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, 2019
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 company 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
Trading symbol(s)
CHNR
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, 2019.
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
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 every Interactive Data File required to be submitted 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 such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Yes No
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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report.
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
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
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 “HK$” are to Hong Kong dollars; and all references to “Renminbi,” “RMB” 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, 2019, which was US$1.00 =
CNY6.9632. 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, 2019, and from Hong Kong dollars to Renminbi have been made at the single rate of exchange as quoted by www.ofx.com on December 31,
2019, which was HK$1.00 = CNY0.8940. 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 Coal” are to China Coal Mining Investment Limited, a company organized in Hong Kong and a wholly-owned subsidiary of
CHNR.
References to the “Company,” “CHNR,” “we,” “us,” and “our company” are to China Natural Resources, Inc., a BVI company. Unless the context
otherwise requires, references to the Company and/or CHNR include the operations of its subsidiaries.
References to “common shares” are to the common shares, without par value, of CHNR.
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 company organized in the PRC which is our affiliate and is
controlled by Mr. Li Feilie, the principal beneficial owner of the Company and its former Chairman and CEO.
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 Hesheng” are to Feishang Hesheng Investment Limited, a company organized in the BVI that is our affiliate and is
ultimately controlled by Mr. Li Feilie.
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.
i
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” or “IFRSs” are to International Financial Reporting Standard/International Financial Reporting Standards as issued by the
International Accounting Standards Board (“IASB”).
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 “shareholders” of CHNR are to the members of the Company. “Members” under BVI 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 “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 the U.S. federal securities laws. Any
statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,”
“will,” “should,” “estimates,” “predicts,” “possible,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar
expressions are intended to identify forward-looking statements. These statements appear in a number of places in this Annual Report and include, without
limitation, statements regarding the belief and current expectations of the Company, its directors or its officers with respect to the Company's policies
regarding its business development, 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:
uncertainties regarding the governmental, economic and political circumstances in the PRC;
uncertainties associated with metal price volatility;
uncertainties concerning the viability of mining and estimates of reserves at the Company’s Moruogu Tong Mine in Inner Mongolia;
uncertainties regarding our ability to extract reserves located at the Moruogu Tong Mine in an economically feasible manner;
uncertainties related to our ability to fund operations;
uncertainties regarding the impact of the novel coronavirus 2019 (“COVID-19”) pandemic on: domestic PRC and global economic conditions;
demand for the mineral reserves that we may locate or extract, or for the copper or that we trade; our workforce, whether due to illness or
restrictions on movement; and on the price of our common shares;
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 (the “SEC”), 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 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, 2015, 2016, 2017, 2018 and 2019 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.
The selected financial data is stated in CNY and is derived from the audited consolidated financial statements of the Company for the years ended
December 31, 2015, 2016, 2017, 2018 and 2019, prepared and presented in accordance with IFRS.
Ernst & Young Hua Ming LLP, which has been engaged as our independent registered public accounting firm for the years ended December 31,
2017, 2018 and 2019, has issued unqualified auditor's reports on our consolidated statements of financial position as of December 31, 2017, 2018 and 2019,
and the related consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for the years ended December 31, 2017,
2018 and 2019.
The statements of profit or loss data for each of the years ended December 31, 2017, 2018 and 2019 and the statements of financial position data as
of December 31, 2018 and 2019 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, 2015, 2016 and 2017 and the statements of profit or loss data for the years ended
December 31, 2015 and 2016 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.
Consolidated statements of profit or loss have been restated retrospectively for the years ended December 31, 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 years ended December 31, 2015, 2016 and 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,
2015
CNY
Amounts in thousands, except share amounts and per share data
Year Ended
December 31,
2017
CNY
Year Ended
December 31,
2016
CNY
Year Ended
December 31,
2018
CNY
Year Ended
December 31,
2019
CNY
Consolidated Statements of Profit or Loss Data
Continuing operations
Revenue
Cost of sales
Gross profit
—
—
—
—
—
—
—
—
—
—
—
—
12,969
(12,752)
217
Loss before income tax from continuing operations
(3,769)
(4,445)
(6,179)
(6,176)
(5,645)
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
Loss from continuing operations
Loss from discontinued operations
Diluted
Loss from continuing operations
Loss from discontinued operations
Weighted average number of shares outstanding
Basic
Diluted
(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)
(5,645)
—
(5,645)
—
—
—
(5,645)
—
(5,645)
(0.23)
—
(0.23)
(0.23)
—
(0.23)
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,
2015
CNY
December 31,
2016
CNY
Amounts in thousands
December 31,
2017
CNY
December 31,
2018
CNY
December 31,
2019
CNY
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
8,298
7,468
35,852
(27,554)
(27,554)
312,081
Consolidated Statements of Financial Position Data
Total assets
Current assets
Current liabilities
Total (deficiency in assets)/equity
(Deficiency in assets)/equity attributable to owners of the Company
Capital stock
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
An investment in our common shares involves a high degree of risk and should be considered speculative. You should carefully consider the
following risks set out below and other information before investing in our common shares. If any event arising from these risks occurs, our business,
prospects, financial condition, results of operations or cash flows could be adversely affected, the trading price of our common shares could decline and all or
part of your investment may be lost.
Our operations are highly speculative due to the high-risk nature of our business, which includes the acquisition, financing, exploration,
development of mineral properties and operation of mines, and the trading of copper ore. The risks and uncertainties set out below are not the only ones we
face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial, may also impair our operations. If any of the risks
actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our common shares could
decline, and investors could lose part or all of their investment.
The Wulatehouqi Moruogu Tong Mine (the “Moruogu Tong Mine”) is in the exploration stage and we may not generate revenues for the foreseeable
future.
Our operating subsidiary, Bayannaoer Mining is in the exploration stage at the 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 generate revenues. We intend to fund mine exploration, construction and development through funds received pursuant to
Bayannaoer Mining’s mutual cooperation agreement (the “Cooperation Agreement”) with Bayannaoer Jijincheng Mining Co., Ltd. (“Jijincheng Mining”), and
loans from a related party. Jijincheng Mining is currently running the exploration program for the Moruogu Tong Mine, pursuant to the terms of the
Cooperation Agreement. To date, the exploration program has indicated the presence of lead and silver, with the prospect that further surveying and
exploration may indicate the presence of other ores such as copper. However, Jijincheng Mining may terminate the Cooperation Agreement if no resources are
discovered in three consecutive drilling holes or in 50% of the drilling holes, in which case we may be unable to find a suitable replacement partner or source
of funds. At this stage of exploratory activities, we cannot predict whether sufficient ore of acceptable quality will be found at the Moruogu Tong Mine to
warrant further exploration and/or extraction.
3
The 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 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 the Moruogu Tong Mine during the exploration stage, and the allocation
of rights and responsibilities between Bayannaoer Mining and Jijincheng Mining. According to the Cooperation Agreement, Jijincheng Mining is responsible
for engaging the exploration team and providing the required funding. Pursuant to the Cooperation Agreement: (i) Bayannaoer Mining contributed the existing
exploration results for the 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. Moreover, because
the Cooperation Agreement provides us with either a half or minority interest in the resources discovered as part of the cooperative exploration project, we
will not be able to enjoy the full economic benefits of the resources we discover in the Moruogu Tong Mine for the duration of the Cooperation Agreement.
Our estimates of the reserves contained in the Moruogu Tong Mine are based upon protocols not generally recognized in the United States and the
various assumptions underlying our estimates may be inaccurate.
The 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 metals markets, reduced recovery rates or a rise in production costs as a result of inflation or other technical problems arising in the course
of extraction. 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 the Moruogu Tong Mine, and we may not be able to generate revenues in an amount that would lead to profitability or at all.
There are no assurances that we can produce minerals on a commercially viable basis.
The Company’s ability to generate revenue and profit from the Moruogu Tong Mine is expected to occur through exploration, evaluation,
advancement and operation of its that property. The economic feasibility of a project depends on numerous factors, including the cost of mining and
production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral
deposits to refining facilities, and the market price of the minerals at the time of sale. There is no assurance that our current or future exploration programs or
any acquisitions will result in the identification of deposits that can be mined profitably.
Our recently commenced copper ore trading business may not be profitable.
During 2019, Bayannaoer Mining identified opportunities to trade copper ore in the PRC. Copper ore trading involves (i) the purchase and sale of
copper ore to fill a customer order and/or (ii) the purchase of copper ore for our own account, for resale.
We have only recently commenced buying and selling copper ore and there is no assurance that we will be able to do so on a profitable basis. In
addition to the risks generally associated with the start-up of a new business opportunity, buying and selling copper ore will subject us to specific risks
including but not limited to:
Limitations based on the availability of capital and attractive opportunities to purchase copper ore.
We are not a party to any supply agreements with copper ore suppliers and we may not be able to purchase copper ore at advantageous prices or
at all.
Our opportunistic purchase of copper ore for our own account subjects us to the risk of declines in the market price of copper ore that we hold for
resale.
We will compete for customers for copper ore with third parties, some of whom may have greater financial and human resources and more
widespread reputations in the local community.
4
We currently only have one purchaser for our copper ore, and if we are unable to diversify our customer base and lose that customer, our ability
to continue trading in copper ore will be in doubt.
Volatility in the market prices of metals may adversely affect the results of our operations.
The market prices of lead, silver and other metals have experienced significant volatility in recent years. Market prices depend upon many factors
beyond our control, which include industry specific factors such as supply and demand and the level of customer inventories, as well as factors such as local
and world-wide general economic conditions, and disruptions caused by unforeseen domestic or international crisis such as the global outbreak of COVID-19.
The uncertainties surrounding the market prices of metals and the costs of extraction may adversely affect our ability to operate on a profitable basis.
Due to the global economic slowdown over recent years, the market prices of lead and copper have generally been declining. The price of silver has
increased simply because of the investment demand for silver as a safe-haven asset. See “Item 4.B. INFORMATION ON THE COMPANY – Business
Overview – Lead, Silver and Copper Industry and Market” for information on the historical prices in 2019 and prior years. The recent global outbreak of
COVID-19 has caused disruptions to business activities at all levels and a further slowdown in the PRC as well as global economy. Demand from downstream
industries has generally been weakened and may further deteriorate, resulting in more extreme volatility and further declines in the market prices of lead,
silver and copper. In the first five months of 2020, the Shanghai Futures Exchange (“SHFE”) lead price hit a high of CNY15,515 (US$2,228) per ton and a
low of CNY12,620 (US$1,812) per ton, the SHFE silver price reached a high of CNY4,608 (US$662) per kilogram (“kg”) and a low of CNY2,857 (US$410)
per kg, and the SHFE copper price hit a high of CNY49,610 (US$7,125) per ton and a low of CNY35,300 (US$5,070) per ton, each reflecting high volatility.
There remains uncertainty on how soon economic activities in the PRC will rebound to pre-COVID-19 pandemic levels. Additionally, the global economy
may continue to deteriorate in the future and adversely impact the PRC economy. Therefore, demand and price volatility in the commodity markets may
continue for a prolonged period or further deteriorate, which may adversely affect our ability to sell minerals from the Moruogu Tong Mine or trade copper
ore on a profitable basis.
The loss of key personnel could affect our business and prospects.
The success of our copper ore trading operations depends upon the efforts and abilities of Mr. Yu Jun, the general manager of those operations, and
upon his knowledge and contacts. Our copper ore trading operations, which are currently our only source of revenue, may be adversely affected if we lose Mr.
Yu’s services and are not able to find an appropriate replacement with his particular skillset and experiences. In addition, we believe that our future success
depends in part upon our ability to attract, retain and motivate qualified personnel necessary for the development of our business. If one or more members of
our management team or other key technical personnel become unable or unwilling to continue in their present positions, and if additional key personnel
cannot be hired and retained as needed, our business and prospects for growth could be adversely affected.
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 the Moruogu Tong Mine, is and will continue to be subject to the regulations
of various aspects of its operations by a variety of laws, rules and regulations administered by the national and local Chinese government, 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 and rules. Our failure to comply with applicable laws, rules, and regulations 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 any 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 (although our operations are
currently limited to the PRC), we do not currently have any commitments from any customers to purchase our future output of metals. As a result, we may not
be able to sell any metals that we are able to successfully extract at prices that are acceptable to us or at all.
5
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, 2017, 2018 and 2019, we incurred operating losses from continuing operations of CNY6.18 million,
CNY6.18 million and CNY5.65 million (US$0.81 million), respectively. Our operating losses mainly represented administrative expenses such as legal and
professional fees, as well as exploration expenses in the Moruogu Tong Mine. 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 currently generate revenues from operations that are insufficient to cover our operating expenses; 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 in amounts large enough to cover our operating expenses. We will continue to incur operating
expenses in connection with our ore trading and exploratory activities, and we intend to fund those expenses with the proceeds of loans from our Related-
Party Debtholders, if available, payments pursuant to the Cooperation Agreement and, to the extent deemed necessary, bank borrowings. 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.
Any failure to maintain effective internal controls could have an adverse effect on our business, results of operations and the market price of our shares.
The 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, if we become an accelerated or large accelerated filer,
as defined in the SEC’s rules, we will be required to provide an annual attestation from 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, 2019 was effective. However, we cannot assure
you that our management will not identify material weaknesses in the future or our independent public registered accounting firm will not identify material if
it assesses our internal control over financial reporting in the future. In addition, because of the inherent limitations of any 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 and results of operations, 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 SOX.
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 the ongoing development of laws and regulations in the PRC relating to our business and investments therein prior to investing
in our company, which may develop in a manner adverse to your interests.
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 related 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 us.
6
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 courts can only be used as references with little value as precedent. 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, but 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 laws and regulations are relatively new and judicial interpretations of them are limited in number. Moreover, as judicial
interpretations are not binding, both the implementation and interpretation of these laws and regulations are uncertain in many areas. The activities of our
subsidiaries in China are subject to PRC regulations governing PRC companies. 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.
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. The 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 generally 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, and
this process has recently experienced headwinds due to international tariff disputes. A change in policies by the PRC government could adversely affect our
interests through, 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 or will be considered foreign persons or foreign-invested enterprises
under PRC laws, and as a result, we are and will be required to comply with PRC laws and regulations applicable to foreign persons or foreign-invested
enterprises. These laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may
involve substantial uncertainty. Exploration and mining operations in the PRC are subject to environmental laws and regulations, and the imposition of more
stringent environmental regulations may 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 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.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may
delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our ability
to fund and expand our business.
We are an offshore holding company conducting our operations in China. We may make loans to our PRC subsidiaries, or we may make additional
capital contributions to our wholly foreign-owned subsidiaries in China. Any loans to our wholly foreign-owned subsidiaries in China, which are treated as
foreign-invested enterprises under PRC law, are subject to PRC regulations and foreign exchange loan registration requirements. In addition, a foreign-
invested PRC enterprise has limitations upon its uses of capital, including restrictions on such capital being: (i) directly or indirectly used for payments beyond
the business scope of the enterprise or payments prohibited by relevant laws and regulations; (ii) directly or indirectly used for investments in securities or
investments other than banks’ principal-secured products unless otherwise provided by relevant laws and regulations; (iii) used for the granting of loans to
non-affiliated enterprises, except where expressly permitted in the foreign-invested PRC enterprise’s business license; and (iv) used for paying expenses
related to the purchase of real estate that is not for self-use (except for foreign-invested real estate enterprises). We may also decide to finance our PRC
subsidiaries by means of capital contributions, in which case the PRC subsidiary is required to register the details of the capital contribution with the local
branch of the State Administration for Market Regulation and submit a report on the capital contribution via the online enterprise registration system to the
Ministry of Commerce.
7
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we
cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals or filings on a timely
basis, if at all, with respect to future loans by us to our current PRC operating subsidiary or with respect to future capital contributions by us to our current
PRC operating subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to fund our PRC operations may be negatively
affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Inflation in the PRC, or a slowing PRC economy, 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 has slowed down. In addition, the
recent global outbreak of COVID-19 and the efforts to contain it have negatively impacted economic development in the PRC and around the world, causing
concerns that the pandemic may lead to a potential global recession. Despite targeted fiscal and monetary stabilizing policies implemented by the PRC
government, the PRC economy has experienced a significant slowdown since the outbreak of COVID-19. For further discussion of the impact of the COVID-
19 pandemic, please refer to “– Risks Relating to our Mine Exploration Activities in Inner Mongolia – Volatility in the market prices of metals may adversely
affect the results of our operations” and “– Risks Relating to the Outbreak of COVID-19.” As a result, domestic and global economic conditions may improve,
and the markets we intend to serve may grow, at a lower-than-expected rate or even experience a downturn, adversely affecting our future profitability and
growth.
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, dividends 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 our operating
company, Bayyannaoer Mining, due to contractual or other limitations on the payment of dividends, we may be unable to pay dividends or make other
distributions on our common shares.
Governmental control of currency conversion may affect payment of any dividends or foreign currency denominated 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.
8
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. Additionally, if we convert our Renminbi into U.S. Dollars, should we determine to pay
dividends on our common shares or for other business purposes, depreciation of the Renminbi against the U.S. Dollar would negatively affect the amount of
U.S. Dollars we convert our Renminbi into. Conversely, to the extent that we need to convert U.S. Dollars we receive from an offering of our securities or
otherwise into Renminbi for our operations, appreciation of the Renminbi against the U.S. Dollar could have an adverse effect on our financial condition and
result in a charge to our income statement and a reduction in the value of these U.S. Dollar denominated assets.
In 2019, the Renminbi depreciated against the U.S. Dollar by 1.23% over the course of the year. Since the beginning of 2020 to June 3, 2020, the
exchange rate of the Renminbi against the U.S. Dollar depreciated by 2.19%.
Recent PRC SAFE regulations regarding offshore financing activities by PRC residents have undergone changes which may increase the administrative
burden we face and create regulatory uncertainties that could adversely affect us, 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 July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore
Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles or SAFE Circular 37. SAFE Circular 37 requires PRC residents
(including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed PRC residents for foreign exchange administration
purpose) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 further
requires an amendment to a SAFE registration in the event of any changes with respect to the basic information of the offshore special purpose vehicle, such
as a changes in the PRC shareholders, the names of such shareholders, and the operation term of such special purpose vehicle, or any significant changes with
respect to the offshore special purpose vehicle, such as an increase or decrease of capital, a share transfer or exchange, or mergers or divisions. SAFE Circular
37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.
If our shareholders who are PRC residents fail to make the required SAFE registration or to update a previously filed registration, our PRC
subsidiaries may be prohibited from distributing their profits or the proceeds from any capital reduction, share transfer or liquidation to us, and we may also be
prohibited from making additional capital contributions to our PRC subsidiaries. In February 2015, SAFE promulgated a Notice on Further Simplifying and
Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, effective June 2015. Under SAFE Notice 13, applications for
foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular
37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the
supervision of SAFE. To date, no registration has been filed with SAFE regarding us, and accordingly, SAFE may prohibit distributions from our PRC
subsidiaries, which would prevent us from paying dividends and may adversely affect our financial condition and potentially expose us to liability under PRC
law.
The auditor’s report included in this Annual Report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board
and, as such, our investors are deprived of the benefits of such inspection and are exposed to uncertainties.
Our auditor, the independent registered public accounting firm that issues the auditor’s report included elsewhere in this Annual Report, as an auditor
of companies that are traded publicly in the U.S. and a firm registered with the Public Company Accounting Oversight Board (United States), or the PCAOB,
is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards.
However, our auditors are located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese
authorities.
In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China
Securities Regulatory Commission, or CSRC, and the PRC Ministry of Finance, which established a cooperative framework for the production and exchange
of audit documents relevant to investigations undertaken by the PCAOB in the U.S. or the CSRC or the PRC Ministry of Finance in the PRC. The PCAOB
continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with
the PCAOB and audit Chinese companies that trade on U.S. exchanges.
9
On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by U.S. regulators in their oversight
of financial statement audits of U.S.-listed companies with significant operations in China. On November 4, 2019, the SEC announced that the SEC and the
PCAOB had engaged in a dialogue with the “Big Four” accounting firms, which emphasized the need for effective and consistent global firm oversight of
member firms, including those operating in China. On February 19, 2020, the SEC and the PCAOB further issued a joint statement on continued dialogue
with the “Big Four” accounting firms on audit quality in China, highlighting that the PCAOB continues to be prevented from inspecting the audit work and
practices of PCAOB-registered audit firms in China. On April 21, 2020, the SEC and the PCAOB issued a new joint statement, reminding the investors that in
many emerging markets, including China, there is substantially greater risk that disclosures will be incomplete or misleading and, in the event of investor
harm, there may be substantially less access to recourse, in comparison to U.S. domestic companies. The April 21, 2020 joint statement also stressed again the
PCAOB’s inability to inspect audit work papers in China and the potential for resulting harm to investors. However, it remains unclear what further actions, if
any, the SEC and the PCAOB will take to address the problem.
This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating the audit and quality control procedures of our independent
registered public accounting firm. As a result, we and the investors in our common shares are deprived of the benefits of such PCAOB inspections. The
inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public
accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which
could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our
financial statements.
