MISSION Hanking will continue to follow its fundamental philosophy in construction of “Safe Mine, Harmonious Mine, Green Mine” throughout the life of our mine operations and development. 2 Corporate Information 4 Financial Highlights 6 Chairman’s Statement CONTENTS 12 Management Discussion and Analysis 29 Report of the Directors 48 Corporate Governance Report 59 Biographies of Directors and Senior Management 67 Independent Auditor’s Report 69 Consolidated Statement of Comprehensive Income 70 Consolidated Statement of Financial Position 72 Consolidated Statement of Changes in Equity 74 Consolidated Statement of Cash Flows 76 Notes to the Consolidated Financial Statements 122 Definitions 02 China Hanking Holdings Limited CORPORATE INFORMATION China Hanking Holdings Limited (the “Company”) was incorporated in Cayman Islands as an exempted company with limited liability under the laws of Cayman Islands on 2 August 2010. The Company was listed on the Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) on 30 September 2011. As at 31 December 2011, the Company has issued 1,830,000,000 ordinary shares in total. The primary business operations of the Company and its subsidiaries (“the Group”) in China include iron ore exploration, mining, processing and selling and the product is iron ore concentrates. As at 31 December 2011, the Group’s iron ore resources exceeded 200 million tons. Four iron ore enterprises owned by the Group are situated at the famous iron ore metallogenic belt of Liaoning Anshan to Benxi and six processing plants operated are situated at the above mining areas. As one of the largest privately-owned iron ore enterprises in Northeastern China, the Group is capable of developing the growth potential of the iron ore market in China (especially in Liaoning) by virtue of the Group’s international team, low production and operation cost, strategic geographic location, proactive expansion plan for production as well as the supportive government policies on the integration of iron ore mining industries while at the same time, enhancing the Company’s competitiveness and bringing good returns to the shareholders. Annual Report 2011 03 CORPORATE INFORMATION (CONTINUED) Company’s Statutory Chinese Name Authorized Representatives 中国罕王控股有限公司 Mr. Wang Ping Ms. Mok Ming Wai Company’s Statutory English Name Joint Company Secretaries China Hanking Holdings Limited Mr. Xia Zhuo Stock Code Ms. Mok Ming Wai 03788 Auditor Registered Office Deloitte Touche Tohmatsu Certified Public Accountants Cricket Square 35/F, One Pacific Place Hutchins Drive 88 Queensway P.O. Box 2681 Hong Kong Grand Cayman, KY1-1111 Cayman Islands Hong Kong Legal Advisor Headquarters in the PRC Clifford Chance 28th Floor No. 227, Qingnian Street Jardine House Shenhe District One Connaught Place Shenyang 110015 Central Liaoning Province Hong Kong PRC Principal Place of Business in Hong Kong Compliance Adviser Haitong International Capital Limited 8th Floor, Gloucester Tower 25/F, New World Tower The Landmark, 15 Queen’s Road Central 16–18 Queen’s Road Central Hong Kong Hong Kong Nomination Committee Hong Kong Share Registrar Ms. Yang Min (Chairlady) Computershare Hong Kong Investor Services Limited Mr. Chen Yuchuan Rooms 1712–1716, 17th Floor, Hopewell Centre Mr. Johnson Chi-King Fu 183 Queen’s Road East, Wanchai Remuneration Committee Hong Kong Mr. Wang Ping (Chairman) Investor Enquiries Mr. Yang Jiye Investor hotline: 86-24-31298912 Mr. Chen Yuchuan Fax: 86-24-31298830 Audit Committee Website: www.hankingmining.com E-mail: [email protected] Mr. Wang Ping (Chairman) Mr. Johnson Chi-King Fu Mr. Wang Anjian 04 China Hanking Holdings Limited FINANCIAL HIGHLIGHTS A summary of the operational results, assets and liabilities, cash flows and key financial ratio information is as follows: Consolidated Statement of Comprehensive Income For the year ended 31 December 2011 2010 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000 Revenue 1,452,277 1,297,498 847,800 941,789 Cost of sales (425,295) (465,973) (499,619) (292,773) Gross profit 1,026,982 831,525 348,181 649,016 Other income 32,008 1,546 3,068 497 Other expenses (37,075) (12,425) (9,034) (8,736) Selling and distribution expenses (23,693) (23,208) (16,120) (206) Administrative expenses (120,511) (94,650) (91,407) (53,301) Net foreign exchange gain 13,380 ——— Finance costs (270,105) (35,598) (22,431) (168) Profit before tax 620,986 667,190 212,257 587,102 Income tax expense (214,183) (170,889) (58,512) (163,251) Profit and total comprehensive income for the year 406,803 496,301 153,745 423,851 Owners of the Company 403,544 444,007 140,147 394,952 Non-controlling interests 3,259 52,294 13,598 28,899 A year-on-year increase of 35.1% in the net profit from its core business (thousand) (Excluding the impact of listing fees and finance costs) Annual Report 2011 05 FINANCIAL HIGHLIGHTS (CONTINUED) Consolidated Statements of Financial