Annual Report 2011 - QuamIR

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Management Discussion & AnalysisOn behalf of the board (the “Board”) of directors (the “Directors”) of Sino Prosper StateGold Resources Holdings Limited (the “Company”), the annual results of the Companyand its subsidiaries (collectively, the “Group”) for the year ended 31 March 2011 (“ReportingPeriod”) are presented below.OPERATIONAL REVIEWIn this Reporting Period, the Group madeheadway on a number of fronts. Progress wasmade in the raising of capital, which resultedin a further strengthening of the balance sheet.Initial execution and improvements in explorationprograms, coupled with expansion in production andprocessing capacity laid the groundwork for plannedfuture growth. The execution of the corporatedevelopment and acquisition strategies along withthe strengthening of the management team wereour Group’s priority during the Reporting Period.All these developments were reflected in improvedfinancial performance in the core gold miningbusiness, strong performance in the stock and agrowth in the number of institutional and retailinvestors.Focusing on various aspects of exploration,development, mining and production of preciousmetals in China, the Group is in the process ofexpanding and exploiting its existing operationsand mining projects in pursuit of its goal to becomea major precious metals producer in the PRC.Additionally, the Group executed the initial phaseof its corporate development strategy through theacquisition of producing or near-producing assetsaiming at increasing resources and production pershare in the near-term. This initiative resulted inannouncements of some important transactionssubsequent to the end of the Reporting Period.The following sets out the major developments ofthe Group during the reporting period.Current OperationsInvestment in Gold Mine Project in InnerMongolia, PRCOn 23 January 2010 (a date which falls beforethe commencement of the reporting period),Sino Prosper Mineral Products Limited, (“SinoProsper Mineral”), a wholly-owned subsidiary ofthe Group, entered into an acquisition agreement(“Inner Mongolia Agreement”) with Hong Guang(“Mr. Hong”) for the acquisition (“Inner MongoliaAcquisition”) of Favour South Limited (“FavourSouth”), a company incorporated in the BritishVirgin Islands. The Group purchased Favour Southand shareholder’s loans owing by Favour South toMr. Hong on or prior to completion of the InnerMongolia Acquisition at a total consideration(“Consideration”) of RMB147 million (equivalentto approximately HK$167 million) (subject toadjustment) and payable entirely in cash.The sole asset of Favour South was the entireissued capital of Great Surplus Investment Limited(“Great Surplus”), a company incorporated inHong Kong, which held the right to contribute andown 70% of the registered and paid up capital ofAohanqi Xinrui En Industry Co., Ltd. 敖漢旗鑫瑞恩礦業有限責任公司 (“Aohan Qi”). Aohan Qi was andis the holder of a permit for the mining of gold ata mine located at Gouliang Town, Aohan Qi, InnerMongolia Autonomous Region.The Inner Mongolia Acquisition constituted a majortransaction of the Company under Chapter 14 ofthe Listing Rules. The transaction was approved byShareholders at the extraordinary meeting held on17 June 2010. Save as disclosed in the Company’sannouncement dated 29 June 2010, all conditionsprecedent to the completion of the Inner MongoliaAcquisition were fulfilled, and the transaction wascompleted on 29 June 2010.Sino Prosper State Gold Resources Holdings Limited
Management Discussion & AnalysisAfter the change of the directors and legalrepresentative of Aohan Qi, and obtaining approvalfrom PRC governmental departments, as well asobtaining of the business license issued by theAdministration for Industry and Commerce (whichlicense states the paid-up capital of Aohan Qi to beRMB10 million) and the approval certificate fromthe Department of Commerce of Inner MongoliaAutonomous Region to increase the registeredcapital to RMB50 million, the balance of theConsideration for the transaction of HK$31,818,182was paid to Mr. Hong on 9 August 2010. As at 10August 2010, the increase of the registered capitalof Aohan Qi to RMB50 million was completed.Up to 31 March 2011, an aggregate of RMB50 millionwas injected by the joint venture parties. During theyear ended 31 March 2011, Aohan Qi has generatedrevenue of approximately RMB2 million.In only nine months since the completion of theacquisition of the 70% interest in Aohan Qi, theGroup made the following significant progress:1. Ore Processing Plant and Refinery & SmelterThe first phase of the 500 ton/per day (tpd)Aohan Qi Processing Facilities was completedin four months after acquisition on 1 July2010. The plant equipment, accessoryequipment, and the first-phase tailing pondwere installed and completed. The officialopening of the Aohan Qi Processing Plantwas held on 20 November 2010 and attendedby local government officials. At the end ofDecember 2010, the plant achieved its fullrated processing capacity of 500 tpd. Initialquantities of gold alloy and gold concentrateshave been produced and are sold.The Group is pleased with the rapidachievement of the processing plantthroughput and notes that the plant isexpected to achieve planned levels of goldproduction shortly. Current gold outputis limited as access to the main ore bodyrequired for planned production levels underthe Group’s mining plan is not possibleat the current construction state. In theinterim, feedstock for the processing planthas been provided from waste rock obtainedduring expansion of the underground mineworkings. Feedstock from the waste pileis believed to have an average grade of 2grams per tonne (g/t) but any productionrecoveries or costs from such material arenot expected to be representative of theultimate plant operation. Monitoring ofoperating parameters will commence uponinput of normal feedstock for which the planthas been configured.Based on exploration progress and expandedmine output capacity, as discussed below,the Group has endorsed plans to expand theProcessing Plant capacity to 2,000 tpd. TheGroup intends to shortly order constructionof required equipment to ensure deliveryin time for the earliest possible completionof the plant expansion. Such plans may,however, be affected by the Group’s recentlyannounced Aohan Qi Regional CooperationAgreement, which may provide opportunitiesfor use of other local production facilitiesand/or expanded production levels fromcurrent plans.Simultaneous with the planned expansion,and with the strong backing of the localgovernment, the Group plans to construct anew Refinery with an expected annual outputcapacity in excess of one million ounces of99.99% pure gold. The application for plantconstruction is under process.Capital costs for the planned expansionare budgeted at RMB100 million for theexpanded processing facility and RMB64million for the Refinery.Annual Report 2011
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Page 4 and 5: Year in Review2010-2011April 2010HK
Page 7 and 8: Chairman’s MessageOver the course
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Financial SummaryFor the year ended
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Annual Report 2011 - QuamIR

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