As part of a continued regulatory focus in the U.S. on access to audit-related and other information currently protected by foreign law, in particular
access to information in China, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress, which if passed, would
require the SEC to maintain a list of issuers for which the PCAOB is not able to inspect or investigate an auditor’s report issued by an independent registered
public accounting firm. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act
prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges such as the Nasdaq
Capital Market of issuers included on the SEC’s list for three consecutive years. Additionally, on May 20, 2020, the U.S. Senate approved the Holding
Foreign Companies Accountable Act, or the HFCA Act, which includes requirements similar to those in the EQUITABLE Act for the SEC to identify issuers
whose audit reports are prepared by auditors that the PCAOB is unable to inspect or investigate because of restrictions imposed by non-U.S. authorities. The
HFCA Act would also require public companies on this SEC list to certify that they are not owned or controlled by a foreign government and make certain
additional disclosures in their SEC filings. In addition, for issuers on the SEC list for three consecutive years, the SEC would be required to prohibit the
securities of these companies from being traded on a U.S. national securities exchange, such as the Nasdaq Capital Market, or in U.S. over-the-counter
markets. Both pieces of proposed legislation would require issuers on the SEC list to make certain disclosures regarding foreign ownership and the control of
the issuer. In the U.S. House, the HFCA Act was introduced in 2018. Furthermore, Nasdaq has proposed changes to its rules to allow it to consider whether
the auditor of a company has been inspected by the PCAOB in considering whether to allow the new or continued listing of that company. The proposed
Nasdaq rule changes are subject to approval by the SEC. Enactment of either the EQUITABLE Act or HFCA Act, implementation of the proposed Nasdaq
rule changes, or other efforts to increase U.S. regulatory access to audit information could cause uncertainty for affected issuers, including us; the market price
of our common shares could be adversely affected, and the trading of our common shares Nasdaq Capital Market or other U.S. exchanges may be prohibited if
our auditors fail to be inspected by the PCAOB for three consecutive years. It is unclear if the proposed acts of Congress or Nasdaq rule changes will be
enacted. Furthermore, there have been recent media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-
based companies from accessing U.S. capital markets. If any such deliberations were to lead to legislation, the resulting legislation may have adverse impact
on the stock performance of China-based issuers listed in the U.S.
Proceedings instituted by the SEC against Chinese affiliates of the “Big Four” accounting firms, including our independent registered public accounting
firm, could result in our financial statements being determined to not be in compliance with the requirements of the SEC.
In December 2012, the SEC instituted administrative proceedings against PRC-based affiliates of the “Big Four” accounting firms, including our
independent registered public accounting firm, alleging that these firms had violated the U.S. securities laws and the SEC’s rules and regulations thereunder
by failing to provide to the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the U.S.
On January 22, 2014, the administrative law judge presiding over the matter rendered an initial decision that each of the firms had violated the SEC’s
rules of practice by failing to produce audit papers and other documents to the SEC. The initial decision censured each of the firms and barred them from
practicing before the SEC for a period of six months.
10
On February 6, 2015, four China-based accounting firms each 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 and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures and to
seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC. Under the terms of the settlement, the underlying proceeding against
the four China-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February
6, 2019. In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the U.S. with major PRC
operations may find it difficult or impossible to retain auditors with 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 SEC, the consequences of which include possible delisting. Moreover, any negative news
about proceedings against these audit firms may cause investor uncertainty regarding PRC-based, U.S.-listed companies and the market price of our common
shares may be adversely affected.
If our independent registered public accounting firm was 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 the delisting of our ordinary shares from the
Nasdaq Capital Market or deregistration under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or both, which would substantially
reduce or effectively terminate the trading of our common shares in the U.S.
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 the 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, 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 and more timely information available about domestic issuers than about foreign private issuers such as us, you will
not be afforded the same protections or information as would be available to you if you were investing in a U.S. domestic issuer.
11
Our status as a “foreign private issuer” allows us to adopt IFRS accounting principles, which are different than accounting principles under U.S.
generally accepted accounting principles.
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 permits foreign
private issuers such as the Company to prepare and file their financial statements in accordance with IFRS rather than U.S. generally accepted accounting
principles (“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 (the “Board of Directors” or the “Board”) 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;
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 transactions or other transactions in which we may
issue 20% or more of our outstanding common 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 BVI, 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 our related
party transactions have been 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 will be so in the future, or that shareholders would not be better protected if we were not exempt from, or we chose to voluntarily comply with, the
applicable Nasdaq rules.
12
Risks Relating 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 PRC, 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 a consequence of this enhanced risk, more risk-adverse investors may, due to 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, negatively impacting the trading price of our common shares.
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.”
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, and our
directors may take actions with which you disagree without first receiving shareholder approval.
Our directors have the power to take certain actions without shareholder approval, including the amendment of our Amended and Restated
Memorandum of Association (“Memorandum”) and our Articles of Association (“Articles”) (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 and Articles without shareholder approval could allow our directors to implement provisions to those documents that 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, as could the ability of our directors to issue blank check preferred stock.
The elimination of monetary liability against our directors, officers and employees under our Articles and the 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 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 settlements 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.
13
We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to U.S.
shareholders.
We have not made a determination whether we will or will not be a “passive foreign investment company,” or PFIC, for United States federal income
tax purposes in the current tax year or in subsequent tax years. Whether we are a PFIC is determined on a year by year basis, and we cannot assure you that
we are not and we will not be a PFIC for our future tax years. A non-U.S. corporation is generally a PFIC if either (i) at least 75% of its gross income is
passive income for a tax year or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a tax year) are
attributable to assets that produce or are held for the production of passive income. The market value of our assets may be determined to a large extent by the
market price of our common shares. If we are treated as a PFIC for any tax year during which U.S. shareholders hold common shares, certain adverse United
States federal income tax consequences could apply to such U.S. holders. For further discussion of the implications of PFIC status, please refer to “Item 10.E.
ADDITIONAL INFORMATION – Taxation – United States Federal Income Taxation.”
Risks Relating to the Outbreak of COVID-19
COVID-19 has disrupted our operations, and may further disrupt our operations or adversely affect our operations and financial position in the future,
and may exacerbate the various other Risk Factors that we face.
The COVID-19 pandemic is currently impacting countries, communities, supply chains and markets globally. Governments and other authorities in
the PRC and around the world have taken a slew of unprecedented measures intended to control the spread of COVID-19, including quarantines, restrictions
on travel and public gatherings, and the temporary closure of certain businesses and facilities. The pandemic and the efforts to contain it have caused
significant economic and financial disruptions around the world, including the disruption of industrial operations and global logistical and supply chains, and
extreme volatility in the global financial markets.
The COVID-19 outbreak and governmental control measures imposed to contain its spread have impacted our business by restricting the movement
of our employees since the beginning of the pandemic in the PRC through mid-March, when we were able to partially re-open. Moreover, some of the
Company’s personnel were unable to return to work until the beginning of April because they were quarantined in Hubei Province, the critical epicenter of the
COVID-19 outbreak. Prior to returning to work at the Company’s office in Shenzhen, these critical employees were required to undergo an additional 14 days
of quarantine according to local control measures. Accordingly, our operations have been severely disrupted by COVID-19 and efforts to contain it.
More broadly, the outbreak of COVID-19 in the PRC has resulted in travel restrictions, tightened border controls, and the shutdown of businesses,
which may cause a slower recovery of the PRC economy from the impacts of large-scale quarantines. We may experience further impacts from current or
future government-enforced quarantines and market downturns related to pandemic fears, as well as on our workforce if the virus continues to spread and
affects their health or freedom of movements. COVID-19 has also affected our suppliers’ workforces, and as a result we are experiencing a slow resumption
of operations and may experience delays or the inability to deliver goods on a timely basis. In addition, one or more of our customers, partners, service
providers or suppliers may experience financial distress, delays or defaults on payment, file for bankruptcy protection, or suffer disruptions in their business
due to the outbreak, which adversely impact our arrangements with them. The market demand for the copper ore that we trade and the metals that we may
mine have similarly been negatively impacted by COVID-19 as a result of the sharp decrease in manufacturing and other activity due to the widespread
closure of businesses in the PRC and worldwide, with a commensurate impact on commodity prices. We cannot predict when demand may reach levels
observed prior to COVID-19, if ever. Similarly, the impact of COVID-19 has led to extreme volatility in the capital markets, which has affected and may
continue to affect the price of our common shares, and may impact our ability to access the capital or credit markets.
The extent to which the evolving COVID-19 pandemic ultimately impacts our results of operations is highly uncertain and will depend upon the
severity of the COVID-19 pandemic and the actions taken by governments at various levels and private businesses in an attempt to contain the spread of the
virus. Wider-spread COVID-19 in the PRC and globally could prolong the deterioration in economic conditions and could cause further decreases in demand
and reduce and/or negatively impact our ability to grow our revenues. Any decreased collectability of accounts receivable, bankruptcy of our customers or
suppliers, or early termination of agreements that we have in place or may enter into due to deterioration in economic conditions could negatively impact our
results of operations. In most respects it is too early in the pandemic to be able to quantify all the ramifications, but COVID-19 will likely serve as an
exacerbating factor for many of the other Risk Factors discussed above.
14
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 of our common shares is encouraged to carefully analyze the risks and merits of an investment in the common 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
China Natural Resources, Inc. was incorporated in the BVI on December 14, 1993, and is a company limited by shares organized under the BVI
Business Companies Act.
Exploration Activities in Inner Mongolia
The Board of Directors has determined to focus the Company’s resources on metals exploration 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 the Moruogu
Tong Mine, located in Wulatehouqi, Bayannaoer City, Inner Mongolia. The exploration permit evidences Bayannaoer Mining’s right to explore for minerals
at the Moruogu Tong Mine. Initial results of the exploration program indicate the presence of lead and silver, with the prospect that further surveying and
exploration may indicate the presence of other ores such as copper. We anticipate that our working capital and capital expenditures for our exploration
activities will be funded by non-interest-bearing loans from our affiliates and funds provided pursuant to the Cooperation Agreement. See “– Metal
Exploration Activities” below for more information and a discussion of developments at the Moruogu Tong Mine in 2019.
Copper Ore Trading
During 2019, Bayannaoer Mining identified opportunities to trade copper ore in the PRC. Copper ore trading involves:
The purchase and sale of copper ore to fill a customer order. In this case, upon receipt of a customer’s request, Bayannaoer Mining personnel
will search for the most competitive supplier and place a purchase order against the request of our customer. The risks we face include the
failure to perform on the part of our customer and/or the inability to find saleable copper ore at a price that allows for a profit upon fulfilling the
purchase order.
The purchase of copper ore for our own account, for resale. In this case, the opportunity may arise for us to purchase copper ore at prices we
deem attractive; and we may purchase the copper ore for our own account, for resale. We assume the risk of changes in the market price of the
copper ore while we hold it in inventory.
We may purchase copper ore from one of several local suppliers who deliver the ore to a warehouse facility located in Bayannaoer City, Inner
Mongolia, which we rent on an as-needed basis. The scale of our trading business will be limited by the working capital requirement, business opportunity,
human resource, customer and supplier connections, etc. We are currently targeting only local customers, i.e., Bayannaoer City and surrounding areas. Buying
and selling copper ore is permitted by the business license held by Bayannaoer Mining and there are no additional regulations limiting its copper ore trading
activities.
Buying and selling copper ore is being conducted by Bayannaoer Mining under the supervision of Mr. Yu Jun, its general manager. We anticipate
that Mr. Yu’s local knowledge and business contacts will be a valuable component of the growth and success of Bayannaoer Mining’s copper ore trading. Mr.
Yu became the general manager of Bayannaoer Mining in January 2015, and has served as its finance manager and chief financial officer since 2005.
We have only recently commenced buying and selling copper ore and there is no assurance that we will be able to do so on a profitable basis. In
addition to the risks generally associated with the start-up of a new business opportunity, buying and selling copper ore will subject us to specific risks
including but not limited to:
Limitations based on the availability of capital and attractive opportunities to purchase copper ore.
We are not a party to any supply agreements with copper ore suppliers and we may not be able to purchase copper ore at advantageous prices or
at all.
15
Our opportunistic purchase of copper ore for our own account subjects us to the risk of declines in the market price of copper ore that we hold
for resale.
We will compete for customers for copper ore with third parties, some of whom may have greater financial and human resources and more
widespread reputations in the local community.
We currently only have one purchaser for our copper ore, and if we are unable to diversify our customer base and lose that customer, our ability
to continue trading in copper ore will be in doubt.
Other risks identified in the section entitled “Risk Factors,” above, and from time to time in our filings with the SEC.
Other Matters
Since 2017, we have invested CNY4.22 million (US$0.61 million) in capital expenditures. During 2019, we invested CNY5,000 (US$718) in capital
expenditures. No principal capital expenditures or divestitures are currently in progress.
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://www.sec.gov.
We maintain a company website at http://www.chnr.net. The information on our website is not a part of this report.
B.
Business Overview
CHNR is principally engaged in exploration for lead, silver and other metals in the Inner Mongolia Autonomous Region of the PRC, and in 2019
began the trading of copper ore in that region. As we have discontinued our other operations, and as our exploratory activities have yet to develop into
revenue-generating mining operations, our sole revenues from continuing operations over the past three years has been the CNY12.97 million (US$1.87
million) of revenues we enjoyed in 2019 as a result of our copper ore trading activities.
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 and an affiliate of CHNR. 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”) was CNY716,900, which
we believe 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 several promissory notes of Yangpu Shuanghu in the aggregate principal amount of CNY716,900, without interest. The
promissory 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 the
Moruogu Tong Mine, located in Wulatehouqi, Bayannaoer City, Inner Mongolia. Based upon preliminary geologic surveys, it is believed that the Moruogu
Tong Mine contains lead and silver, with the prospect that further surveying and exploration may indicate the presence of other ores such as copper.
16
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.
Lead, Silver and Copper 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; lead 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 use in lead-acid batteries is 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 useful in the automobile industry.
Lead is an internationally traded commodity, the price of which is effectively established on commodity markets throughout the world. During 2019,
world refined lead supply and demand were both weak. World lead production output increased only slightly in 2019. Meanwhile, due to the slowdown in
global economic growth in 2019, demand for lead from major downstream industries, especially the lead-acid batteries industry, was not strong. Excess
supply of lead ore occurred in the global market, and the import of lead ore in China surged in 2019. During the year, the price of lead continued to follow a
declining trend, although a temporary rebound occurred in mid-2019. The price of lead on the SHFE hit its annual high for 2019 of CNY18,140 (US$2,605)
per ton in January 2019 before it started to decline. The closing price at the end of 2019 was CNY15,050 (US$2,161) per ton, representing a decline of
approximately 16% compared with the opening price at the beginning of the year.
The following table shows the world refined production and world refined usage of lead over the past five years:
World refined production (in thousands of tons)
World refined usage (in thousands of tons)
China’s refined production (in thousands of tons)
China’s refined usage (in thousands of tons)
London Mercantile Exchange (“LME”) average price (US$/ton)
SHFE average price (CNY/ton)
———————
Source: International Lead and Zinc Study Group, LME, SHFE, Wind Economic Database.
2015
2016
2017
2018
2019
10,310
10,244
4,068
4,076
1,783
13,145
10,832
10,828
4,483
4,447
2,015
17,555
11,580
11,777
4,920
4,995
2,531
19,160
11,765
11,902
4,847
5,006
2,021
18,005
11,772
11,808
4,976
4,916
1,927
15,115
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 as an industrial metal 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. Silver was in
excess supply in 2018 due to sluggish industrial demand and a slowing global economy, causing the price of silver to decline that year. During 2019, however,
due to increased risks and uncertainties associated with intensified trade conflicts, investment demand for silver as a safe-haven asset dominated, causing the
price of silver to increase. SHFE silver price remained relatively stable for the first half of 2019 before it started to increase and reached an annual high of
CNY4,843 (US$696) per kg in September 2019. The closing price at the end of 2019 was CNY4,446 (US$638) per kg, representing an increase of
approximately 21% compared with the opening price at the beginning of the year.
17
The following table shows the world refined production and world refined usage of silver over the past five years:
2015
2016
2017
2018
2019
World production from mines (in tons)
World total production (in tons)
World total demand (in tons)
COMEX average price (US$/oz)
SHFE average price (CNY/kg)
———————
*: Certain data for 2019 was not available as of the date of the filing of this Annual Report.
Source: COMEX, SHFE, Wind Economic Database.
27,406
32,338
35,815
13.8
3,294
26,147
31,324
31,968
16.0
4,102
24,873
31,103
30,360
17.1
3,885
24,252
31,041
30,170
15.5
3,674
25,492
*
*
17.9
4,432
Copper (chemical element symbol Cu) is a ductile metal with excellent electric conductivity and is rather supple in its pure state and has a pinkish
luster. Copper was one of the first metals used by man. It is now primarily used as a heat conductor, an electrical conductor, a building material, and a
constituent of various metal alloys. Copper alloys have excellent mechanical properties and low resistivity, among which bronze and brass are the most
important. Copper is also a durable metal that can be recycled many times without losing its mechanical properties. Copper’s properties of high electrical and
thermal conductivity, together with good workability, allow it to be used in a wide range of applications, of which wire and cable and other electrical uses are
by far the most prevalent. The primary uses of copper are in electrical and electronic products, the building and construction industry and, to a lesser extent,
industrial machinery and equipment, consumer and general products and transportation.
Copper is an internationally traded commodity, the price of which is effectively established on commodity markets throughout the world. The price
of copper is closely related to economic cycles and largely determined by demand and supply. Demand for copper from China and the U.S. plays a major role
in global price determination. China has relatively small copper reserves but is the largest copper consuming country, so it has been reliant on copper imports.
Although Inner Mongolia is rich in natural resources including some copper reserves, supply is not abundant. Since 2018, the price of copper generally went
into a declining trend, as the global economy slowed down and was heavily affected by trade conflicts. During 2019, SHFE copper price was at its annual high
of CNY50,810 (US$7,297) per ton in March 2019 before it started to decline, but a slight rebound occurred since September 2019. The closing price at the
end of 2019 was CNY49,150 (US$7,059) per ton, representing a slight increase of approximately 2% compared with the opening price at the beginning of the
year.
The following table shows the world refined production and world refined usage of copper over the past five years:
World refined production (in thousands of tons)
World refined usage (in thousands of tons)
China’s refined production (in thousands of tons)
China’s refined usage (in thousands of tons)
LME average price (US$/ton)
SHFE average price (CNY/ton)
———————
*: Certain data for 2019 was not available as of the date of the filing of this Annual Report.
Source: International Copper Study Group, LME, SHFE, Wind Economic Database.
Metal Exploration Activities
Overview of Bayannaoer Mining
2015
2016
2017
2018
2019
22,825
22,849
7,964
11,353
4,689
36,520
23,341
23,441
8,436
11,642
5,516
45,430
23,518
23,701
8,889
11,791
7,264
55,740
23,808
24,221
9,029
12,482
5,965
48,170
23,929
24,326
9,784
*
6,174
49,280
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.
18
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 the Moruogu Tong
Mine; and, to date, has received a series of license renewals. Total exploration expenses related to these 11 exploration rights (exclusive of capitalized
expenses that have not yet fully depreciated or amortized and administrative expenses) borne by Bayannaoer Mining incurred to date amount to approximately
CNY35.57 million (US$5.11 million). The current exploration permit for the Moruogu Tong Mine runs until September 2021 and covers a site area of 10.43
square kilometers.
The 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. To date, exploration expenses of approximately CNY23.50 million (US$3.37 million), inclusive of amount paid by Jijincheng Mining, have
been incurred for the Moruogu Tong Mine, which were paid for by Bayannaoer Mining with self-owned capital, loans from a related party, and funds received
pursuant to its Cooperation Agreement with Jijincheng Mining of approximately CNY6.72 million (US$0.97 million).
Pursuant to the Cooperation Agreement, Jijincheng Mining is responsible for engaging the exploration team for the Moruogu Tong Mine and
providing the required funding. During the field exploration process, Bayannaoer Mining did not have its own exploration equipment. The exploration
equipment – drilling machines – used at the Moruogu Tong Mine was provided and operated by third party contractors until drilling work was done. Drilling
machines at the mine were mainly powered by a diesel generator set, and a state power substation near the mine area. To date, the exploration program at the
Moruogu Tong Mine has primarily involved the completion of mine geological surveying and mapping at 1:2000 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., have been collected thus far during the
exploration program.
Initial results of the exploration program indicate the presence of lead and silver, with the prospect that further surveying and exploration may
indicate the presence of other ores such as copper. During 2019, activities at the Moruogu Tong Mine included: measuring the coordinates of 15 drilling holes;
measuring portions of sections of the exploration area for radioactivity; the taking of nine additional combination samples; on-site inspection; successfully
applying for extension of Bayannaoer Mining’s exploration permit until at least September 2021; exploratory work in the local area; and the completion of an
initial draft of the detailed geographical exploration report for submission to government authorities for review and comment. At this stage of exploratory
activities, we cannot predict whether sufficient ore of acceptable quality will be found at the Moruogu Tong Mine to warrant further exploration and/or
extraction.