Position For the year ended 31 December 2011 2010 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000 Current Assets 777,935 638,805 969,102 393,796 Non-current Assets 997,562 630,331 505,699 504,319 Current Liabilities 646,073 625,149 750,703 291,625 Non-current liabilities — 180,000 — — Equity attributable to owners of the Company 1,129,424 394,161 583,179 479,566 Non-controlling interests — 69,826 140,919 126,924 Consolidated Statements of Cash Flows For the year ended 31 December 2011 2010 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000 Net cash flows from operating activities 494,960 439,340 461,588 383,494 Net cash flows from investing activities (43,308) (342,626) 87,887 (396,046) Net cash flows from financing activities (175,775) (66,312) (537,202) 18,419 Selected Financial Ratios For the year ended 31 December 2011 2010 2009 2008 Gross profit margin 70.7% 64.1% 41.1% 68.9% Net profit margin 28.0% 38.3% 18.1% 45.0% Gearing ratio 36.4% 63.4% 50.9% 32.5% Return ratio on total assets 58.5% 51.2% 19.8% 75.4% CHAIRMAN’S STATEMENT Dear shareholders, On behalf of the Board of China Hanking Holdings Limited, I am pleased to present to you the audited annual results of the Company for the year ended 31 December 2011. Annual Report 2011 07 CHAIRMAN’S STATEMENT (CONTINUED) 1. Results Overview This is our first results report since the Company was officially listed on Hong Kong Stock Exchange on 30 September 2011. In the year 2011, in view of the complex commercial environment, the Company, through measures such as, putting extra effort on enhancing productivity and expanding reserve; continued to strengthen control on cost and corporate governance, pay emphasis on meticulous management; successfully achieved outstanding results in operation work and the operational results were comparatively good in history. The Group’s popularity and competitiveness were further enhanced. Operating indicators. The Group is one of the largest private enterprises specialized in the operation of iron mines in Northeastern China, and the end products of the Company are iron concentrates. During the reporting period, the sales revenue of the Group amounted to RMB1,452,277 thousand, representing an increase of RMB154,779 thousand as compared with the last year, which was mainly resulted from the increase in the selling price of the iron concentrates. During the reporting period, the Group recorded a net profit of RMB670,565 thousand from its core business, representing a year-on-year increase of RMB174,264 thousand or 35.1%, which, net of the nonrecurring intermediaries fee of RMB32,448 thousand and finance cost of RMB239,426 thousand arising from the listing of the Company, would be RMB406,803 thousand, representing a decrease of RMB89,498 thousand as compared with the last year. The net earnings per share was RMB0.26. The cash operating cost per ton of iron concentrates for the mines was RMB252 on average which was basically the same as that of the last year. Although the labour and raw material costs increased significantly during the reporting period, the Group managed to keep its production cost at a competitively low level by means of meticulous management and strict cost control. Capacity expansion. During the reporting period, the Group made significant progress on the improvement of mining technique and production capacity. Basing on scientific research, the No. 1 processing plant of Aoniu Mine implemented various technical improvement and capacity expansion measures. Basing on the principle of “more crushing and less grinding”, a new technology, known as the high press roll grinding technology was introduced. This contributed to the significant increase in the processing volume of ores in the processing plant. After repeated adjustments and fine-tuning, this technology gradually showed positive results in capacity enhancement and cost reduction. Through elaborate planning and implementation, the first phase of the capacity expansion project of Xingzhou Mine was successfully completed, in which a modern processing plant with a processing capacity of 1 million tons ores was established. Benxi Mine continued the transformation from open mining to underground mining and the project was progressing smoothly as planned. Mine exploration. During the reporting period, the Group made remarkable progress in mine exploration. Through exploration work conducted in the vicinity of and going deep into the existing mines, 83,377 Kt of iron ore resources were explored, representing a year-on-year increase of 64.85%, of which, 41,627 Kt, 39,216 Kt and 2,534 Kt were from Maogong Mine, Xingzhou Mine and Aoniu Mine, respectively. Such progress has changed Maogong Mine from a mine with exhausted resources to one of the Group’s mines that possess the greatest potential for capacity expansion, and created an opportunity for the continuous expansion of Maogong Mine.