Annual Report 2011 - QuamIR

Management Discussion & AnalysisInvestment in Zhongyi Weiye Copper and GoldMines Project in Heilongjiang Province, PRCOn 17 May 2010, Victor Bright Investment Limited(“VB”), a wholly-owned subsidiary of the Group,entered into an acquisition agreement (“2010Acquisition Agreement”) with Ms. Gao Liyan (“FirstVendor”) and Mr. Song Yang (“Second Vendor”)(“2010 Acquisition”). The 2010 Acquisition involves(i) the purchase by the Company from the FirstVendor and Second Vendor (who were jointventure partners to the Group holding 21% and14% equity interest in 黑 龍 江 中 誼 偉 業 經 貿 有 限 公司 (Heilongjiang Zhongyi Weiye Economic & TradeCo., Ltd) (“Zhongyi Weiye”) respectively) of anaggregate 27% equity interest in Zhongyi Weiyepursuant to the terms and conditions of the 2010Acquisition Agreement, and (ii) the subsequentcontribution by the Group to additional portion ofregistered capital in Zhongyi Weiye to the extentof RMB44.3 million after completion of the 2010Acquisition Agreement. At the time of enteringinto the 2010 Acquisition Agreement, ZhongyiWeiye was a 65% equity owned indirectly heldsubsidiary of the Company. The consideration forthe 2010 Acquisition Agreement was RMB24 millionin aggregate (subject to adjustment), of whichRMB11.56 million was payable to the First Vendorand RMB12.44 million was payable to the SecondVendor in cash only.Zhongyi Weiye is the holder of the explorationpermits of five mines in the PRC with total miningarea of some 364.61 km 2 . The predominant valuesin these mines are various metals, including copperand gold.The corporate nature of Zhongyi Weiye was aSino-foreign equity joint venture enterprise and,immediately following the completion of the transferof the 27% equity interest in Zhongyi Weiye andwithout taking account of any increase in ZhongyiWeiye’s registered capital, the equity ownership washeld 92% by the Group and 8% by the First Vendorrespectively. Following completion of the increasein the registered capital, the corporate nature ofZhongyi Weiye was amended to become a Sinoforeigncooperative joint venture enterprise, subjectto a profit-sharing ratio of 92% enjoyed by theGroup and 8% by the First Vendor, despite dilutionto the equity interest held by the First Vendor asa result of the increase of registered capital by theCompany after completion of the 2010 Acquisition.The 2010 Acquisition constituted a discloseabletransaction on the part of the Company underChapter 14 of the Listing Rules. As each of theVendors was a substantial shareholder of ZhongyiWeiye (a non-wholly-owned subsidiary of theCompany), holding 21% and 14% of the equityinterests respectively, each of the Vendors wasa connected person for the purposes of Chapter14A of the Listing Rules, and the 2010 Acquisitionconstituted a connected transaction for theCompany under the Listing Rules. The 2010Acquisition was approved by Shareholders at theextraordinary general meeting held on 24 June2010.In respect of this project in Heilongjiang Province,the Group holds five exploration licenses for polymetallicgold prospects, which cover an area of364.61 sq.km. At present, the Group has entrustedHeilongjiang Suihua Jinbo Geology and Mineral Ltd.to perform systemic exploration work, focusinginitially on three tenements: Pao Shou Ying DongShan ( 砲 手 營 東 山 ), San Cha Lu ( 三 岔 路 ) and XiNan Cha ( 西 南 岔 ). During this initial explorationwork, the focus will be on developing resourcesbased on the prevailing relevant PRC standards,with an aim to obtain mining permits as soon aspossible. To the extent as permitted under therelevant circumstances, appropriate QA/QC andother procedures will be implemented to allow forfuture JORC compliant mineral resource explorationand calculations.Annual Report 201111