The current exploration work stage of the Moruogu Tong Mine has been completed. The future amount for the exploration project, including drilling
expenses, site construction costs, grassland compensation fees and simple infrastructure construction costs in order to apply for a mining rights permit, is
anticipated to be approximately CNY11.40 million (US$1.64 million). Bayannaoer Mining and Jijincheng Mining intend to seek other investors to play roles
similar to those of Jijincheng Mining in order to proceed with the further exploration and analysis of the Moruogu Tong Mine, with an aim to apply for a
mining rights permit. This exploration project is expected to be financed by funds received pursuant to the Cooperation Agreement and/or any new or similar
cooperation agreement, and loans from a related party. While the results of preliminary prospecting suggest that the 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.
Moruogu Tong Mine
The Moruogu Tong Mine is a concealed deposit or, an underground mine, with minimum depth of about 40 meters below ground.
The main outcrop strata in and around the mine area are the third lithological member of Agulugou Formation of Zhaertaishan Group in the middle
and upper Proterozoic, followed by the quaternary Holocene strata. There is no magmatic rock in the exploration area, and Permian granodiorite is found
locally. In addition, gabbro dike, diabase dike and quartz dike are found in the area. The geotectonic location of the mine area is in the north wing of the Wolf
Mountain anticline, with frequent tectonic activities and multiple periods of magma intrusion. The strata of the mine area are damaged by transformation, and
the fold structure is not complete. The outcrop strata in the mine area are relatively simple, which are a monoclinal structure with a northeast-to-southwest
strike and a southeastern tilt.
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The Moruogu Tong Mine is located in the fault bundle of the Huogeqi dome at the north wing of the Haorige Mountain syncline. Monoclinal
structure predominates and the strike is north-eastern. The lead ore (mineralized) bodies are produced in the third lithological member of Agulugou
Formation, where quartzite and quartz schist with strong silicification are the main host rocks. The ore bodies are distributed in an area of 3,000 meters long
from east to west and 1,000 meters wide from south to north, and 14 lead ore bodies have been delineated with orebody numbers of I-1, I-2, II-1, II-2, II-3, III,
IV-1, IV-2, IV-3, IV-4, IV-5, IV-6, IV-7, and V.
The Moruogu Tong Mine is mainly a lead deposit associated with silver. The ore bodies occur in certain strata, whose genetic type belongs to air-
exhaled sedimentary type, with lead deposit then transformed by hydrothermal process. The ore mineral compositions mainly include galena, sphalerite,
pyrite, chalcopyrite, arsenopyrite and gangue mineral quartz, calcite, and mica, etc. The depth of oxidized zone and mixed zone in this mine area is about 15
meters below ground. The primary zone is below 15 meters underground. The lead ore bodies delineated in this deposit are all in the primary zone, and the
natural type of the ore is primary lead sulfide ore. The main useful constituent of this deposit is lead, with associated useful constituent of silver, so it is
classified as lead and silver deposit.
The key industrial indicators of the deposit are as follows:
Cutoff grade: Pb≥0.3%;
Minimum industrial grade: Pb≥0.7%;
Minimum minable thickness: ≥1.0m;
Average grade of deposit: Pb ≥1.81%;
Band rejected thickness: ≥2m;
When the orebody thickness is less than the minable thickness and the grade is high, meter percentage can be used as an indicator: Pb≥0.70
meter percentage; and
Industrial grade of associated useful constituent: Ag≥2g/t.
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 exploration and operating expenses of the Moruogu Tong Mine during the
exploration stage such that Bayannaoer Mining is not required to make any further capital contribution for exploration activities, and for the allocation of
rights and responsibilities between Bayannaoer Mining and Jijincheng Mining. According to the Cooperation Agreement, Jijincheng Mining is also
responsible for engaging the exploration team and directing their activities. Pursuant to the Cooperation Agreement: (i) Bayannaoer Mining contributed the
existing exploration results for the 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, the total exploration expenses paid by Jijincheng Mining amount to approximately CNY6.72 million
(US$0.97 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 4.6 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:
The 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 the Moruogu Tong Mine runs from September 14, 2019 to September 13, 2021 and
covers a site area of 10.43 square kilometers.
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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 the 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 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 may be subject to 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.
Copper Trading Activities
Please see the discussion under “Item 4.A. INFORMATION OF THE COMPANY — History and Development of the Company — Copper Ore
Trading” above for a description of our copper ore trading activities, which have been our sole source of revenue from continuing operations for the last three
years, recording revenues of CNY12.97 million (US$1.86 million) in 2019. Our copper ore trading activities are not affected by seasonality. The business
registration certificate of Bayannaoer Mining permits trading activity. There are no other special regulations with regard to copper trading in the PRC.
Feishang Management
Feishang Management was incorporated in the PRC in October 2008. It is a wholly-owned subsidiary of Yunnan Mining and is 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.
22
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:
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.
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.
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.
Silver Moon
Silver Moon is a BVI company incorporated in March 2000. Silver Moon, which is 80% owned by CHNR, and 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.
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.
DISCONTINUED SEGMENTS
A discussion of various segments that we have discontinued since January 1, 2017 follows. These segments did not provide any revenues during the
last three fiscal years.
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.
23
On February 24, 2017, Feishang Mining together with Wuhu City Feishang Industrial Development Co., Ltd. (“Wuhu Industrial,” and together with
Feishang Mining, the “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.
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 in the name of Wuhu Feishang and WH Purchaser contributed CNY3.00 million into the account
as an earnest money deposit to ensure the satisfactory completion of the undertakings by the WH Purchaser under the WH Purchase
Agreement. 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.
DISCONTINUED SEGMENT – Copper Smelting Operations
On December 23, 2016, the Company entered into an agreement with Feishang Hesheng, an affiliate of ours and 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 was offset by the assignment to us 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 became the beneficiary of Double Grow’s obligation to repay the Loan.
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. (the “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 provided for a purchase price for the the DG Equity Interests of US$2,641,129. 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. At the time the DG Purchase Agreement was signed, the parties also executed a Deed of Assignment of Loan 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.
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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, and the trading of copper ore.
C.
Organizational Structure
CHNR is a holding company directly or indirectly owning the following subsidiaries, to the extent indicated (as of June 12, 2020):
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. INFORMATION OF THE COMPANY – Metal Exploration Activities”
above, and Exhibit 8 to this Annual Report for descriptions of the Company’s subsidiaries.
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 Consultant Ltd. (“Anka”), a related party, 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, 2017, 2018 and 2019, the Company
paid its share of rental expenses and rates to Anka amounting to approximately CNY949,000, CNY1,036,000 and CNY1,105,000 (US$158,691), respectively.
On January 1, 2018, Feishang Management signed an office sharing agreement with Feishang Enterprise. Pursuant to the agreement, Feishang
Management shared 40 square meters of the office premises, and annual rent was CNY165,600 and CNY165,600 for the years ended December 31, 2018 and
2019, 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 CNY0.21 million (US$0.03 million). On May 11, 2017, May 11, 2018 and May 11, 2019, 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 in 2017 and 2018, and 186 square meters in 2019, and annual rent was CNY82,200,
CNY82,200 and CNY55,800 (US$8,014), respectively. On May 11, 2020, Bayannaoer Mining renewed this lease for an additional year.
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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. We are still in the exploration stage of mining the Moruogu Tong Mine, and have not yet produced any silver, lead or copper.
To date, the exploration program has indicated the presence of lead and silver, with the prospect that further surveying and exploration may indicate the
presence of other ores such as copper. For the location of the Moruogu Tong Mine, please refer to the map located in “Item 4.B. INFORMATION OF THE
COMPANY — Metal Exploration Activities – Geography” above.
For the years ended December 31, 2017, 2018 and 2019, the Company incurred capital expenditures (excluding fees for renewal of mining rights) of
CNY4.21 million, CNY5,000 and CNY5,000 (US$718), respectively.
In the event we determine to pursue a mining permit and thereafter engage in mining at the Moruogu Tong Mine, we will be required, among other
things, to construct and develop the mine, including roads and making 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, if available,
payments pursuant to the Cooperation Agreement and, to the extent deemed necessary, bank borrowings.
See “Item 4.B. INFORMATION OF THE COMPANY – Business Overview – Government Regulation of Mineral Exploration Activities,” above,
for a discussion of environmental laws affecting the Moruogu Tong Mine.
ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of the results of operations and the Company’s financial position should be read in conjunction with the
audited consolidated financial statements and accompanying notes included elsewhere herein. The consolidated financial statements of the Company have
been prepared in accordance with IFRS as issued by the IASB.
A.
Operating Results
Historic Overview
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, and the associated operations are accordingly presented as
discontinued operations.
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, and the associated operations are accordingly presented as discontinued operations.
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.
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 the Moruogu Tong Mine, located in
Wulatehouqi, Bayannaoer City, Inner Mongolia. Based upon preliminary geologic surveys, it is believed that the Moruogu Tong Mine contains lead and
silver, with the prospect that further surveying and exploration may indicate the presence of other ores such as copper. During 2019, Bayannaoer Mining
identified opportunities to trade copper ore in the PRC. Copper ore trading involves (i) the purchase and sale of copper ore to fill a customer order and/or (ii)
the purchase of copper ore for our own account, for resale.
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The Board of Directors has determined to focus the Company’s resources on metals exploration and mining activities and other business operations
in the PRC. Following the 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 and the trading of copper ore. The following discussion reflects only the continuing operations
of the Company.
Revenues and Gross Profit
Revenue for sales of all products is recognized when control of the products is transferred to the customer upon delivery.
2019 vs 2018
Revenues increased by CNY12.97 million (US$1.86 million) for the year ended December 31, 2019 from nil for the year ended December 31, 2018.
The revenues represent copper ore trading that was commenced by Bayannaoer Mining in 2019.
Gross profit for the year ended December 31, 2019 was CNY0.22 million (US$0.03 million) with a gross profit margin of 1.67%. The gross profit
margin level was in accordance with the nature of copper ore trading business.
2018 vs 2017
There were no revenues for the years ended December 31, 2018 and 2017.
Administrative Expenses
2019 vs 2018
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 CNY5.81 million (US$0.84 million) in 2019 as compared with CNY6.21 million in 2018. The decrease of
administrative expenses was mainly due to the tighter control of expenses in 2019.
2018 vs 2017
Administrative expenses were CNY6.21 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.
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.
Income Tax Expenses
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 invested enterprises and
domestic companies.
2019 vs 2018
There were no income tax expenses in 2019 and in 2018, due to the losses in both years.
2018 vs 2017
There were no income tax expenses in 2018 and in 2017, due to the losses in both years.
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Loss for the Year
2019 vs 2018
Losses for the year decreased from CNY6.18 million in 2018 to CNY5.65 million (US$0.81 million) in 2019. The decrease in losses was mainly
attributable to the decrease of administrative expenses, and gross profit derived from copper ore trading.
2018 vs 2017
Losses for the year decreased from CNY30.00 million in 2017 to CNY6.18 million in 2018. The decrease in losses was mainly attributable to the
inclusion of the discontinued operations of Wuhu Feishang and Double Grow in 2017, which together amounted to CNY23.82 million.
Impact of Government Policies on the Company’s Operations
In response to the outbreak of COVID-19, the PRC government has taken a slew of unprecedented measures intended to control its spread, including
quarantines, restrictions on travel and public gatherings, and temporary closure of certain businesses and facilities. These policies have significantly affected
our operations by restricting the movement of our employees and slowing the resumption of exploratory activities in our Moruogu Tong Mine and of our
copper trading business. Also, large-scale quarantines and travel restrictions have led to a significant slowdown in the general economy and the markets we
intend to serve. There remains uncertainty on how long these impacts will last and whether they will escalate in the future. For further details of the impact on
our operations of governmental policies in response to COVID-19, please refer to “Item 3.D. KEY INFORMATION – Risk Factors – Risks Relating to the
Outbreak of COVID-19 – COVID-19 has disrupted our operations, and may further disrupt our operations or adversely affect our operations and financial
position in the future, and may exacerbate the various other Risk Factors that we face.”
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. 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 to which we will be entitled in exchange for
transferring the goods or services to the customer is estimated. 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 uncertainty associated with the variable
consideration is resolved.
When the contract contains a financing component which provides the customer with the 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.
Trading of copper ore. We purchase copper ore from third-party suppliers and then resells to a third-party trading company. Revenue is recognized
on a gross basis, and at a point in time when control of the asset is transferred to the customer, upon delivery of the copper ore to the customer.
28
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.
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 mineral reserves have been determined, costs incurred to develop 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.
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:
Buildings
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 depreciates 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 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.
29
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.
Deferred tax assets are recognized for all deductible temporary differences, and 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 or 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.
Impairment of non-financial assets
Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories and financial assets), the
asset's recoverable amount is estimated. An asset's recoverable amount is the higher of the asset's or cash-generating unit's value in use and its fair value less
costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other
assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises in those expense categories consistent
with the function of the impaired asset.
30
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. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises, unless the asset is carried at a
revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.
Changes in Accounting Policies and Disclosures
We have adopted the following new and revised IFRS for the first time for the current year's financial statements.
Amendments to IFRS 9
IFRS 16
Amendments to IAS 19
Amendments to IAS 28
IFRIC 23
Amendments to IFRS 3, IFRS 11,
IAS 12 and IAS 23
Prepayment Features with Negative Compensation
Leases
Plan Amendment, Curtailment or Settlement
Long-term Interests in Associates and Joint Ventures
Uncertainty over Income Tax Treatments
Annual Improvements to IFRSs 2015-2017 Cycle
Except for the amendments to IFRS 9, IAS 19 and IAS28, and Annual Improvements to IFRS Standards 2015-2017 Cycle, which are not relevant to
the preparation of our financial statements, the nature and the impact of the new and revised IFRS are described below:
(a)
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 account for
all leases under a single on-balance sheet model to recognize and measure right-of-use assets and lease liabilities, except for certain recognition
exemptions. Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors continue to classify leases as either operating or
finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have any significant impact on leases where we are the lessor.
We have adopted IFRS 16 using the modified retrospective method with the date of initial application of January 1, 2019. Under this method,
the standard has been applied retrospectively with the cumulative effect of initial adoption recognized as an adjustment to the opening balance
of retained profits at January 1, 2019, and the comparative information for 2018 was not restated and continued to be reported under IAS 17
and related interpretations.
New definition of a lease
Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in
exchange for consideration. Control is conveyed where the customer has both the right to obtain substantially all of the economic benefits from
use of the identified asset and the right to direct the use of the identified asset. We elected to use the transition practical expedient allowing the
standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application.
Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16
has been applied only to contracts entered into or changed on or after January 1, 2019.
31
As a lessee – Leases previously classified as operating leases
Nature of the effect of adoption of IFRS 16
We have lease contracts for items of office buildings. As a lessee, we previously classified leases as either finance leases or operating leases
based on the assessment of whether the lease transferred substantially all the rewards and risks of ownership of assets to us. Under IFRS 16, we
apply a single approach to recognize and measure right-of-use assets and lease liabilities for all leases, except for two elective exemptions for
leases of low-value assets (elected on a lease-by-lease basis) and leases with a lease term of 12 months or less (“short-term leases”) (elected by
class of underlying asset). Instead of recognizing rental expenses under operating leases on a straight-line basis over the lease term
commencing from January 1, 2019, we recognize depreciation (and impairment, if any) of the right-of-use assets and interest accrued on the
outstanding lease liabilities (as finance costs).
Impacts on transition
Lease liabilities at January 1, 2019 were recognized based on the present value of the remaining lease payments, discounted using the
incremental borrowing rate at January 1, 2019 and included in lease liabilities. The right-of-use assets for most leases were 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 January 1, 2019.
All these assets were assessed for any impairment based on IAS 36 on that date. We elected to present the right-of-use assets separately in the
statement of financial position.
We have used the following elective practical expedients when applying IFRS 16 at January 1, 2019:
Applying the short-term lease exemptions to leases with a lease term that ends within 12 months at the date of initial application;
Using hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and
Excluding the initial direct costs from the measurement of the right-of-use assets at the date of initial application.
The impacts arising from the adoption of IFRS 16 as of January 1, 2019 are as follows:
Assets
Increase in right-of-use assets
Increase in total assets
Liabilities
Increase in the non-current portion of lease liabilities
Increase in the current portion of lease liabilities
Increase in total liabilities
32
Increase
CNY
1,803
1,803
593
1,210
1,803
The lease liabilities as of January 1, 2019 reconciled to the operating lease commitments as of December 31, 2018 are as follows:
Operating lease commitments as of December 31, 2018
Weighted average incremental borrowing rate as of January 1, 2019
Discounted operating lease commitments as of January 1, 2019
Lease liabilities as of January 1, 2019
CNY
1,891
4.75%
1,803
1,803
(b)
IFRIC 23 addresses the accounting for income taxes (current and deferred) when tax treatments involve uncertainty that affects the application
of IAS 12 (often referred to as “uncertain tax positions”). The interpretation does not apply to taxes or levies outside the scope of IAS 12, nor
does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation
specifically addresses (i) whether an entity considers uncertain tax treatments separately; (ii) the assumptions an entity makes about the
examination of tax treatments by taxation authorities; (iii) how an entity determines taxable profits or tax losses, tax bases, unused tax losses,
unused tax credits and tax rates; and (iv) how an entity considers changes in facts and circumstances. The interpretation has had no significant
impact on the Group’s financial statements.
Issued but not yet effective International Financial Reporting Standards
We have not applied the following new and revised IFRS, that have been issued but are not yet effective, in these financial statements:
Amendments to IFRS 3
Amendments to IFRS 9, IAS 39
and IFRS 7
Amendments to IFRS 10 and IAS 28
IFRS 17
Amendments to IAS 1 and IAS 8
Amendments to IAS 1
Amendment to IFRS 16
———————
1
Effective for annual periods beginning on or after January 1, 2020
Effective for annual periods beginning on or after January 1, 2021
Effective for annual periods beginning on or after January 1, 2022
No mandatory effective date yet determined but available for adoption
2
3
4
Definition of a Business 1
Interest Rate Benchmark Reform 1
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 4
Insurance Contracts 2
Definition of Material 1
Classification of Liabilities as Current or Non-current 3
Covid-19-Related Rent Concessions 4
Further information about those IFRS that are expected to be applicable to us is below.
Amendments to IFRS 3 clarify and provide additional guidance on the definition of a business. The amendments clarify that for an integrated set of
activities and assets to be considered a business, it must include, at a minimum, an input and a substantive process that together significantly contribute to the
ability to create output. A business can exist without including all of the inputs and processes needed to create outputs. The amendments remove the
assessment of whether market participants are capable of acquiring the business and continue to produce outputs. Instead, the focus is on whether acquired
inputs and acquired substantive processes together significantly contribute to the ability to create outputs. The amendments have also narrowed the definition
of outputs to focus on goods or services provided to customers, investment income or other income from ordinary activities. Furthermore, the amendments
provide guidance to assess whether an acquired process is substantive and introduce an optional fair value concentration test to permit a simplified assessment
of whether an acquired set of activities and assets is not a business. We adopted the amendments prospectively from January 1, 2020. Since the amendments
apply prospectively to transactions or other events that occur on or after the date of first application, we were not affected by these amendments on the date of
transition.
33
Amendments to IFRS 9, IAS 39 and IFRS 7 address the effects of interbank offered rate reform on financial reporting. The amendments provide
temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate benchmark.
In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by
these uncertainties. The amendments are effective for annual periods beginning on or after January 1, 2020. Early application is permitted. The amendments
are not expected to have any significant impact on our financial statements.
Amendments to IFRS 10 and IAS 28 address an inconsistency between the requirements in IFRS 10 and in IAS 28 in dealing with the sale or
contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or
contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a
business, a gain or loss resulting from the transaction is recognized in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that
associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to IFRS 10 and IAS 28 was
removed by the IASB in December 2015 and a new mandatory effective date will be determined after the completion of a broader review of accounting for
associates and joint ventures. However, the amendments are available for adoption now.
Amendments to IAS 1 and IAS 8 provide a new definition of material. The new definition states that information is material if omitting, misstating
or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those
financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information. A misstatement of information is
material if it could reasonably be expected to influence decisions made by the primary users. We adopted the amendments prospectively from January 1, 2020.
The amendments are not expected to have any significant impact on our financial statements.
Amendments to IAS 1 issued in January 2020 amended the definition of current liabilities and non-current liabilities. The entity’s right to defer
settlement of a liability for at least twelve months after the reporting period and the definition of settlement are considered when making the classification of a
liability. The amendment clarifies that classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the
liability for at least twelve months after the reporting period. We expect to adopt the amendments retrospectively from January 1, 2022. The amendments are
not expected to have any significant impact on our financial statements.
The amendment to IFRS 16 provides relief to lessees from applying the IFRS 16 guidance on lease modification accounting for rent concessions
arising as a direct consequence of the COVID-19 pandemic. The Group expects to adopt the amendment from January 1, 2020. The amendment is not
expected to have any significant impact on the Group’s financial statements.
