. With respect to forward-looking statements
that include a statement of its underlying assumptions or bases, the Company cautions that, while it believes such assumptions or bases to be
reasonable and has formed them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed
facts or bases and actual results can be material depending on the circumstances. When, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or belief will result or be achieved or accomplished.