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. Currently, our working capital is sufficient for the Company’s present
requirements for the next 12 months. In view of the disposition of our metals mining and copper smelting operations, and since the 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 the Moruogu Tong Mine or a dramatic increase occurs in the amount of revenues that we generate trading copper
ore. We will continue to incur operating expenses prior to the commencement of revenue-producing activities at the Moruogu Tong Mine and expect those
expenses to continue to be funded through internally generated cash reserves from prior years, non-interest-bearing loans from related parties, and funds
provided pursuant to the Cooperation Agreement. As of December 31, 2019, CHNR owed an aggregate of CNY12.17 million (US$1.75 million) to the
Related-Party Debtholders, which debt has an indefinite maturity and does not bear interest.
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 letters 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 will
provide continuous financial support to the Group in relation to the going concern of its operations, including not recalling 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, and that Feishang Enterprise will
pay debts on behalf of the Group when needed.
34
See “Item 5.F. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – Tabular Disclosure of Contractual Obligations,” below, for a
summary of our contractual obligations for future cash payments as of December 31, 2019.
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.
As of December 31, 2019, the breakdown of cash (in thousands) held in different currencies are as follows:
Currency and Amount
CNY1,894
HK$1,469
US$34
Total
CNY Equivalent
US$ Equivalent
1,894
1,313
237
3,444
272
189
34
495
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, 2017, 2018 and 2019 including cash flows
from discontinued operations:
Cash and cash equivalent at beginning of year
Net cash used in operating activities
Net cash from/(used in) investing activities
Net cash from/(used in) financing activities
Net increase/(decrease) 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)
Leverage ratio
2019 vs 2018
Years Ended December 31,
2017
CNY'000
2018
CNY'000
2019
CNY'000
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
6,793
(3,333)
(5)
(24)
(3,362)
13
3,444
Years Ended December 31,
2017
2018
2019
0.65 x
(15,842)
—
0.25 x
(22,073)
—
0.21 x
(28,384)
—
Net cash used in operating activities was CNY3.33 million (US$0.48 million) in 2019 and CNY7.53 million in 2018. The decrease of cash outflow
was mainly attributable to lower professional service fees in 2019.
Net cash used in investing activities was CNY5,000 (US$718) in 2019, as compared to net cash inflow of CNY9.37 million in 2018. 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 CNY24,000 (US$3,447) in 2019, as compared to net cash outflow of CNY13.81 million in 2018. The
net cash flows of financing activities were primarily comprised of the net advances and repayments with related parties, and payment of lease liabilities.
35
2018 vs 2017
Net cash used in operating activities was CNY7.53 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 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 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.
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 U.S. capital markets to fund PRC operations; and
A lack of development of U.S. 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,” below, 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, 2017, 2018 and 2019. The Company believes that bank borrowings, payments pursuant to the Cooperation Agreement and/or borrowings from
its Related-Party Debtholders, if available, 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 the 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, if
available, 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 recent COVID-19 pandemic and efforts to contain it have caused significant economic and financial disruptions around the world. Our business
operations, including the exploration activities at the Moruogu Tong Mine and the trading of copper ore, have been severely and adversely affected due to
travel restrictions and temporary restraints on our operations, as well as a slowdown in the general economy and volatile commodity demand and prices. For
further details on the impact of the COVID-19 pandemic, please refer to “Item 3.D. KEY INFORMATION – Risk Factors – Risks Relating to our Mine
Exploration Activities in Inner Mongolia – Volatility in the market prices of metals may adversely affect the results of our operations,” “Item 3.D. KEY
INFORMATION – Risk Factors – Risks Relating to the Outbreak of COVID-19 – COVID-19 has disrupted our operations, and may further disrupt our
operations or adversely affect our operations and financial position in the future, and may exacerbate the various other Risk Factors that we face” and “Item
5.A. OPERATING AND FINANCIAL REVIEW AND PROSPECTS – Operating Results – Impact of Government Policies on the Company’s Operations.”
As a result of the major uncertainties caused by the outbreak of COVID-19, our reported financial results may not necessarily be indicative of our
future prospects and results of operations.
Other than the impact of the COVID-19 pandemic discussed above, the Company does not believe that there have been any other recent known
trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect of the Company’s net 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.
36
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, 2019, 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.
F.
Tabular Disclosure of Contractual Obligations
The following table summarizes our contractual obligations and commercial commitments for the periods indicated as of December 31, 2019:
Lease liabilities, including current portion
Total
CNY'000
Within 1 year
CNY'000
Payment due by period
1 to 2 years
CNY'000
2 to 5 years
CNY'000
Thereafter
CNY'000
812
812
812
812
—
—
—
—
—
—
Under the Cooperation Agreement, Jijincheng Mining, rather than the company, is the party to any contracts relating to exploratory work.
G.
Safe Harbor
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.
37
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
56
57
52
50
57
53
54
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. Mr. Wong is a co-owner and has been principally employed as a director of Anka, a privately-held
company, since April 2008. Mr. Wong has also served as 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 (practicing) 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. Mr. Tam is
also a director and co-owner of Anka. 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 (practicing) in Hong Kong. He holds a Bachelor of Business Administration degree
from the Chinese University of Hong Kong.
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 executive director of Feishang
Anthracite since May 2015. He has been principally employed by Shenzhen Chixin Xinxi Consulting Co. Ltd., an indirect wholly owned subsidiary of
Feishang Anthracite, as its general manager since October 2013. 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
as 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. Mr. Lam has been an independent non-executive director of Summit
Ascent Holdings Limited, a Hong Kong listed company, since June 2019. 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.
38
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. 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 University of Cambridge and a Master’s 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. While Mr. Li is not an officer or director of the Company, he ultimately controls the Company through his services as an officer and/or director of
certain of the Company’s subsidiaries, his beneficial ownership of the Company’s shares, his ability to elect the Board of Directors and his direct ownership of
a substantial amount of Company debt. 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 indirectly
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, Wuhu Industrial and Wuhu Feishang
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.
Key Employees
The following table identifies the senior management of Bayannaoer Mining, and their ages and positions:
Name
Yu Jun
Yao Yangli
Age
52
55
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 financial 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, other than the fact that each was elected by Mr. Li Feilie.
39
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, 2019, to each of the individuals identified in “Item 6.A. DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES – Directors and Senior Management,” 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
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
11,130
32,910
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Mr. Li serves as director of certain subsidiaries of the Company. The amount does not include payments under an office sharing agreement pursuant to which Feishang
Enterprise, a company controlled by Mr. Li, provides our subsidiary Feishang Management with certain shared office space (see “Item 7.B. MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS – Related Party Transactions – Commercial Transactions with Related Companies,” below).
2
The amounts do 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.
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.
On March 7, 2019, we entered into an employment agreement with Mr. Yu Jun for his services as general manager of Bayannaoer Mining for a term
of one year expiring on March 6, 2020. The agreement was renewed on March 7, 2020 with the same initial terms. For his services, Mr. Yu receives a basic
salary at the rate of US$718 per month, and is eligible for a bonus.
On April 23, 2019, we entered into an employment agreement with Mr. Yao Yangli for his services as deputy chief engineer for a term of one year
expiring on April 22, 2020. The agreement was renewed on April 23, 2020 with the same initial terms. For his services, Mr. Yao receives a basic salary at the
rate of US$2,106 per month, and is eligible for a bonus.
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, 2017, 2018 and 2019, 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. The Company and its subsidiaries have not set aside or accrued any amounts to provide pension, retirement or similar benefits to the Company’s
directors.
40
Non-Employee Director Compensation
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, 2019, 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, 2019:
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.
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
Board or 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 Board or 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 Board or Plan
Committee determines.
The Board or Plan Committee may 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 Board or 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.
41
C.
Board Practices
As provided by our Memorandum and Articles 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 2019, Messrs. Wong Wah On Edward and Tam Cheuk Ho were elected to serve as Class III directors until
immediately following the annual meeting to be held in 2022 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. Lam Kwan Sing and Yip Wing Hang 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. 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 SEC 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 meeting of the Board of Directors 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.
Please see “Item 6.B. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES – Compensation – Executive Compensation,” above, for
information regarding directors’ service contracts.
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 SEC and in Nasdaq
Marketplace Rule 5605(a)(2).
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
42
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
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. The committee’s current compensation decisions are reflective of our current financial position.
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 impose various corporate governance requirements on issuers of 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.
43
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 10 employees on a full-time basis consisting of (a) six employees engaged in metal
exploration segment, and (b) four 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, 2017, 2018 and 2019, including their principal category of activity and
geographic location.
Years Ended December 31,
2018
2017
2019
Hong Kong
Accounting, administration and management
Accounting, administration and management (Shenzhen)
Accounting, administration and management (Bayannaoer)
Cashier
Mining exploration
The PRC
Total
44
3
3
2
5
1
2
10
13
3
3
2
5
1
1
9
2
2
2
4
1
1
8
12
10
E.
Share Ownership
The following table sets forth, as of June 12, 2020, 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 June 12, 2020, 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, and ultimately controls the Company through his beneficial
ownership of our shares, his ability to elect the Board of Directors and his ownership of a substantial amount of Company debt. 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.
Please refer to the discussion of our equity compensation plan and securities authorized for issuance thereunder under “Item 6.B. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES – Compensation – Securities Authorized for Issuance Under Equity Compensation Plans,” above.
45
Name of Beneficial Owner
Li Feilie
———————
(1)
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
Major Shareholders
The following table sets forth, as of June 12, 2020, 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 June 12, 2020, there were 24,910,916 common shares issued and outstanding. Mr. Li 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 shareholder does not have different voting rights than other shareholders of the Company.
Amount and Nature of
Beneficial Ownership
Percent of Class
14,780,593(1)
59.33%
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 of ownership held by the major shareholder during the past three years.
Geographic Breakdown of Shareholders
Based upon a review of our shareholder records as of December 31, 2019, 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
As discussed above, we have received letters from Feishang Group and Feishang Enterprise, entities controlled by Mr. Li Feilie, the principal
beneficial shareholder of the Company, both dated May 29, 2020, which state that Feishang Group and Feishang Enterprise will provide continuous financial
support (in the form of interest-free loans) to us in relation to the going concern of our operations, including not recalling any amounts due to them until we
are in a position to settle the amounts due without having a detrimental impact on our financial resources, and that Feishang Enterprise will pay debts on our
behalf when needed. As far as the Company understands, there is no limitations on the amount or provision or the duration of support from Feishang Group
or Feishang Enterprise.
46
Commercial Transactions with Related Companies
Commercial transactions with related companies are summarized as follows:
2017
CNY’000
Year Ended December 31,
2018
CNY’000
2019
CNY’000
Period Ended
May 31,
2020
CNY’000
1,316
1,056
240
—
1,442
—
—
166
1,506
—
—
166
644
—
—
69
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. Anka is currently negotiating with the unrelated landlord for a renewal.
(2)
(3)
(4)
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 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 party and an affiliate of ours
controlled by Mr. Li Feilie. Pursuant to the agreement, Feishang Management shares 40 square meters of the office premises.
Balances with Related Parties
Payables to related parties (1)
Feishang Enterprise (2)
Feishang Hesheng (3)
Feishang Group (4)
Lease liabilities to related parties
Feishang Enterprise
Anka (5)
2017
CNY’000
As of December 31,
2018
CNY’000
2019
CNY’000
As of May 31,
2020
CNY’000
3,719
10,028
11,573
—
—
4,041
—
6,973
—
—
5,077
—
7,097
287
516
5,507
—
7,816
289
91
———————
(1)
Feishang Enterprise, Feishang Group and Feishang Hesheng are entities controlled by Mr. Li Feilie, who is the principal beneficial owner of the
Company.
(2)
(3)
(4)
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 of 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.
(5)
Anka is jointly owned by Wong Wah On Edward and Tam Cheuk Ho, who are officers of the Company.
47
C.
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 filed as part of this Annual Report are included herewith as Appendix A and are incorporated
herein by reference.
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.
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 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 their statutory financial statements are to be allocated to either (i) each of the general reserve, the enterprise expansion reserve and
the staff bonus and welfare reserve, respectively, or (ii) the statutory reserve, as determined by the resolution of the Board of Directors annually.
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.
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.
48
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
The information contained in our Registration Statement on Form F-3 (File No. 333-233852), declared effective by the SEC on November 20, 2020,
under the heading “Our Charter and Certain Provisions of BVI Law” is hereby incorporated by reference.
C.
Material Contracts
Other than contracts entered into the ordinary course of business, during the two preceding fiscal years the Company has not entered into any
material contracts. The Company is a beneficiary from the letters from Feishang Group and Feishang Enterprise regarding the provision of financial support to
the Company, executed on May 29, 2020.
D.
Exchange Controls
There are no material BVI laws, decrees, regulations or other pieces of 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 and Articles 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 regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently
amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-
related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural
requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.
In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and
Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of
foreign currency-registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB capital
converted from the foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by
the applicable government authority and may not be used for equity investments within the PRC. SAFE also strengthened its oversight of the flow and use of
RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without
SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. In March 2015,
SAFE issued SAFE Circular 19, which took effect and replaced SAFE Circular 142 from June 1, 2015. Although SAFE Circular 19 allows for the use of
RMB converted from foreign currency-denominated capital for equity investments in the PRC, restrictions continue to apply as to foreign-invested
enterprises’ use of the converted RMB for purposes beyond their business scope, for entrusted loans or for inter-company RMB loans.
In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign
Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special
purpose foreign exchange accounts, the reinvestment of lawful income derived by foreign investors in the PRC (e.g. profits, the proceeds of a sale of equity, a
capital reduction, liquidation or the early repatriation of an investment), and purchase and remittance of foreign exchange as a result of such lawful income in
a foreign-invested enterprise no longer requires SAFE approval, and multiple capital accounts for the same entity may be opened in different provinces, which
was not possible before. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over
Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local
branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business
relating to direct investment in the PRC based on the registration information provided by SAFE and its branches.
49
In February 2015, SAFE promulgated the Circular on Further Simplifying and Improving Policies for Foreign Exchange Administration for Direct
Investment, or SAFE Circular 13, which took effect on June 1, 2015. SAFE Circular 13 delegates the authority to enforce the foreign exchange registration in
connection with the inbound and outbound direct investment under relevant SAFE rules to certain banks and therefore further simplifies the foreign exchange
registration procedures for inbound and outbound direct investment.
In October 2019, SAFE issued the Circular on Further Promoting the Facilitation of Cross Border Trade and Investment, pursuant to which all
foreign-invested enterprises can make domestic equity investments with their capital funds in accordance with related law.
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.
E.
Taxation
The following is a general summary of certain material U.S. federal income applicable to a U.S. Holder (as defined below), BVI tax consequences of
an investment in our common shares, and PRC tax considerations.
United States Federal Income Taxation
The following discussion addresses only the material U.S. federal income tax consequences to a U.S. Holder who holds common shares as a capital
asset (generally, property held for investment). This summary is for general information purposes only and does not purport to be a complete analysis or
listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the ownership and disposition of common shares.
In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal
income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary
is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. In addition, this
summary does not address the U.S. federal alternative minimum tax applicable to non-corporate holders, U.S. federal estate and gift, U.S. Medicare
contribution, U.S. state and local, or non-U.S. tax consequences of the acquisition, ownership or disposition of common shares, except to the extent described
below under “British Virgin Islands Income Taxation” and “PRC Income Taxation.” Except as specifically set forth below, this summary does not discuss
applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding all U.S. federal, U.S. state and local and non-U.S. tax
consequences of the ownership and disposition of common shares.
No opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the
U.S. federal income tax consequences of the ownership or disposition of common shares. This summary is not binding on the IRS, and the IRS is not
precluded from taking a position that is different from, and contrary to, any position taken in this summary. In addition, because the authorities upon which
this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this
summary.
Scope of This Disclosure
Authorities. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final,
temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, and U.S. court decisions that are applicable and, in each
case, as in effect and available, as of the date hereof. Any of the authorities on which this summary is based could be changed in a material and adverse
manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations
described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted,
could be applied on a retroactive or prospective basis.
U.S. Holders. For purposes of this summary, the term “U.S. Holder” means a beneficial owner of common shares that is for U.S. federal income tax
purposes:
An individual who is a U.S. citizen or resident;
A corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the
U.S., any state thereof or the District of Columbia;
An estate the income of which is subject to U.S. federal income taxation regardless of its source; or
50
A trust that (a) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial
decisions or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
Non-U.S. Holders. For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common shares that is not a partnership (or other
“pass-through” entity) for U.S. federal income tax purposes and is not a U.S. Holder. This summary does not address the U.S. federal income tax
considerations applicable to non-U.S. Holders arising from the ownership or disposition of common shares.
Accordingly, a non-U.S. Holder should consult its own tax advisor regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences
(including the potential application of and operation of any income tax treaties) relating to the purchase, ownership or disposition of common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations of ownership or disposition of common shares by U.S. Holders that are
subject to special provisions under the Code, including, but not limited to, the following: (a) tax-exempt organizations, qualified retirement plans, individual
retirement accounts, or other tax-deferred accounts; (b) financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated
investment companies; (c) broker-dealers, dealers, or traders in securities or currencies that elect to apply a “mark-to-market” accounting method; (d) U.S.
Holders that have a “functional currency” other than the U.S. Dollar; (e) U.S. Holders that own common shares as part of a straddle, hedging transaction,
conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquire common shares in connection
with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold common shares other than as a capital asset
within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) U.S. Holders that own directly, indirectly, or by
attribution, 10% or more, by voting power or value, of the outstanding stock of the Company; (i) U.S. Holders subject to Section 451(b) of the Code; and (j)
U.S. expatriates or former long-term residents of the U.S. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described
immediately above, should consult their own tax advisors regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences (including the
potential application and operation of any income tax treaties) relating to the acquisition, ownership, or disposition of common shares.
If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds common
shares, the U.S. federal income tax consequences to such partnership and the partners (or other owners) of such partnership of the ownership, or disposition of
the common shares generally will depend on the activities of the partnership and the status of such partners (or other owners). This summary does not address
the U.S. federal income tax consequences for any such partner or partnership (or other “pass-through” entity or its owners). Owners of entities and
arrangements that are classified as partnerships (or other “pass-through” entities) for U.S. federal income tax purposes should consult their own tax advisors
regarding the U.S. federal income tax consequences of the ownership or disposition of common shares.
Taxation of Dividends
The gross amount of a distribution paid on our common shares out of our current or accumulated earnings and profits (as determined for U.S. federal
income tax purposes) generally will be taxable to you as foreign source dividend income and generally will not be eligible for the dividends-received
deduction allowed to corporate shareholders under U.S. federal income tax law. To the extent that a distribution exceeds our current and accumulated earnings
and profits, such distribution will be treated as a nontaxable return of capital to the extent of your basis in our common shares with respect to which such
distribution is made, and thereafter as a capital gain.
We do not expect to maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles. You therefore should
expect that distributions generally will be treated as dividends for U.S. federal income tax purposes.
Subject to certain exceptions for short-term and hedged positions, the U.S. Dollar amount of dividends received by certain non-corporate taxpayers,
including individuals, will be subject to taxation at the preferential rates applicable to long-term capital gains if the dividends are "qualified dividends."
Dividends paid on common shares will be treated as qualified dividends if (i) the common shares are readily tradable on an established securities market in the
United States and (ii) the Company was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a
PFIC, as discussed below.
The common shares are listed on the Nasdaq Capital Market and will qualify as readily tradable on an established securities market in the United
States so long as they are so listed.
51
Sale or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed below, upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize a
capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S.
Holder’s tax basis in the common shares sold or otherwise disposed of. Such capital gain or loss will generally be a long-term capital gain or loss if, at the
time of the sale or other taxable disposition, the U.S. Holder’s holding period for the common shares is more than one year. Preferential tax rates apply to
long-term capital gains of noncorporate U.S. Holders. Deductions for capital losses are subject to significant limitations under the Code. A U.S. Holder’s tax
basis in common shares generally will be such U.S. Holder’s U.S. Dollar cost for such common shares.
PFIC Status of the Company
The Company has not performed an analysis of whether or not it will be deemed a PFIC for its current taxable year. If the Company is or becomes a
PFIC, the foregoing description of the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership and disposition of Common Shares
will be different. The U.S. federal income tax consequences of owning and disposing of common shares if the Company is or becomes a PFIC are described
below under the heading “Tax Consequences if the Company is a PFIC.”
A non-U.S. corporation is a PFIC for each tax year in which (i) 75% or more of its gross income is passive income (as defined for U.S. federal
income tax purposes) (the “income test”) or (ii) 50% or more (by value) of its assets (based on an average of the quarterly values of the assets during such tax
year) either produce or are held for the production of passive income (the “asset test”). For purposes of the PFIC provisions, “gross income” generally
includes sales revenues less cost of goods sold, plus income from investments and from incidental or other operations or sources, and “passive income”
generally includes dividends, interest, certain rents and royalties, certain gains from commodities or securities transactions and the excess of gains over losses
from the disposition of certain assets which product passive income. If a non-U.S. corporation owns at least 25% (by value) of the stock of another
corporation, the non-U.S. corporation is treated, for purposes of the income test and asset test, as owning its proportionate share of the assets of the other
corporation and as receiving directly its proportionate share of the other corporation’s income.
Under certain attribution and indirect ownership rules, if the Company is a PFIC, U.S. Holders will generally be deemed to own their proportionate
share of the Company’s direct or indirect equity interest in any company that is also a PFIC (a “Subsidiary PFIC”), and will be subject to U.S. federal income
tax on their proportionate share of (a) any “excess distributions,” as described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed
disposition of the stock of a Subsidiary PFIC by the Company or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such
Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the
sale or disposition of common shares. Accordingly, U.S. Holders should be aware that they could be subject to tax even if no distributions are received and no
redemptions or other dispositions of the Company’s common shares are made.
The determination of PFIC status is inherently factual, is subject to a number of uncertainties, and can be determined only annually at the close of the
tax year in question. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing
interpretations. There can be no assurance that the Company will or will not be determined to be a PFIC for the current tax year or any prior or future tax year,
and no opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or will be requested. U.S. Holders
should consult their own U.S. tax advisors regarding the PFIC status of the Company.
Tax Consequences if the Company is a PFIC
If the Company is a PFIC for any tax year during which a U.S. Holder holds common shares, special rules may increase such U.S. Holder’s U.S.
federal income tax liability with respect to the ownership and disposition of such common shares. If the Company is a PFIC for any tax year during which a
U.S. Holder owns common shares, the Company will be treated as a PFIC with respect to such U.S. Holder for that tax year and for all subsequent tax years,
regardless of whether the Company meets the income test or the asset test for such subsequent tax years, unless the U.S. Holder makes a “deemed sale”
election with respect to the common shares. If the election is made, the U.S. Holder will be deemed to sell the common shares it holds at their fair market
value on the last day of the last taxable year in which the Company qualified as a PFIC, and any gain recognized from such deemed sale would be taxed under
the PFIC excess distribution regime. After the deemed sale election, the U.S. Holder’s common shares would not be treated as shares of a PFIC unless the
Company subsequently becomes a PFIC. U.S. Holders should consult their own U.S. tax advisors regarding the availability and desirability of a deemed sale
election.
52
Under the default PFIC rules:
Any gain realized on the sale or other disposition (including dispositions and certain other events that would not otherwise be treated as taxable
events) of common shares (including an indirect disposition of the stock of any Subsidiary PFIC) and any “excess distribution” (defined as a
distribution to the extent it (together with all other distributions received in the relevant tax year) exceeds 125% of the average annual
distribution received during the shorter of the preceding three years or the U.S. Holder’s holding period for the common shares) received on
common shares or with respect to the stock of a Subsidiary PFIC will be allocated ratably to each day of such U.S. Holder’s holding period for
the common shares;
The amount allocated to the current tax year and any year prior to the first year in which the Company was a PFIC will be taxed as ordinary
income in the current year;
The amount allocated to each of the other tax years (the “Prior PFIC Years”) will be subject to tax at the highest ordinary income tax rate in
effect for the applicable class of taxpayer for that year; and
An interest charge will be imposed with respect to the resulting tax attributable to each Prior PFIC Year.
A U.S. Holder that makes a timely and effective “mark-to-market” election under Section 1296 of the Code (a “Mark-to-Market Election”) or a
timely and effective election to treat the Company and each Subsidiary PFIC as a “qualified electing fund” (a “QEF”) under Section 1295 of the Code (a
“QEF Election”) may generally mitigate or avoid the default PFIC rules described above with respect to common shares. U.S. Holders should be aware that
there can be no assurance that the Company has satisfied or will satisfy the recordkeeping requirements that apply to a QEF or that the Company has supplied
or will supply U.S. Holders with information such U.S. Holders require to report under the QEF rules in the event that the Company is a PFIC for any tax
year.
A timely and effective QEF Election requires a U.S. Holder to include currently in gross income each year its pro rata share of the Company’s
ordinary earnings and net capital gains, regardless of whether such earnings and gains are actually distributed. Thus, a U.S. Holder could have a tax liability
with respect to such ordinary earnings or gains without a corresponding receipt of cash from the Company. If the Company is a QEF with respect to a U.S.
Holder, the U.S. Holder’s basis in the common shares will be increased to reflect the amount of the taxed but undistributed income. Distributions of income
that had previously been taxed will result in a corresponding reduction of basis in the common shares and will not be taxed again as a distribution to a U.S.
Holder. Taxable gains on the disposition of common shares by a U.S. Holder that has made a timely and effective QEF Election are generally capital gains. A
U.S. Holder must make a QEF Election for the Company and each Subsidiary PFIC if it wishes to have this treatment. To make a QEF Election, a U.S. Holder
will need to have an annual information statement from the Company setting forth the ordinary earnings and net capital gains for the year and the Company
may not provide this statement, in which case a QEF Election cannot be made. In general, a U.S. Holder must make a QEF Election on or before the due date
for filing its income tax return for the first year to which the QEF Election will apply. Under applicable Treasury Regulations, a U.S. Holder will be permitted
to make retroactive elections in particular, but limited, circumstances, including if it had a reasonable belief that the Company was not a PFIC and did not file
a protective election. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S.
Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs.
Each U.S. Holder should consult its own tax advisor regarding the availability and desirability of, and procedure for, making a timely and effective
QEF Election (including a “pedigreed” QEF election where necessary) for the Company and any Subsidiary PFIC.
Alternatively, a Mark-to-Market Election may be made with respect to “marketable stock” in a PFIC if such stock is “regularly traded” on a
“qualified exchange or other market” (within the meaning of the Code and the applicable U.S. Treasury Regulations). A class of stock that is traded on one or
more qualified exchanges or other markets is considered to be “regularly traded” for any calendar year during which such class of stock is traded in other than
de minimis quantities on at least 15 days during each calendar quarter. If the common shares are considered to be “regularly traded” within this meaning, then
a U.S. Holder generally will be eligible to make a Mark-to-Market Election with respect to its common shares. However, there is no assurance that the
common shares will remain “regularly traded” for this purpose. A Mark-to-Market Election may not be made with respect to the stock of any Subsidiary
PFIC. Hence, a Mark-to-Market Election will not be effective to eliminate the application of the default PFIC rules, described above, with respect to deemed
dispositions of Subsidiary PFIC stock, or excess distributions with respect to a Subsidiary PFIC.
53
A U.S. Holder that makes a timely and effective Mark-to-Market Election with respect to common shares generally will be required to recognize
ordinary income in each tax year in which the Company is a PFIC in an amount equal to the excess, if any, of the fair market value of such shares as of the
close of such taxable year over the U.S. Holder’s adjusted tax basis in such shares as of the close of such taxable year. A U.S. Holder’s adjusted tax basis in
the common shares generally will be increased by the amount of ordinary income recognized with respect to such shares. If the U.S. Holder’s adjusted tax
basis in the common shares as of the close of a tax year exceeds the fair market value of such shares as of the close of such taxable year, the U.S. Holder
generally will recognize an ordinary loss, but only to the extent of net mark-to-market income recognized with respect to such shares for all prior taxable
years. A U.S. Holder’s adjusted tax basis in its common shares generally will be decreased by the amount of ordinary loss recognized with respect to such
shares. Any gain recognized upon a disposition of the common shares generally will be treated as ordinary income, and any loss recognized upon a disposition
generally will be treated as an ordinary loss to the extent of net mark-to-market income recognized for all prior taxable years. Any loss recognized in excess
thereof will be taxed as a capital loss. Capital losses are subject to significant limitations under the Code. Each U.S. Holder should consult its own tax advisor
regarding the availability and desirability of, and procedure for, making a timely and effective Mark-to-Market Election with respect to the common shares.
Receipt of Foreign Currency
The amount of any distribution or proceeds paid in any currency other U.S. Dollars to a U.S. Holder in connection with the ownership of common
shares, or on the sale or other taxable disposition of common shares will be included in the gross income of a U.S. Holder as translated into U.S. Dollars
calculated by reference to the exchange rate prevailing on the date of actual or constructive receipt of the payment, regardless of whether the currency is
converted into U.S. Dollars at that time. If the currency received is not converted into U.S. Dollars on the date of receipt, a U.S. Holder will have a basis in the
currency equal to its U.S. Dollar value on the date of receipt. Any U.S. Holder who receives payment in non-U.S. currency and engages in a subsequent
conversion or other disposition of the currency may have a foreign currency exchange gain or loss that would generally be treated as ordinary income or loss,
and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method with respect
to foreign currency.
Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of
non-U.S. currency.
Information Reporting; Backup Withholding
Under U.S. federal income tax law, certain categories of U.S. Holders must file information returns with respect to their investment in, or
involvement in, a non-U.S. corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S.
Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of “specified foreign financial assets”
includes not only financial accounts maintained in non-U.S. financial institutions, but also, if held for investment and not in an account maintained by certain
financial institutions, any stock or security issued by a non-U.S. person, any financial instrument or contract that has an issuer or counterparty other than a
U.S. person and any interest in a non-U.S. entity. A U.S. Holder may be subject to these reporting requirements unless such U.S. Holder’s common shares are
held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult
with their own tax advisors regarding the requirements of filing information returns on IRS Form 8938, and, if applicable, filing obligations relating to the
PFIC rules, including possible reporting on an IRS Form 8621.
A holder of common shares may be subject to information reporting and “backup withholding,” currently at the rate of 24%, with respect to (a)
distributions paid on our common shares and (b) proceeds arising from the sale or other taxable disposition of common shares, in each case if the distribution
or proceeds 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. 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.
54
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.
The discussion of reporting requirements set forth above is not intended to constitute an exhaustive description of all reporting requirements that may
apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax,
and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S.
Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL U.S. TAX CONSIDERATIONS APPLICABLE
TO U.S. HOLDERS WITH RESPECT TO THE OWNERSHIP, EXERCISE OR DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR PARTICULAR
CIRCUMSTANCES.
British Virgin Islands Taxation
This 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. This 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 of non-BVI tax laws, except to the extent described
above under “United Stated Federal Income Taxation.” 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. Under the BVI Business Companies Act (as amended) as currently in effect, companies incorporated or
registered under the BVI 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
and any capital gains realized with respect to any 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 BVI 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 BVI Business Companies Act.
PRC Taxation
If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a withholding tax of 10% may be
imposed by us on any dividends that non-PRC resident holders of our common shares receive from us and on gains realized on their sale or other disposition
of common shares, if such income is considered as income derived from within the PRC.
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.
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 SEC. The documents that are filed herewith or incorporated by reference can be viewed on the SEC’s website at www.sec.gov.
55
I.
Subsidiary Information
See Exhibit 8 to this Annual Report 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
the Renminbi, the Company has 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 contracts 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 were not exposed to commodity price risk as of December 31, 2019, as we did not have any copper ore in inventory on that date.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
No disclosure is required in response to this Item.
56
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 Exchange Act. As of
December 31, 2019, 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, 2019, 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 SEC’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 IASB, 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.
57
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, 2019. 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, 2019,
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 2019 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 16A. of Form 20-F, 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, or experience actively supervising one or more persons engaging in such activities;
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 16 of Form 20-F 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).
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
58
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 2018 and 2019.
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
Fiscal Year 2018
Fiscal Year 2019
US$145,381
—
—
—
US$143,612
US$7,000
—
—
US$145,381
US$150,612
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.
Audit-Related Fees —This category includes the review of the Company’s shelf registration statement on Form F-3.
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 Audit 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. All the audit fees paid to Ernst & Young Hua Ming LLP with respect to
fiscal years 2018 and 2019 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.
59
ITEM 17.
FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18.
FINANCIAL STATEMENTS
PART III
The following financial statements are filed as a part of this Form 20-F in Appendix A hereto:
Report of Independent Registered Public Accounting Firm, 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, 2018 and 2019
Consolidated statements of profit or loss for the years ended December 31, 2017, 2018 and 2019
Consolidated statements of comprehensive income for the years ended December 31, 2017, 2018 and 2019
Consolidated statements of changes in equity for the years ended December 31, 2017, 2018 and 2019
Consolidated statements of cash flows for the years ended December 31, 2017, 2018 and 2019
Notes to consolidated financial statements
ITEM 19.
EXHIBITS
The following Exhibits are filed as part of this Form 20-F. Certain exhibits have been previously filed with the SEC pursuant to the Exchange Act, as
amended (Commission File Number 000-26046).
Exhibit No.
Exhibit Description
1.1
2.1
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
8
11
12.1
12.2
13.1
13.2
Amended and Restated Memorandum and Articles of Association of the Registrant (included as Exhibit 99.1 to the Current Report on Form 6-K
filed January 30, 2014, and incorporated herein by reference).
Description of China Natural Resources, Inc.’s Securities Registered under Section 12 of the Securities Exchange Act of 1934, as Amended
(filed herewith).
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).
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).
License Agreement dated April 1, 2017 by and between Anka Consultants Limited and China Natural Resources, Inc. (filed as Exhibit 4.15 to the
Annual Report on Form 20-F filed June 19, 2017, and incorporated herein by reference).
Inner Mongolia Wulatehouqi Moruogu Tong Mine Cooperation Agreement on Mineral Exploration 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 filed April 30, 2018, and incorporated herein by reference).
Confirmation of Financial Support to China Natural Resources, Inc., dated May 29, 2020, from Feishang Group Limited (filed herewith).
Confirmation of Financial Support to China Natural Resources, Inc., dated May 29, 2020, from Feishang Enterprise Group Co., Ltd. (filed
herewith).
Subsidiaries of the Registrant (filed herewith).
Code of Business Conduct and Ethics (filed as Exhibit 14 to Annual Report on Form 10-KSB filed March 30, 2004, and incorporated herein by
reference).
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
60
Exhibit No.
15.1
15.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Exhibit Description
Consent of Ernst & Young Hua Ming LLP to incorporation of audit report dated June 12, 2020 into registration statement on Form F-3 (SEC File
No. 333-233852) (filed herewith).
Press Release dated June 12, 2020 (filed 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.
61
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: June 12, 2020
CHINA NATURAL RESOURCES, INC.
By:
/s/ WONG WAH ON EDWARD
Wong Wah On Edward, CEO
62
Report of Independent Registered Public Accounting Firms, together with the consolidated financial statements for the Company and subsidiaries,
including:
APPENDIX A
CONSOLIDATED FINANCIAL STATEMENTS
a.
b.
c.
d.
e.
f.
Consolidated statements of financial position as of December 31, 2018 and 2019
Consolidated statements of profit or loss for the years ended December 31, 2017, 2018 and 2019
Consolidated statements of comprehensive income for the years ended December 31, 2017, 2018 and 2019
Consolidated statements of changes in equity for the years ended December 31, 2017, 2018 and 2019
Consolidated statements of cash flows for the years ended December 31, 2017, 2018 and 2019
Notes to consolidated financial statements
CHINA NATURAL RESOURCES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated statements of financial position as of December 31, 2018 and 2019
Consolidated statements of profit or loss for the years ended December 31, 2017, 2018 and 2019
Consolidated statements of comprehensive income for the years ended December 31, 2017, 2018 and 2019
Consolidated statements of changes in equity for the years ended December 31, 2017, 2018 and 2019
Consolidated statements of cash flows for the years ended December 31, 2017, 2018 and 2019
Notes to consolidated financial statements
Pages
F-2
F-3
F-4
F-5
F-6
F-7 – F-8
F-9 – F-55
F-1
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 2019, 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, 2019, 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 2019, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
Adoption of New Accounting Standards
As disclosed in Note 2.2 (a) to the consolidated financial statements, the Company changed its method for accounting for leases using a modified retrospective
approach for the year ended December 31, 2019.
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, the People’s Republic of China
June 12, 2020
F-2
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2018 AND 2019
(Amounts in thousands)
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Right-of-use assets
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Prepayments
Trade receivables
Other receivables
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables
Other payables and accrued liabilities
Taxes payable
Lease liabilities
Due to a related company
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
4
5(a)
6
7
8
9
5(b)/16(b)
16(b)
16(b)
2018
CNY
December 31,
2019
CNY
2019
US$
275
—
275
39
—
636
6,793
7,468
7,743
100
1,639
16,788
—
4,041
6,973
29,541
214
616
830
29
3,956
39
3,444
7,468
8,298
3,896
2,161
16,818
803
5,077
7,097
35,852
31
88
119
4
568
6
495
1,073
1,192
560
311
2,415
115
729
1,019
5,149
17
17
312,081
692,518
(1,022,639)
(3,758)
312,081
692,518
(1,028,284)
(3,869)
44,819
99,454
(147,674)
(556)
(21,798)
(27,554)
(3,957)
7,743
8,298
1,192
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except per share data)
CONTINUING OPERATIONS
Revenue
Cost of sales
Gross profit
Selling and distribution expenses
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
LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY:
Basic and diluted
- For loss from continuing operations
- For loss from discontinued operations
- Net loss per share
Notes
10
11
11
11
13
3
3
14
14
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
—
—
—
—
(6,204)
—
—
—
—
(6,207)
12,969
(12,752)
217
(2)
(5,814)
1,863
(1,831)
32
—
(835)
(6,204)
(6,207)
(5,599)
(803)
(14)
39
5
26
(62)
16
(6,179)
(6,176)
(5,645)
—
—
—
(9)
2
(810)
—
(6,179)
(6,176)
(5,645)
(810)
(23,817)
—
—
—
(29,996)
(6,176)
(5,645)
(810)
(6,179)
(23,817)
(29,996)
(6,176)
—
(6,176)
(5,645)
—
(5,645)
—
—
—
—
—
—
—
—
—
(810)
—
(810)
—
—
—
(29,996)
(6,176)
(5,645)
(810)
(0.25)
(0.95 )
(1.20)
(0.25)
—
(0.25)
(0.23)
—
(0.23)
(0.03)
—
(0.03)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands)
2017
CNY
Year Ended December 31,
2018
2019
CNY
CNY
2019
US$
(29,996)
(6,176)
(5,645)
(810)
LOSS FOR THE YEAR
Other comprehensive income/(loss):
Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods:
Reclassification adjustments for a foreign operation disposed during the year
Foreign currency translation adjustments
Total other comprehensive income/(loss) for the year, net of tax
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
3,280
(1,984)
1,296
—
(117)
(117)
—
(111)
(111)
—
(16)
(16)
(28,700)
(6,293)
(5,756)
(826)
Attributable to:
Owners of the Company
From continuing operations
From discontinued operations
Non-controlling interests
From continuing operations
From discontinued operations
(5,758)
(22,942)
(28,700)
(6,293)
—
(6,293)
—
—
—
—
—
—
(5,756)
—
(5,756)
—
—
—
(826)
—
(826)
—
—
—
(28,700)
(6,293)
(5,756)
(826)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands)
AT JANUARY 1, 2017
Loss for the year
Foreign currency translation adjustments
Total comprehensive (loss)/income
Disposal of discontinued operations
AT DECEMBER 31, 2017
Loss for the year
Foreign currency translation adjustments
Total comprehensive loss
AT DECEMBER 31, 2018
Loss for the year
Foreign currency translation adjustments
Total comprehensive loss
AT DECEMBER 31, 2019
AT DECEMBER 31, 2019 (US$)
Attributable to Owners of the Company
Issued
capital
(Note 17)
CNY
Other capital
reserves
CNY
Reserves
CNY
Accumulated
losses
CNY
Other
comprehensive
(loss)/income
CNY
Total
CNY
312,081
—
—
—
—
312,081
—
—
—
312,081
—
—
—
312,081
44,819
692,518
—
—
—
—
692,518
—
—
—
692,518
—
—
—
692,518
99,454
63,180
—
—
—
(63,180)
(1,049,647)
(29,996)
—
(29,996)
63,180
— (1,016,463)
(6,176)
—
—
—
(6,176)
—
— (1,022,639)
(5,645)
—
—
—
—
(5,645)
— (1,028,284)
(147,674)
—
(4,937)
—
1,296
1,296
—
(3,641)
—
(117)
(117)
(3,758)
—
(111)
(111)
(3,869)
(556)
13,195
(29,996)
1,296
(28,700)
—
(15,505)
(6,176)
(117)
(6,293)
(21,798)
(5,645)
(111)
(5,756)
(27,554)
(3,957)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands)
OPERATING ACTIVITIES
Loss for the year
From continuing operations
From discontinued operations
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets (Note 11)
Finance costs
Gain on disposal of property, plant and equipment
Accretion expenses
Loss on disposal of discontinued operations
Changes in working capital:
Rehabilitation fund
Trade receivables
Inventories
Prepayments
Other receivables
Trade payables
Other payables and accrued liabilities
Taxes payable
Net cash flows used in operating activities
(14,746)
(7,527)
(3,333)
INVESTING ACTIVITIES
Proceeds from disposal of subsidiaries
Net cash flows from acquisition of subsidiaries
Purchases of property, plant and equipment
Net cash flows from/(used in) investing activities
7,983
(86)
(5,029)
2,868
9,377
—
(5)
9,372
—
—
(5 )
(5)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
(6,179)
(23,817)
(6,176)
—
(5,645)
—
(810)
—
1,748
—
—
(45)
60
15,571
(11)
—
(746)
(354)
(10,376)
(1,426)
10,727
102
67
—
—
—
—
—
—
—
—
—
(12)
(115)
(1,287)
(4)
66
1,187
60
—
—
—
—
(3,956)
—
10
597
3,796
522
30
9
171
9
—
—
—
—
(568)
—
1
86
545
75
4
(478)
—
—
(1)
(1)
continued/…
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands)
FINANCING ACTIVITIES
Repayments to the Shareholder
Repayments to related companies
Advances from a related company
Payment of the principal portion of lease liabilities
Interest paid
Net cash flows from/(used in) financing activities
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
—
(2,385)
15,015
—
—
(4,600)
(11,392)
2,179
—
—
—
(5,704)
6,740
(1,000)
(60)
12,630
(13,813)
(24)
—
(819)
968
(144)
(9)
(4)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
752
(11,968)
(3,362)
(483)
NET FOREIGN EXCHANGE DIFFERENCE
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
Supplementary disclosures of cash flow information:
Cash receipt of interest
(1,102)
(117)
19,228
18,878
18,878
6,793
13
6,793
3,444
48
26
16
2
976
495
2
The accompanying notes are an integral part of these consolidated financial statements.
F-8
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(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 16 to the consolidated financial statements.
CHNR's principal shareholder is Feishang Group Limited (“Feishang Group” or the “Shareholder”), a BVI 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 BVI
corporation.
The consolidated financial statements of the Group for the year ended December 31, 2019 were authorized for issuance in accordance with a resolution
of the directors on June 12, 2020.
As of December 31, 2018 and 2019, the Company and its subsidiaries had net current liabilities of CNY22.07 million and CNY28.38 million (US$4.08
million), respectively, and total assets less current liabilities of negative CNY21.80 million and CNY27.55 million (US$3.96 million), respectively.
2.1
BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the
International Accounting Standards Board (“IASB”).
The consolidated financial statements have been prepared on a historical cost basis. The consolidated financial statements are presented in Chinese Yuan
(“CNY”) and all values are rounded to the nearest thousand, except when otherwise indicated. US$ indicates U.S. dollars.
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended December 31, 2019.
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-9
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(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, 2019 and 2018, the Group had net current liabilities of CNY28.38 million (US$4.08 million) and CNY22.07 million, and
shareholders’ deficiency in assets of CNY27.55 million (US$3.96 million) and CNY21.80 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 financing in assessing whether the
Group will have sufficient financial resources to continue as a going concern. The Group has obtained letters from each of Feishang Group and Feishang
Enterprise Group Company Limited (“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, and will not recall any amounts due to them until the Group has sufficient liquidity to finance its operations. Feishang Enterprise’s letter also
states that it will pay debts on behalf of the Group when needed. Accordingly, in the opinion of the directors, it is appropriate for the consolidated
financial statements to be prepared on a going concern basis.
F-10
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(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 9
IFRS 16
Amendments to IAS 19
Amendments to IAS 28
IFRIC 23
Amendments to IFRS 3, IFRS 11, IAS
12 and IAS 23
Prepayment Features with Negative Compensation
Leases
Plan Amendment, Curtailment or Settlement
Long-term Interests in Associates and Joint Ventures
Uncertainty over Income Tax Treatments
Annual Improvements to IFRSs 2015-2017 Cycle
Except for the amendments to IFRS 9, IAS 19 and IAS 28, and Annual Improvements to IFRSs 2015-2017 Cycle, which are not relevant to the
preparation of the Group’s financial statements, the nature and the impact of the new and revised IFRSs are described below:
(a)
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 account for all leases under a single on-balance sheet model to
recognize and measure right-of-use assets and lease liabilities, except for certain recognition exemptions. Lessor accounting under IFRS 16 is
substantially unchanged from IAS 17. Lessors continue to classify leases as either operating or finance leases using similar principles as in IAS
17. Therefore, IFRS 16 did not have any significant impact on leases where the Group is the lessor.
The Group has adopted IFRS 16 using the modified retrospective method with the date of initial application of January 1, 2019. Under this
method, the standard has been applied retrospectively with the cumulative effect of initial adoption recognized as an adjustment to the opening
balance of retained profits at January 1, 2019, and the comparative information for 2018 was not restated and continued to be reported under IAS
17 and related interpretations.
New definition of a lease
Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in
exchange for consideration. Control is conveyed where the customer has both the right to obtain substantially all of the economic benefits from
use of the identified asset and the right to direct the use of the identified asset. The Group elected to use the transition practical expedient allowing
the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application.
Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has
been applied only to contracts entered into or changed on or after January 1, 2019.
F-11
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.2
CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (CONTINUED)
(a)
(Continued)
As a lessee – Leases previously classified as operating leases
Nature of the effect of adoption of IFRS 16
The Group has lease contracts for items of office buildings. As a lessee, the Group previously classified leases as either finance leases or operating
leases based on the assessment of whether the lease transferred substantially all the rewards and risks of ownership of assets to the Group. Under
IFRS 16, the Group applies a single approach to recognize and measure right-of-use assets and lease liabilities for all leases, except for two
elective exemptions for leases of low-value assets (elected on a lease-by-lease basis) and leases with a lease term of 12 months or less (“short-term
leases”) (elected by class of underlying asset). Instead of recognizing rental expenses under operating leases on a straight-line basis over the lease
term commencing from January 1, 2019, the Group recognizes depreciation (and impairment, if any) of the right-of-use assets and interest accrued
on the outstanding lease liabilities (as finance costs).
Impacts on transition
Lease liabilities at January 1, 2019 were recognized based on the present value of the remaining lease payments, discounted using the incremental
borrowing rate at January 1, 2019 and included in lease liabilities. The right-of-use assets for most leases were 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 January 1, 2019.
All these assets were assessed for any impairment based on IAS 36 on that date. The Group elected to present the right-of-use assets separately in
the statement of financial position.
The Group has used the following elective practical expedients when applying IFRS 16 at January 1, 2019:
Applying the short-term lease exemptions to leases with a lease term that ends within 12 months at the date of initial application;
Using hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and
Excluding the initial direct costs from the measurement of the right-of-use assets at the date of initial application.
F-12
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.2
CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (CONTINUED)
(a)
(Continued)
The impacts arising from the adoption of IFRS 16 as of January 1, 2019 are as follows:
Assets
Increase in right-of-use assets
Increase in total assets
Liabilities
Increase in the non-current portion of lease liabilities
Increase in the current portion of lease liabilities
Increase in total liabilities
The lease liabilities as of January 1, 2019 reconciled to the operating lease commitments as of December 31, 2018 are as follows:
Operating lease commitments as of December 31, 2018
Weighted average incremental borrowing rate as of January 1, 2019
Discounted operating lease commitments as of January 1, 2019
Lease liabilities as of January 1, 2019
Increase
CNY
1,803
1,803
593
1,210
1,803
CNY
1,891
4.75%
1,803
1,803
(b)
IFRIC 23 addresses the accounting for income taxes (current and deferred) when tax treatments involve uncertainty that affects the application of
IAS 12 (often referred to as “uncertain tax positions”). The interpretation does not apply to taxes or levies outside the scope of IAS 12, nor does it
specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation specifically
addresses (i) whether an entity considers uncertain tax treatments separately; (ii) the assumptions an entity makes about the examination of tax
treatments by taxation authorities; (iii) how an entity determines taxable profits or tax losses, tax bases, unused tax losses, unused tax credits and
tax rates; and (iv) how an entity considers changes in facts and circumstances. The interpretation has had no significant impact on the Group’s
financial statements.
F-13
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
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, IAS 39
and IFRS 7
Definition of a Business 1
Interest Rate Benchmark Reform 1
Amendments to IFRS 10 and IAS 28
IFRS 17
Amendments to IAS 1 and IAS 8
Amendments to IAS 1
Amendment to IFRS 16
———————
1
Effective for annual periods beginning on or after January 1, 2020
Effective for annual periods beginning on or after January 1, 2021
Effective for annual periods beginning on or after January 1, 2022
No mandatory effective date yet determined but available for adoption
2
3
4
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 4
Insurance Contracts 2
Definition of Material 1
Classification of Liabilities as Current or Non-current 3
Covid-19-Related Rent Concessions 4
Further information about those IFRSs that are expected to be applicable to the Group is described below.
Amendments to IFRS 3 clarify and provide additional guidance on the definition of a business. The amendments clarify that for an integrated set of
activities and assets to be considered a business, it must include, at a minimum, an input and a substantive process that together significantly contribute
to the ability to create output. A business can exist without including all of the inputs and processes needed to create outputs. The amendments remove
the assessment of whether market participants are capable of acquiring the business and continue to produce outputs. Instead, the focus is on whether
acquired inputs and acquired substantive processes together significantly contribute to the ability to create outputs. The amendments have also narrowed
the definition of outputs to focus on goods or services provided to customers, investment income or other income from ordinary activities. Furthermore,
the amendments provide guidance to assess whether an acquired process is substantive and introduce an optional fair value concentration test to permit a
simplified assessment of whether an acquired set of activities and assets is not a business. The Group expects to adopt the amendments prospectively
from January 1, 2020. Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the
Group will not be affected by these amendments on the date of transition.
Amendments to IFRS 9, IAS 39 and IFRS 7 address the effects of interbank offered rate reform on financial reporting. The amendments provide
temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate
benchmark. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are
directly affected by these uncertainties. The amendments are effective for annual periods beginning on or after January 1, 2020. Early application is
permitted. The amendments are not expected to have any significant impact on the Group’s financial statements.
F-14
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.3
ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED)
Amendments to IFRS 10 and IAS 28 address an inconsistency between the requirements in IFRS 10 and in IAS 28 in dealing with the sale or
contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or
contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not
constitute a business, a gain or loss resulting from the transaction is recognized in the investor’s profit or loss only to the extent of the unrelated
investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of
amendments to IFRS 10 and IAS 28 was removed by the IASB in December 2015 and a new mandatory effective date will be determined after the
completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for adoption now.
Amendments to IAS 1 and IAS 8 provide a new definition of material. The new definition states that information is material if omitting, misstating or
obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of
those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information. A misstatement of
information is material if it could reasonably be expected to influence decisions made by the primary users. The Group expects to adopt the amendments
prospectively from January 1, 2020. The amendments are not expected to have any significant impact on the Group’s financial statements.
Amendments to IAS 1 issued in January 2020 amend the criteria for determining whether to classify a liability as current or non-current. The entity’s
right to defer settlement of a liability for at least twelve months after the reporting period and the definition of settlement are considered when making
the classification of a liability. The amendments clarify that classification of a liability is unaffected by the likelihood that the entity will exercise its
right to defer settlement of the liability for at least twelve months after the reporting period. The Group expects to adopt the amendments retrospectively
from January 1, 2022. The amendments are not expected to have any significant impact on the Group’s financial statements.
The amendment to IFRS 16 provides relief to lessees from applying the IFRS 16 guidance on lease modification accounting for rent concessions arising
as a direct consequence of the COVID-19 pandemic. The Group expects to adopt the amendment from January 1, 2020. The amendment is not expected
to have any significant impact on the Group’s financial statements.
F-15
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Business combinations
Business combinations 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 of 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.
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 of 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 unit 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.
F-16
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(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 are comprised of 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 mineral reserves have been determined, costs incurred to develop 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.
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:
Buildings
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, the Group recognizes such parts as individual assets with specific useful lives and
depreciates them accordingly.
F-18
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
(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-19
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 and financial assets),
the asset's recoverable amount is estimated. An asset's recoverable amount is the higher of the asset's or cash-generating unit's value in use and its
fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to
which the asset belongs.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises in those
expense 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. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in
which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance
with the relevant accounting policy for that revalued asset.
(g)
Investments and other financial assets
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(o) “Revenue recognition” 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. Financial assets with cash flows
that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.
F-20
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)
Investments and other financial assets (continued)
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. Financial
assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect
contractual cash flows, while financial assets classified and measured at fair value through other comprehensive income are held within a business
model with the objective of both holding to collect contractual cash flows and selling. Financial assets which are not held within the
aforementioned business models are classified and measured at fair value through profit or loss.
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)
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.
(h)
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is 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.
F-21
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Impairment of financial assets
The Group recognizes an allowance for expected credit losses (“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.
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 of the reporting date with the risk
of a default occurring on the financial instrument as of 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.
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.
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
F-22
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j)
Financial liabilities
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:
Financial liabilities at amortized cost (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
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.
(k)
Offsetting of financial instruments
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.
F-23
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m)
Employee benefits
Pension obligations
The Group contributes on a monthly basis to various defined contribution retirement benefit plans administered by the People’s Republic of China
(“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 12 to the consolidated financial statements.
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)
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 asset. The capitalization of such borrowing costs ceases when the asset is
substantially ready for their intended use or sale. All other borrowing costs are expensed in the period in which they are incurred.
(o)
Revenue recognition
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 to which the Group will be entitled in exchange for
transferring the goods or services to the customer is estimated. 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 uncertainty
associated with the variable consideration is resolved.
When the contract contains a financing component which provides the customer with the 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 with 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.
Trading of copper ore
The Group purchases copper ore from third-party suppliers and then resells to a third-party trading company. Revenue is recognized on a gross
basis, and at a point in time when control of the asset is transferred to the customer, upon delivery of the copper ore to the customer.
F-24
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o)
Revenue recognition (continued)
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.
(p)
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 in
which the costs, for 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 installments 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.
(q)
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.
Deferred tax assets are recognized for all deductible temporary differences, and 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.
F-25
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(q)
Income taxes (continued)
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 or 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.
(r)
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.
(s)
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 www.ofx.com on December 31, 2019 of
US$1.00 = CNY6.9632. No representation is made that the CNY amounts could have been, or could be, converted into US$ at that rate on
December 31, 2019 or at any other date.
F-26
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(t)
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.
(u)
Leases
(i)
Applicable from January 1, 2019
The Group assesses at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets.
The Group recognizes lease liabilities for obligations to make lease payments and right-of-use assets representing the right to use the
underlying assets.
At inception or on reassessment of a contract that contains a lease component and a non-lease component, the Group adopts the practical
expedient not to separate the non-lease component and to account for the lease component and the associated non-lease component (e.g.,
property management services for leases of properties) as a single lease component.
(1)
Right-of-use assets
Right-of-use assets are recognized at the commencement date of the lease (that is, the date the underlying asset is available for use).
Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs
incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are
depreciated on a straight-line basis over the shorter of the lease terms and the estimated useful lives of the assets as follows:
Buildings
1 - 5 years
If ownership of the leased asset transfers to the Group by the end of the lease term or the cost reflects the exercise of a purchase
option, depreciation is calculated using the estimated useful life of the asset.
(2)
Lease liabilities
Lease liabilities are recognized at the commencement date of the lease at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease
payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of
penalties for termination of a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments
that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the
payment occurs.
F-27
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(u)
Leases (continued)
(i)
Applicable from January 1, 2019 (continued)
(2)
Lease liabilities (continued)
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities
is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease
payments resulting from a change in an index or rate) or a change in assessment of an option to purchase the underlying asset.
(3)
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (that is those leases
that have a lease term of 12 months or less from the commencement date and do not contain a purchase option).
Lease payments on short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis over the lease
term.
(ii)
Applicable before January 1, 2019
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.
(v)
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-28
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
2.5
SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
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.
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations,
which have the most significant effect on the amounts recognized in the financial statements.
Principal versus agent consideration
The Group purchases copper ore from third-party suppliers which it then resells to a third-party trading company. The Group determined that it has
control of the goods before the goods are transferred to the customer, and it has the ability to direct the use of the copper ore or obtain benefits from the
copper ore. The Group determined that it is a principal in the transactions since it has exposure to the significant risks and rewards associated with the
sale of the goods. Thus, the revenue arrangements should be recognized at the gross amount.
In addition, the Group concluded that it transfers inventory, at a point in time, upon the collection by the customer of the copper ore.
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’
rights, title and interests 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, for cash consideration of CNY1.00 million (US$0.15 million). The disposal was
completed on March 3, 2017.
On December 29, 2017, CHNR sold all of CHNR’s rights, title and interests in and to the outstanding capital stock (the “Equity Interests”) of Double
Grow International Limited (“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 (US$2.50
million), including the payment of CNY9.38 million (US$1.36 million) in indebtedness of Double Grow to CHNR, which was recognized in other
receivables and received on January 26, 2018, and a cash consideration of CNY7.81 million (US$1.14 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 gains or losses 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-29
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(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:
Administrative expenses
Losses arising from temporary suspension of production
Other operating income
OPERATING LOSS
Finance costs
Interest income
Non-operating income, net
LOSS BEFORE INCOME TAX
LOSS FOR THE PERIOD FROM WUHU FEISHANG
Gain on disposal of Wuhu Feishang
PROFIT FOR THE PERIOD FROM WUHU FEISHANG
F-30
For the period from
January 1, 2017 to
March 3,
2017
CNY
(991)
(641)
61
(1,571)
(30)
9
230
(1,362)
(1,362)
12,340
10,978
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(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 of 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-31
For the period from
January 1, 2017 to
March 3,
2017
CNY
(2,727)
60
1,793
(874)
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(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 Double Grow
(b)
Discontinued operation of Double Grow
The results of Double Grow are presented below:
Administrative expenses
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-32
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 )
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(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 of December 29, 2017 are as follows:
Net assets disposed of:
Property, plant and equipment
Intangible assets
Inventories
Trade 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-33
For the period from
January 1, 2017 to
December 29,
2017
CNY
(5,796)
(5,823)
10,173
(100)
(1,546)
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(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:
Loss attributable to owners of the Company from the discontinued operations
Weighted average number of common shares in issue during the period used in the loss
per share calculations:
Basic (Note 14)
Diluted (Note 14)
F-34
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
(0.95)
(0.95)
For the period from
January 1, 2017 to
December 29,
2017
CNY
(23,817)
24,910,916
24,910,916
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
4.
PROPERTY, PLANT AND EQUIPMENT
Cost
At January 1, 2018
Additions
Exchange adjustment
At December 31, 2018
Additions
Exchange adjustment
At December 31, 2019
At December 31, 2019 (US$)
Accumulated depreciation and amortization and impairment losses
At January 1, 2018
Depreciation charge
Exchange adjustment
At December 31, 2018
Depreciation charge
Exchange adjustment
At December 31, 2019
At December 31, 2019 (US$)
Net carrying amount
At December 31, 2018
At December 31, 2019
At December 31, 2019 (US$)
Buildings
CNY
Machinery and
equipment
Motor vehicles
CNY
CNY
Total
CNY
43
—
—
43
3
—
46
7
—
(3)
—
(3)
(3)
—
(6)
(1)
40
40
6
839
5
45
889
2
14
905
130
(820)
(5)
(45)
(870)
(5)
(14)
(889)
(128)
19
16
2
279
—
—
279
—
—
279
40
(4)
(59)
—
(63)
(58)
—
(121)
(17)
216
158
23
1,161
5
45
1,211
5
14
1,230
177
(824)
(67)
(45)
(936)
(66)
(14)
(1,016)
(146)
275
214
31
There was no impairment loss on property, plant and equipment for the years ended December 31, 2018 and 2019.
F-35
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
5.
LEASES
(a)
Right-of-use assets
The carrying amounts of the Group’s right-of-use assets with lease periods of two to three years and the movements during the year are as follows:
As of January 1, 2019
Depreciation charge
As of December 31, 2019
(b)
Lease liabilities
Carrying amount at January 1, 2019
Accretion of interest recognized during the year
Payments
Carrying amount at December 31, 2019
Analyzed into:
Current portion
Non-current portion
(c)
The amounts recognized in profit or loss in relation to leases are as follows:
Interest on lease liabilities
Depreciation charge of right-of-use assets (Note 11)
Expense relating to short-term leases (included in selling and distribution expenses and administrative expenses)
(Note 11)
Total amount recognized in profit or loss
F-36
Buildings
CNY
Total
CNY
Total
US$
1,803
(1,187)
1,803
(1,187)
616
616
259
(171)
88
2019
Lease liabilities
2019
Lease liabilities
CNY
US$
1,803
60
(1,060)
803
803
—
259
9
(153)
115
115
—
2019
CNY
2019
US$
60
1,187
46
1,293
9
171
7
187
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
6.
TRADE RECEIVABLES
Trade receivables
Less: Provision for impairment
2018
CNY
December 31,
2019
CNY
2019
US$
—
—
—
3,956
—
3,956
568
—
568
A credit period of up to three months is granted to the customer. Trade receivables are non-interest-bearing.
An aging analysis of the trade receivables as of the end of the year, based on the invoice date and net of loss allowance, is as follows:
Within 3 months
2018
CNY
December 31,
2019
CNY
2019
US$
—
—
3,956
3,956
568
568
An impairment analysis is performed on trade receivables at each reporting date and expected credit losses are estimated by applying a loss rate
approach with reference to the historical credit records of the Group’s customers. The loss rate is adjusted to reflect the current conditions and forecasts
of future economic conditions, as appropriate. According to historical experience, all of the proceeds have been received within their due date, and
therefore, management considers the probability of default is minimal as of December 31, 2019.
7.
OTHER RECEIVABLES
Withholding social insurance
Input value-added tax
Staff advances
Deposit
2018
CNY
December 31,
2019
CNY
2019
US$
6
597
13
20
636
6
—
13
20
39
1
—
2
3
6
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 for the years ended December 31, 2018 and 2019.
F-37
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
8.
TRADE PAYABLES
The aging analysis of trade payables as of December 31, 2018 and 2019 is as follows:
Within 1 year
1 to 2 years
Over 2 years
The trade payables are non-interest-bearing and are normally settled within six months.
9.
OTHER PAYABLES AND ACCRUED LIABILITIES
Contract deposit
Social security payable (a)
Payroll payable
Welfare payable
Accrued expenses
Others
2018
CNY
December 31,
2019
CNY
2019
US$
—
—
100
100
3,796
—
100
3,896
2018
CNY
December 31,
2019
CNY
2019
US$
102
102
442
14
964
15
1,639
102
104
433
24
1,484
14
2,161
546
—
14
560
15
15
62
3
214
2
311
———————
(a)
The social security payable represents amounts payable to the PRC government-managed retirement insurance, medical insurance, etc.
F-38
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
10.
REVENUE FROM CONTINUING OPERATIONS
Revenue from continuing operations represents the following:
Revenue from contracts with a customer
(a)
Disaggregated revenue information
Type of goods
Sale of copper ore
Geographic market
Mainland China
Timing of revenue recognition
Goods transferred at a point in time
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
—
—
12,969
1,863
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
—
—
—
—
—
—
12,969
1,863
12,969
1,863
12,969
1,863
All revenue was generated from the exploration and mining segment (Note 20).
No revenue was recognized in the current reporting period that was included in the contract liabilities at the beginning of the reporting period and
recognized from performance obligations satisfied in previous periods.
(b)
Performance obligations
Information about the Group’s performance obligations is summarized below:
Trading of copper ore
The performance obligation is satisfied upon delivery of the copper ore and payment is generally due within 3 months from delivery.
F-39
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
11.
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:
Cost of sales
Finance costs*
Auditors' remuneration:
- Audit fee
- Audit related fee
Sub-total
Employee benefit expenses (Note 12)
Depreciation and amortization:
- Property, plant and equipment (Note 4)
- Right-of-use assets (Note 5(c))
Lease payments not included in the measurement of lease liabilities (Note 5(c))
Operating lease rental:
- Office properties
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
39
—
14
2,000
—
2,000
697
8
—
—
747
26
—
(5)
1,000
—
1,000
1,878
67
—
—
1,189
16
2
12,752
62
1,831
9
1,000
48
1,048
1,733
66
1,187
46
—
144
7
151
250
9
171
7
—
———————
*
Finance costs from continuing operations mainly represented bank charges, foreign currency exchange differences and interest on lease liabilities.
The amounts of bank charges were CNY1.00, CNY6.00 and CNY2.00 (US$0.29), the foreign currency exchange differences amounted to
CNY13.00, negative CNY11.00 and nil, and interest on lease liabilities amounted to nil, nil and CNY60.00 (US$8.62) for the years ended
December 31, 2017, 2018 and 2019, respectively.
12.
EMPLOYEE BENEFITS
The Group’s employee benefits from continuing operations comprise the following:
Wages, salaries and allowances
Housing funds (a)
Contribution to pension plans (a)
Welfare and other expenses
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
566
33
79
19
697
1,513
67
76
222
1,878
1,460
38
166
69
1,733
210
6
24
10
250
———————
(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-40
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
13.
INCOME TAX EXPENSE
The Company is incorporated in the 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, 2017, 2018 and 2019. 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%.
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 was 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-41
2017
CNY
(1,071)
(5,064)
(44)
(6,179)
(23,817)
(29,996)
Year Ended December 31,
2018
CNY
2019
CNY
2019
US$
(2,321)
(3,805)
(50)
(6,176)
—
(6,176)
(1,775)
(3,824)
(46)
(5,645)
—
(5,645)
(254)
(549)
(7)
(810)
—
(810)
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
13.
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:
Loss before income tax for the year from continuing operations
Loss before income tax for the year from discontinued operations
Tax at the statutory tax rate
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
2017
CNY
Year Ended December 31,
2018
CNY
2019
CNY
2019
US$
(6,179)
(23,817)
(29,996)
(6,176)
—
(6,176)
(5,645)
—
(5,645)
25%
25%
25%
(7,499)
1,269
6,230
—
—
—
—
(1,544)
955
588
1
—
—
—
(1,411)
965
444
2
—
—
—
(810)
—
(810)
25%
(203)
139
64
—
—
—
—
As of December 31, 2018 and 2019, the Group did not recognize deferred tax assets.
The total amounts of unused tax losses for which no deferred tax assets were recognized amounted to CNY6.74 million and CNY7.41 million (US$1.06
million) as of December 31, 2018 and 2019, respectively. As of December 31, 2019, unused tax losses of CNY1.10 million (US$0.16 million),
CNY1.17 million (US$0.17 million), CNY1.07 million (US$0.15 million), CNY2.32 million (US$0.33 million) and CNY1.75 million (US$0.25
million), if unused, will expire by the end of 2020, 2021, 2022, 2023 and 2024, respectively.
F-42
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
14.
LOSS PER SHARE
Basic and diluted loss per share for the years ended December 31, 2017, 2018 and 2019 are calculated as follows:
Loss for the year:
From continuing operations
From discontinued operations
Weighted average number of common shares:
Basic and diluted
Loss per share:
Basic and diluted:
From continuing operations
From discontinued operations
Net loss per share
2017
CNY
Year Ended December 31,
2019
CNY
2018
CNY
2019
US$
(6,179)
(23,817)
(6,176)
—
(5,645)
—
(810)
—
24,910,916
24,910,916
24,910,916
24,910,916
(0.25)
(0.95)
(1.20)
(0.25)
—
(0.25)
(0.23)
—
(0.23)
(0.03)
—
(0.03)
The Company did not have any potential diluted shares throughout the years presented above. Accordingly, the diluted loss per share amounts are the
same as the basic loss per share amounts.
15.
DIVIDEND
No dividend was paid or declared by the Company for the years ended December 31, 2017, 2018 and 2019.
F-43
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
16.
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
common /
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 of 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
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
1,316
1,056
240
—
1,442
—
—
166
1,506
—
—
166
216
—
—
24
Notes
i
ii
iii
iv
F-44
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
16.
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 (US$0.15 million). The disposal gain was CNY0.05 million (US$0.01 million).
(iii)
In 2017, Antay Pacha purchased copper ore from Jacha Uru, a copper mine located in Bolivia and controlled by Feishang Hesheng.
(iv)
On January 1, 2018, Feishang Management signed an office sharing agreement with Feishang Enterprise. Pursuant to the agreement,
Feishang Management shared 40 square meters of the office premises.
(b)
Balances with related parties
The Company’s balances with related companies are unsecured and non-interest-bearing. Feishang Enterprise and the Shareholder have provided
letters stating their continuous financial support to the Group and that they will not recall any amounts due to them until the Group has sufficient
liquidity to finance its operations. The balances are summarized as follows:
Current:
Payable to a related company:
Feishang Enterprise
Payable to the Shareholder:
Feishang Group
Lease liabilities to related companies:
Feishang Enterprise
Anka
Notes
i
ii
2018
CNY
December 31,
2019
CNY
2019
US$
4,041
5,077
729
6,973
7,097
1,019
—
—
—
287
516
803
41
74
115
Feishang Enterprise and Feishang Group are controlled by Mr. Li Feilie, who is the beneficial shareholder of the Company.
F-45
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
16.
RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
(b)
Balances with related parties (continued)
(i)
(ii)
Payable to Feishang Enterprise by Feishang Management represented 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 Group represented the acquisition of Feishang Anthracite Resources Limited. 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.
(c)
Compensation of key management personnel of the Group
Wages, salaries and allowances
Housing subsidies
Contribution to pension plans
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
264
2
29
295
580
16
75
671
629
16
75
720
90
2
11
103
The amounts disclosed in the table are the amounts recognized as expenses during the years related to key management personnel.
17.
EQUITY
(a)
Issued capital
Authorized:
10,000,000 preferred shares, no par
200,000,000 common shares, no par
Issued and fully paid:
Year Ended December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
—
—
—
—
—
—
—
—
24,910,916 (2017 and 2018: 24,910,916) common shares, no par
312,081
312,081
312,081
44,819
(b)
Other capital reserves
Other capital reserves of the Group are mainly for equity-settled share-based compensation, the exercise of stock options, the exercise of warrants,
and deemed contribution from the Shareholder of the Company and a related party.
F-46
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
17.
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, 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 for the years ended December 31, 2017, 2018 and
2019.
18.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The financial instruments of the Group primarily include cash, trade receivables, certain other current assets, trade payables, other payables and certain
accrued liabilities, lease 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
The tables below show 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 of December 31,
2018 and 2019. The amounts presented are gross carrying amounts for financial assets.
December 31, 2018
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
F-47
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
18.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(a)
Credit risk (continued)
December 31, 2019
Trade receivables
Financial assets included in other receivables
- Normal*
- Doubtful*
Cash and cash equivalents
- Not yet past due
Total
December 31, 2019
Trade receivables
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
Total
CNY
3,956
33
—
3,444
7,433
—
—
—
—
—
12-month ECLs
Stage 1
US$
Lifetime ECLs
Stage 2
US$
Stage 3
US$
568
5
—
495
1,068
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,956
33
—
3,444
7,433
Total
US$
568
5
—
495
1,068
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.”
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.
Trade receivables
The Group trades only with recognized and creditworthy third parties.
The Group sells copper ore to one customer in Mainland China. Trade receivables are typically unsecured and are mainly derived from revenue
earned from the customer in Mainland China. The risk with respect to trade receivables is mitigated by credit evaluations that the Group performs
on its customer and its ongoing monitoring of outstanding balances. The Group provides impairment for trade receivables primarily based on the
age of the balances and factors surrounding the customer’s creditworthiness. No provision for impairment of trade receivables was made during
the year ended December 31, 2019, since all the trade receivables were within the credit period.
F-48
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
18.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(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.
(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 a related company
Due to the Shareholder
December 31, 2019
Trade payables
Other payables and accrued liabilities
Due to a related company
Due to the Shareholder
Lease liabilities
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
CNY
Less than
1 year
CNY
1 to 5 years
CNY
More than
5 years
CNY
Total
CNY
—
—
—
—
—
—
3,896
1,600
5,077
7,097
812
18,482
—
—
—
—
—
—
—
—
—
—
—
—
3,896
1,600
5,077
7,097
812
18,482
F-49
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
18.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(d)
Liquidity risk (continued)
December 31, 2019
Trade payables
Other payables and accrued liabilities
Due to a related company
Due to the Shareholder
Lease liabilities
(e)
Capital management
On demand
US$
Less than
1 year
US$
1 to 5 years
US$
More than
5 years
US$
Total
US$
—
—
—
—
—
—
560
231
729
1,019
117
2,656
—
—
—
—
—
—
—
—
—
—
—
—
560
231
729
1,019
117
2,656
The Group monitors capital on the basis of the debt to capital ratio (gearing ratio), which is calculated as interest-bearing debt divided by total
capital. Interest-bearing debt mainly includes lease liabilities. Capital includes total equity and interest-bearing debt. The gearing ratio was minus
3.0% as of December 31, 2019 (2018: Nil).
19.
COMMITMENTS
(a)
Operating lease commitments as of December 31, 2018
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:
December 31, 2018
CNY
1,245
646
1,891
Within the first year
After one year but not more than five years
(b)
Capital commitments
There was no capital commitment as of December 31, 2018 and 2019.
F-50
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
20.
SEGMENT INFORMATION
Prior to the disposal of Wuhu Feishang and Double Grow (Note 3) and the acquisition of Bayannaoer Mining, the Group operated in operating
segments: exploration and mining-non-ferrous metals and copper smelting. As of December 31, 2019, 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 head office and corporate expenses are excluded from such measurement.
As disclosed in Note 3 to the consolidated financial statements, the Group disposed its equity interests in 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 year ended December 31, 2017.
For the year ended December 31, 2017, 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
For the year ended December 31, 2018, the segment results were as follows:
From continuing operations:
Depreciation of property, plant and equipment
Operating loss
Interest income
Finance costs
Loss for the year from continuing operations
Capital expenditure
Total assets
Total liabilities
F-51
Exploration and
mining
CNY
Corporate
activities
Total
(5)
(258)
1
—
(257)
705
509
(3)
(5,946)
38
(14)
(5,922)
29,043
44,744
(8)
(6,204)
39
(14)
(6,179)
29,748
45,253
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
(67)
(6,207)
26
5
(6,176)
(5)
7,743
29,541
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
20.
SEGMENT INFORMATION (CONTINUED)
For the year ended December 31, 2019, the segment results were as follows:
From continuing operations:
Revenues from external customers
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Operating loss
Interest income
Finance costs
Loss for the year from continuing operations
Capital expenditure
Total assets
Total liabilities
From continuing operations:
Revenues from external customers
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
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
12,969
(62)
(34)
(963)
1
(2)
(964)
—
4,268
6,560
—
(4)
(1,153)
(4,636)
15
(60)
(4,681)
(5)
4,030
29,292
12,969
(66)
(1,187)
(5,599)
16
(62)
(5,645)
(5)
8,298
35,852
Exploration and
mining
US$
Corporate
activities
Total
1,863
(8)
(5)
(138)
—
—
(138)
—
613
942
—
(1)
(166)
(665)
2
(9)
(672)
(1)
579
4,207
1,863
(9)
(171)
(803)
2
(9)
(810)
(1)
1,192
5,149
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
2017
CNY
2018
CNY
2019
CNY
2019
US$
(6,179)
(23,817)
(29,996)
(6,176)
—
(6,176)
(5,645)
—
(5,645)
(810)
—
(810)
F-52
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
21.
NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
(a)
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, 2019
At January 1, 2019
Changes from financing cash flows
Foreign exchange movement
Interest expense
At December 31, 2019
Year ended December 31, 2019
At January 1, 2019
Changes from financing cash flows
Foreign exchange movement
Interest expense
At December 31, 2019
(b)
Total cash outflow for leases
Within operating activities
Within financing activities
Due to related
companies
Due to the
Shareholder
Lease liabilities
CNY
CNY
CNY
Total
CNY
13,747
(9,213)
(493)
11,573
(4,600)
—
4,041
6,973
—
—
—
—
25,320
(13,813)
(493)
11,014
Due to a related
company
Due to the
Shareholder
Lease liabilities
CNY
CNY
CNY
Total
CNY
4,041
1,036
—
—
5,077
6,973
—
124
—
7,097
1,803
(1,060)
—
60
12,817
(24)
124
60
803
12,977
Due to a related
company
Due to the
Shareholder
Lease liabilities
US$
US$
US$
Total
US$
580
149
—
—
729
1,001
—
18
—
1,019
259
(153)
—
9
115
1,840
(4)
18
9
1,863
2019
CNY
(46)
(1,060)
(1,106)
2019
US$
(7)
(153)
(160)
F-53
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
22.
SUBSEQUENT EVENTS
Since January 2020, the novel coronavirus (COVID-19) has continued to spread throughout China and to countries across the world, resulting in
increased travel restrictions, border controls and the shutdown of businesses, which may cause a slower recovery of the Chinese economy. In
accordance with the epidemic control measures imposed by the local government, the Company remained closed until it partially re-opened in mid-
March. The market demand for the copper ore that we trade and the metals that we may mine have similarly been negatively impacted by COVID-19
due to the sharp decrease in manufacturing and other activities due to the widespread closure of businesses in China and worldwide, with a
commensurate impact on commodity prices. It is presently unknown to what extent the Company’s operations will be affected, and for what period of
time. The Group will continue to closely monitor the development of the COVID-19 situation, and assess and react proactively to address any impact on
the financial position and operating results of the Group.
23.
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
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Other payables and accrued liabilities
Due to the Shareholder
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Issued capital
Other capital reserves
Accumulated losses
Other comprehensive loss
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
F-54
2018
CNY
December 31,
2019
CNY
2019
US$
—
—
—
13,925
4,122
15,816
811
18,047
16,627
18,047
16,627
943
6,973
7,916
7,916
1,462
7,097
8,559
8,559
2,272
116
2,388
2,388
210
1,019
1,229
1,229
290,179
823,581
(1,091,633)
(11,996)
290,179
823,581
(1,095,446)
(10,246)
10,131
8,068
18,047
16,627
41,673
118,276
(157,319)
(1,471)
1,159
2,388
CHINA NATURAL RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except share and per share data)
23.
CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED)
CONDENSED STATEMENTS OF PROFIT OR LOSS
Administrative expenses
Gain on disposal of a subsidiary
Interest income
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/(used in) investing activities
Net cash flows used in financing activities
NET INCREASE IN CASH
CASH AT BEGINNING OF THE YEAR
Net foreign exchange differences
CASH AT END OF THE YEAR
2017
CNY
December 31,
2018
CNY
2019
CNY
2019
US$
(5,055)
7,114
—
2,059
2,059
(3,794)
—
—
(3,794)
(3,794)
(3,814)
—
1
(3,813)
(3,813)
(548)
—
—
(548)
(548)
December 31,
2017
CNY
2018
CNY
2019
CNY
2019
US$
(3,647)
7,808
—
4,161
10,678
(927)
13,912
(5,200)
10,243
(15,811)
(10,768)
13,912
978
4,122
(3,294)
(21)
—
(3,315)
4,122
4
811
(473)
(3)
—
(476)
591
1
116
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 the 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, 2019,
CNY13.70 million (US$1.97 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, 2017, 2018 and 2019.
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, 2017, 2018 and 2019, no cash dividends were declared and paid by the Company.
F-55
DESCRIPTION OF CHINA NATURAL RESOURCES, INC.’S SECURITIES
REGISTERED PURSUANT TO SECTION 12
OF THE SECURITIES EXCHANGE ACT OF 1934
Exhibit 2.1
References in this exhibit to “we,” “us,” “our,” or the “Company” are to China Natural Resources, Inc., and do not include our subsidiaries.
As of June 12, 2020, the only security registered by us under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) is our common shares, no par value.
The following descriptions of our common shares and the relevant provisions of our Amended and Restated Memorandum of Association
(“Memorandum”) and our Articles of Association (“Articles of Association”) are summaries and are qualified by reference to our Memorandum and Articles
of Association that are filed as exhibits to the Annual Report on Form 20-F to which this is filed as an exhibit. The following also summarizes certain
applicable provisions of the BVI Business Companies Act, as amended (the “BVI Act”) of the British Virgin Islands (“BVI”), and that summary is qualified
by reference to the BVI Act. Under our Memorandum and Articles of Association and under the BVI Act, the term for holders of our equity securities is
“members,” but we use the term “shareholders” herein for the convenience of readers.
General
We are currently authorized to issue up to 210,000,000 shares, divided into two classes consisting of (a) 200,000,000 common shares, without par
value (“common shares”), and (b) 10,000,000 preferred shares, without par value (“preferred shares”). Our shares may only be issued as registered shares.
BVI law and our Memorandum and Articles of Association impose no limitations on the right of non-resident or foreign owners to hold or vote our common
shares.
Common shares
Dividend Rights
Subject to the dividend rights of the holders of preferred shares, if any, holders of common shares participate in dividends on a proportionate basis, as
may be declared by our board of directors. Our board of directors may authorize a distribution by our Company if they are satisfied, on reasonable grounds,
that immediately after the distribution (i) the value of our Company's assets will exceed our liabilities, and (ii) our Company will be able to pay our debts as
they fall due.
Liquidation Rights
Upon liquidation, dissolution or winding up of our Company, after payments due to creditors and holders of our outstanding preferred shares, if any,
our remaining assets, if any, will be divided proportionately on a per share basis among the holders of our common shares.
Voting Rights
Each common share has one vote. Resolutions of our shareholders voted upon at any meeting of our shareholders may be passed by the affirmative
vote of (i) a simple majority of the votes of shares entitled to vote thereon which are present at the meeting and which are voted and not abstained, or (ii) a
simple majority of the votes of each class or series of shares which are present at the meeting and entitled to vote thereon as a class or series and which are
voted and not abstained and of a simple majority of the votes of the remaining shares entitled to vote thereon which are present at the meeting and which are
voted and not abstained. Holders of our shares do not have cumulative voting rights. This means that the holders of a majority of the votes which are cast at
any shareholder meeting can pass a resolution of shareholders, including a resolution to appoint directors. In that event, the holders
of the remaining shares will not be able to appoint any directors. Our Memorandum and Articles of Association provide that, except in limited circumstances,
one or more shareholders present in person or by proxy entitled to exercise at least 50% of the voting rights of the shares of each class or series of shares
entitled to vote as a class or series thereon, and the same proportion of the votes of the remaining shares entitled to vote thereon, constitute a quorum to
transact business at a meeting of shareholders. Any action that may be taken by our shareholders at a meeting of shareholders may also be taken by a
resolution of shareholders consented to in writing, provided that such written resolution is consented to by (i) an absolute majority of the votes of shares
entitled to vote thereon, or (ii) an absolute majority of the votes of each class or series of shares entitled to vote thereon as a class or series and of an absolute
majority of the votes of the remaining shares entitled to vote thereon.
Redemption Rights
Shares may be issued on the terms that they are redeemable or, at the option of our Company, liable to be redeemed, on such terms and in such
manner as our directors before or at the time of the issue of such shares may determine. Our Company may purchase, redeem or otherwise acquire any of our
own shares for such consideration as our directors consider fit, in such manner as may be determined by our directors (and subject to the written consent of all
the shareholders whose shares are to be purchased, redeemed or otherwise acquired), and such shares may, at the direction of our directors, be cancelled or
held as treasury shares; provided, however, that our Company may not purchase, redeem or acquire any of our shares unless, immediately following the
purchase, redemption or acquisition (a) the value of our Company’s assets exceeds our liabilities and (b) our Company is able to pay our debts as they fall due.
Preemptive Rights
Our common shares have no preemptive, subscription or conversion rights.
Listing
Our common shares are listed on the NASDAQ Capital Market under the symbol “CHNR.”
Transfer Agent and Registrar
The transfer agent for our common shares is Pacific Stock Transfer Company, 6725 Via Austi Parkway, Suite 300, Las Vegas NV 89119.
Certain Anti-Takeover Effects
General. There are no provisions of our Memorandum and 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. However, certain provisions of
our Memorandum and Articles of Association and the BVI Act could have the effect of delaying, deferring or preventing an acquisition of control of us by
means of a tender offer, a proxy fight, open market purchases or otherwise in a transaction not approved by our board of directors. The provisions described
below may reduce our vulnerability to an unsolicited proposal for the restructuring or sale of all or substantially all of our assets or an unsolicited takeover
attempt which is unfair to our shareholders.
Our board of directors has no present intention to introduce additional measures that might have an anti-takeover effect; however, our board of
directors expressly reserves the right to introduce these measures in the future.
Staggered board of directors. The BVI Act does not contain statutory provisions that prohibit staggered board arrangements for a BVI company and
our Memorandum and Articles of Association provide for a staggered board, with three classes of directors each holding three year terms.
2
Blank Check Preferred. Under our Memorandum and Articles of Association, our board of directors is able to issue preferred shares with such
designations, powers, preferences and rights, qualifications, limitations and restrictions as shall be fixed by our directors at the time of issuance, without the
prior approval of our shareholders.
Special Meetings. If our shareholders want us to hold a meeting of our shareholders, they may requisition the directors to hold one upon the written
request of shareholders entitled to exercise at least 30% of the voting rights in respect of the matter for which the meeting is requested. Under the BVI Act, we
may not increase the required percentage to call a meeting above 30%.
Subject to our Memorandum and Articles of Association, a meeting of shareholders of the Company will be called by not less than seven days’
written notice. However, the inadvertent failure of the convener or conveners of a meeting of shareholders to give notice of the meeting to a shareholder, or
the fact that a shareholder has not received the notice, does not invalidate the meeting.
A meeting may be called by shorter notice than that mentioned above, and under our Articles of Association such meeting will be valid, if
shareholders holding at least 90% of the total voting rights on all the matters to be considered at the meeting have waived notice of the meeting and, for this
purpose, the presence of a shareholder at the meeting shall be deemed to constitute a waiver on the part of that shareholder in relation to all the shares which
that shareholder holds (unless such shareholder objects in writing before the meeting proceeds to business).
Mergers and similar arrangements. Under the BVI Act, two or more companies may merge or consolidate in accordance with the relevant statutory
provisions. A merger means the merging of two or more constituent companies into one of the constituent companies, and a consolidation means the
consolidating of two or more constituent companies into a new company. In order to merge or consolidate, the directors of each constituent company must
approve a written plan of merger or consolidation specifying certain required information, which written plan of merger or consolidation must be authorized
by a resolution of our shareholders (which resolution may be passed either at a duly convened and constituted meeting of our shareholders by the affirmative
vote of a simple majority of the votes of those shareholders who vote at the meeting, or by a written resolution consented to by shareholders who hold an
absolute majority of votes of shares entitled to vote thereon).
The plan of merger or consolidation must also be authorized by a resolution of the outstanding shares of every class of shares that are entitled to vote
on the merger or consolidation as a class if our Memorandum or our Articles so provide, or if the plan of merger or consolidation contains any provision
which, if proposed as an amendment to our Memorandum and Articles of Association, would entitle the class to vote on the proposed amendment as a class.
As currently drafted, our Memorandum and Articles of Association do not contain provisions which grant such rights to any class of our shareholders. In any
event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting or consent
to the written resolution to approve the plan of merger or consolidation.
Key Differences in Corporate Laws
The applicable provisions of BVI corporate law differ from corporate laws generally applicable in the United States in certain material respects. Set forth
below is a summary of certain differences between the provisions of BVI law applicable to us and corporate laws generally in effect in the United States.
Moreover, corporate laws among the various states in the United States may be different from each other and, therefore, BVI law may be similar to certain
state corporate laws but different from others. This summary is not intended to be a complete discussion of these differences and is qualified in its entirety by
reference to the actual laws in effect under United States and BVI laws.
Fiduciary Duties and Shareholder Litigation. 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
3
protective in all circumstances as the law protecting minority shareholders under most jurisdictions in the United States.
The BVI Act sets out the fiduciary duties of directors by stating that “a director of a company, in exercising his or her powers and performing his or
her duties, shall act honestly and in good faith and in what the director believes to be in the best interests of the company.” This statutory provision essentially
imports the appropriate principles of English common law (prior to the enactment of the Companies Act 2006 of the United Kingdom), which have been
substantially confirmed by decisions of the courts of the BVI.
In practical terms, these fiduciary duties translate into the following:
(a) Bona Fides: The directors must act bona fide in what they consider is in the best interests of the company.
(b)
Proper Purpose: The directors must exercise the powers that are vested in them for the purpose for which they were conferred and not for a
collateral purpose.
(c) Unfettered Discretion: Since the powers of the directors are to be exercised by them in trust for the company, they should not improperly fetter
the exercise of future discretion.
(d) Conflict of Duty and Interest: Directors must not place themselves in a position in which there is a conflict between their duty to the Company
and their personal interests. This means that, strictly speaking, a director should not participate in a decision in circumstances where he has a
potential conflict. That is, he should declare his interest and abstain. The BVI Act provides that a director “shall, forthwith after becoming
aware of the fact that he or she is interested in a transaction entered into or to be entered into by the company, disclose the interest to the board
of the company.” Our Memorandum and Articles of Association allow our directors who are interested in a particular transaction to vote on
matters relating to the transaction, attend meetings of directors at which matters relating to the transaction are considered and be included for
the purposes of determining the quorum, sign documents on behalf of our Company, and do any other thing in his or her capacity as a director,
which relates to the transaction.
In addition to the above fiduciary duties, each director also owes a duty of care, diligence and skill to the company. In exercising powers or
performing duties as a director, each director is required to exercise the care, diligence and skill that a reasonable director would exercise in the same
circumstances, taking into account, without limitation, the nature of the company, the nature of the decision, and the position of the director and the nature of
the responsibilities undertaken by him or her.
The duties of a director are owed to the company and not to individual shareholders. In the ordinary course, the “interest of the company” may be
equated to the interests of the company's shareholders. Once, however, a company is insolvent or is “doubtfully solvent” the directors must, when discharging
their duties, consider the creditors' interests.
Under BVI law, our shareholders do not owe any fiduciary duties to our Company or to our minority shareholders. Accordingly, our shareholders
may exercise their powers as shareholders, including the exercise of voting rights in respect of their shares, in such manner as they think fit, subject only to
very limited equitable constraints.
In principle, our Company will normally be the proper plaintiff to sue for a breach of duty or any other wrong done to us as a company. However,
under the BVI Act, a member may bring a derivative action in the name of the company in certain circumstances. A BVI court may, on the application of a
shareholder of a company, grant leave to that shareholder to (a) bring proceedings in the name and on behalf of that company, or (b) intervene in proceedings
to which the company is a party for the purpose of continuing, defending or discontinuing the proceedings on behalf of the company. In determining whether
to grant leave, a BVI court must take the following matters into account:
(a) whether the member is acting in good faith;
(b) whether the derivative action is in the interests of the company taking account of the views of the company's directors on commercial matters;
4
(c) whether the proceedings are likely to succeed;
(d)
(e) whether an alternative remedy to the derivative claim is available.
the costs of the proceedings in relation to the relief likely to be obtained; and
While BVI law does permit a shareholder of a BVI company to bring a derivative action in the name of the company, 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.
Powers of Directors. Our directors have the power to take certain actions without shareholder approval, including the powers to amend our
Memorandum or Articles of Association (except that our directors cannot make any such amendment (a) to restrict the rights or powers of our members to
amend the Memorandum or the Articles, (b) to change the percentage of our members required to pass a resolution to amend our Memorandum or the Articles
of Association, or (c) in circumstances where the Memorandum or the Articles of Association cannot be amended by our members), and to increase or
decrease 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 (other than statutory mergers or consolidations, and schemes of arrangement, all of which require shareholder
authorization), the sale, transfer, exchange or disposition of any assets, property, part of the business, or securities of the company, or any combination, if they
determine it is in the best interests of the company. In most jurisdictions in the United States, shareholder approval is required in order to amend most
provisions of the certificate or articles of incorporation. Our ability to amend our Memorandum 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. However, our directors must exercise the powers that are vested in them for the
purpose for which they were conferred and not for a collateral purpose.
Liability of Directors. 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 United States jurisdictions have enacted various statutory provisions which permit the monetary liability of
directors to be eliminated or limited.
Under BVI law, the liability of a director to the BVI company is primarily limited to cases where the director has acted in breach of his fiduciary
duties (such as not acting honestly and in good faith and with a view to the best interests of the company) or his duties of care, skill and diligence, or has not
exercised his powers for a proper purpose. Under our Memorandum and Articles of Association, we shall indemnify all or our directors and officers, together
with every former director and former officer, against any liability, action, proceeding, claim, demand, costs, damages or expenses, including legal expenses,
whatsoever which they or any of them may incur as a result of any act or failure to act in carrying out their functions other than such liability (if any) that they
may incur by reason of their own actual fraud or willful default. No director or officer shall be liable to our Company for any loss or damage incurred by us as
a result (whether direct or indirect) of the carrying out of their functions unless that liability arises through the actual fraud or willful default of such director
or officer.
Qualifications of Directors. Unlike most corporate laws in the United States, directors of a BVI company may be companies. Moreover, any director
of a BVI company may (subject to the company's memorandum and articles of association) appoint a person (who may or may not be another director) to be
his alternate to exercise the appointing director’s powers, and to carry out the appointing director’s responsibilities, in relation to the taking of decisions by the
directors in the absence of the appointing director (including to attend meetings and vote in the place and stead of the appointing director). An alternate
director has the same rights as the appointing director in relation to any directors' meeting and any written resolution circulated for written consent. Any
exercise by the alternate director of the appointing director's powers in relation to the taking of decisions by the directors, is as effective as if the powers were
exercised by the appointing director. An alternate director is liable for his or her own
5
acts and omissions as an alternate director and an alternate director is subject to the same fiduciary duties and the same duties of care, diligence and skill as
other directors, when acting as such.
Control Share Statutes and Changes in Control. Certain states in the United States have adopted corporate laws that limit the ability of a significant
shareholder of a corporation to vote its shares in favor of approving transactions in which the significant shareholder has an interest. Some states also limit
transactions between a corporation and a significant shareholder. In general, BVI law does not impose similar restrictions on interested or affiliated party
transactions.
Amendment of Organizational Documents. The ability of the board of directors to amend our Memorandum and Articles of Association without
shareholder approval, as well as the exercise of its power to designate the rights and preferences of preferred shares, could operate to delay, defer or prevent a
change in control of our Company, including with respect to a merger, acquisition or corporate restructuring. In most jurisdictions in the United States,
shareholder approval is required in order to amend most provisions of the certificate or articles of incorporation.
6
FEISHANG GROUP LIMITED
Exhibit 4.7
May 29, 2020
China Natural Resources, Inc
Room 2205, 22/F, West Tower
Shun Tak Centre
168-200 Connaught Road Central,
Sheung Wan, Hong Kong
Dear Sirs,
Confirmation of Financial Support to China Natural Resources, Inc.
On behalf of Feishang Group Limited, we hereby confirm that we will extend continuous financial support to China Natural Resources,
Inc. and its subsidiaries, in relation to the going concern of their operations and will not recall any amounts due to us until they have
sufficient liquidity to finance its operations.
Yours faithfully,
/s/ LI Feilie
LI Feilie
Sole Director
Feishang Group Limited
FEISHANG ENTERPRISE GROUP COMPANY LIMITED
Exhibit 4.8
May 29, 2020
China Natural Resources, Inc
Room 2205, 22/F, West Tower
Shun Tak Centre
168-200 Connaught Road Central,
Sheung Wan, Hong Kong
Dear Sirs,
Confirmation of Financial Support to China Natural Resources, Inc.
On behalf of the Board of Directors of Feishang Enterprise Group Company Limited, we hereby confirm that we will extend full financial
support to China Natural Resources, Inc. and its subsidiaries (“CHNR Group”), in relation to the going concern of their operations and will
not recall any amounts due to us until they have sufficient liquidity to finance its operations, and Feishang Enterprise will pay debts on
behalf of CHNR Group when needed.
Yours faithfully,
/s/ LI Feilie
LI Feilie
Chairman
Feishang Enterprise Group Limited
Exhibit 8
Subsidiaries of the Registrant
Name
Jurisdiction of Incorporation
Percentage Ownership
(Direct Parent)
Bayannaoer City Feishang Mining
People’s Republic of China
Company Limited
100% (held by Yangpu Shuanghu
Industrial Development Co., 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 Investments
Feishang Mining Holdings Limited
Feishang Yongfu Mining Limited
British Virgin Islands
Hong Kong Special Administrative
100% (held by Registrant)
100% (held by Newhold Investments
Region
Limited)
Region
FMH Corporate Services Inc.
Newhold Investments Limited
Pineboom Investments Limited
Shenzhen Feishang Management and
Consulting Co., Limited
Region
Florida, the United States
British Virgin Islands
British Virgin Islands
People’s Republic of China
Silver Moon Technologies Limited
Sunwide Capital Limited
Yangpu Lianzhong Mining Co., Limited
British Virgin Islands
British Virgin Islands
People’s Republic of China
Limited)
100% (held by Registrant)
100% (held by Registrant)
100% (held by Registrant)
100% (held by Yunnan Feishang Mining
Co., Limited)
80% (held by Registrant)
100% (held by Registrant)
100% (held by China Coal Mining
Investment Limited)
People’s Republic of China
100% (held by Feishang Yongfu Mining
Yangpu Shuanghu Industrial
Development Co., Limited
Yunnan Feishang Mining Co., Limited
People’s Republic of China
Limited)
100% (held by Yangpu Shuanghu
Industrial Development Co., Limited)
Exhibit 12.1
I, Wong Wah On Edward, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of China Natural Resources, Inc.;
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 company as of, and for, the periods presented in this report;
The company's other certifying officer 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
company 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 company, 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 company’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 company’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 company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’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 company’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 company’s internal control over
financial reporting.
Date: June 12, 2020
/s/ Wong Wah On Edward
Wong Wah On Edward
Chief Executive Officer
Exhibit 12.2
I, Yue Ming Wai Bonaventure, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of China Natural Resources, Inc.;
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 company as of, and for, the periods presented in this report;
The company’s other certifying officer 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
company 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 company, 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 company’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 company’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 company’s internal control over financial reporting; and
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’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 company’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 company’s internal control over
financial reporting.
Date: June 12, 2020
/s/ Yue Ming Wai Bonaventure
Yue Ming Wai Bonaventure
Chief Financial Officer
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 on Form 20-F of China Natural Resources, Inc. (the "Company") for the fiscal year ended December 31, 2019 as
filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Wong Wah On Edward, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Wong Wah On Edward
Wong Wah On Edward
Chief Executive Officer
June 12, 2020
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 on Form 20-F of China Natural Resources, Inc. (the "Company") on for the fiscal year ended December 31, 2019
as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Yue Ming Wai Bonaventure, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Yue Ming Wai Bonaventure
Yue Ming Wai Bonaventure
Chief Financial Officer
June 12, 2020
Exhibit 15.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form F-3 No. 333-233852) of China Natural Resources, Inc. and in the
related Prospectus of our report dated June 12, 2020, with respect to the consolidated financial statements of China Natural Resources, Inc. included in
this Annual Report (Form 20-F) for the year ended December 31, 2019.
/s/ Ernst & Young Hua Ming LLP
Beijing, The People’s Republic of China
June 12, 2020
Exhibit 15.2
CONTACT
Yue Ming Wai Bonaventure, Chief Financial Officer
011-852-2810-7205 or bonyue@chnr.net
FOR IMMEDIATE RELEASE
CHINA NATURAL RESOURCES, INC. ANNOUNCES
2019 RESULTS OF OPERATIONS
HONG KONG, June 12, 2020 – CHINA NATURAL RESOURCES, INC. (NASDAQ: CHNR) (the “Company”), a company based in the People’s Republic
of China (the “PRC”), today announced its results of operations for the year ended December 31, 2019 as follows.
CHINA NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands, except per share data)
CONTINUING OPERATIONS
Revenue
Cost of sales
Gross profit
Selling and distribution expenses
Administrative expenses
OPERATING LOSS
Finance costs
Interest income
2017
CNY
Year Ended December 31,
2019
CNY
2018
CNY
2019
US$
—
—
—
—
(6,204)
—
—
—
—
(6,207)
12,969
(12,752)
217
(2)
(5,814)
1,863
(1,831)
32
—
(835)
(6,204)
(6,207)
(5,599)
(803)
(14)
39
5
26
(62)
16
(9)
2
(810)
—
(810)
LOSS BEFORE INCOME TAX FROM CONTINUING OPERATIONS
(6,179)
(6,176)
(5,645)
INCOME TAX EXPENSE
—
—
—
LOSS FOR THE YEAR FROM CONTINUING OPERATIONS
(6,179)
(6,176)
(5,645)
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 and diluted
- For loss from continuing operations
- For loss from discontinued operations
- Net loss per share
(23,817)
—
—
—
(29,996)
(6,176)
(5,645)
(810)
(6,179)
(23,817)
(29,996)
(6,176)
—
(6,176)
(5,645)
—
(5,645)
—
—
—
—
—
—
—
—
—
(810)
—
(810)
—
—
—
(29,996)
(6,176)
(5,645)
(810)
(0.25)
(0.95)
(1.20)
(0.25)
—
(0.25)
(0.23)
—
(0.23)
(0.03)
—
(0.03)
The consolidated statements of profits or loss of the Company for the years ended December 31, 2017, 2018 and 2019 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, 2019 contained in the Company’s Annual Report on Form 20-F as filed with the Commission on June 12, 2020.
Mr. Wong Wah On Edward, the Company's Chairman, commented on the results: “During 2019, we undertook additional exploration activities and sample
analysis at the Moruogu Tong Mine located in the Inner Mongolia Autonomous Region in the People’s Republic of China (the ‘PRC’) and completed the
initial draft of the detailed geographical exploration report for submission to government authorities for review and comment. During 2019, we also
commenced our copper ore trading activities, which we propose to pursue as market opportunities arise. The outbreak of COVID-19 has severely disrupted
our operations. Governmental control measures imposed to contain its spread have impacted our business by restricting the movement of our employees since
the beginning of the pandemic in the PRC through mid-March, when we were able to partially re-open. COVID-19 has also affected our suppliers’
workforces, and as a result we are experiencing a slow resumption of operations and may experience delays or the inability to deliver goods on a timely basis.
The market demand for the copper ore that we trade and the metals that we may mine have similarly been negatively impacted by COVID-19 as a result of the
sharp decrease in manufacturing and other activity due to the widespread closure of businesses in the PRC and worldwide. The impact by COVID-19 on the
economic conditions and business activities may also affect our ability 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$1.00=CNY6.9632 as quoted by www.ofx.com on December 31, 2019. The CNY is not freely convertible into foreign currencies and no representation is
made that the CNY amounts could have been, or could be, converted into US$ at that rate, or at all.
About China Natural Resources:
China Natural Resources, Inc., a British Virgin Islands company limited by shares, through its operating subsidiaries in the People’s Republic of China, is
currently engaged in (a) the acquisition and exploitation of mining rights in Inner Mongolia, including exploring for lead, silver and other nonferrous metal;
and (b) copper ore trading in the PRC.
Forward-Looking Statements:
This press release includes forward-looking statements within the meaning of the U.S. 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
the impact of the novel coronavirus 2019 (“COVID-19”) on the Company’s operations, those of its suppliers, the resumption of demand for the metal that the
Company may mine or copper ore that it may trade, as well as on general economic conditions and the ability of the Company to explore new business
opportunities. 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 the Company’s actual
results to differ from its forward-looking statements are: uncertainties regarding the governmental, economic and political circumstances in the People’s
Republic of China; uncertainties associated with metal price volatility; uncertainties related to the Company’s ability to fund operations; uncertainties relating
to possible future increases in operating expenses, including costs of labor and materials; uncertainties regarding the impact of COVID-19 pandemic; and
other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. 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. Except as required by
law, the Company undertakes no obligation to update any forward-looking statements.