This Circular Is Important and Requires Your Immediate Attention

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Continental Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of Continental Holdings Limited.

(Incorporated in Hong Kong with limited liability) (Stock Code: 00513) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION ACQUISITION OF HONGZHUANG GOLD MINE IN THE PRC INVOLVING THE ISSUES OF CONSIDERATION SHARES AND CONVERTIBLE NOTE AND ISSUE OF NEW SHARES TO INDEPENDENT SUBSCRIBER

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on pages 44 to 45 of this circular. A letter from Access Capital containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 46 to 67 of this circular. A notice convening the EGM to be held at Ballroom Three, 18/F, The Mira Hong Kong, 118 Nathan Road, Tsimshatsui, Kowloon, Hong Kong on Thursday, 11 February 2010 at 10:00 a.m. is set out on pages EGM-1 to EGM-3 of this circular. If you are not able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the registered office of the Company at Flats M and N, 1st Floor, Kaiser Estate, Phase III, 11 Hok Yuen Street, Hunghom, Kowloon, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof if you so wish.

25 January 2010 CONTENTS

Page

Definitions ...... 1

Letter from the Board ...... 7

Letter from the Independent Board Committee ...... 44

Letter from Access Capital ...... 46

Appendix I – Financial information on the Group...... I-1

Appendix II – Financial information on the Target Group ...... II-1

Appendix III – Financial information on the Enlarged Group ...... III-1

Appendix IV – Property valuation on the Group ...... IV-1

Appendix V – Property valuation on the Target Group ...... V-1

Appendix VI – Valuation on Hongzhuang Gold Mine ...... VI-1

Appendix VII – Technical report on Hongzhuang Gold Mine ...... VII-1

Appendix VIII – Industry overview ...... VIII-1

Appendix IX – The PRC laws and regulations relating to mining industry. . . IX-1

Appendix X – General information ...... X-1

Notice of the EGM ...... EGM-1

–i– DEFINITIONS

In this circular, unless the context requires otherwise, the following expressions have the following meanings:

“Access Capital” Access Capital Limited, a corporation licensed under the SFO to conduct Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders regarding the terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder

“Acquisition” the acquisition of the Sale Shares and the Target Shareholder’s Loan pursuant to the Sale and Purchase Agreement

“Additional Shareholder’s additional shareholder’s advance to be made by the Advance” Vendor to the Target Company for payment of the current outstanding portion of the registered capital of Henan Multi-Resources of US$10,500,400 (equivalent to approximately HK$81,378,100)

“AMSL” above mean sea level

“Announcement” the announcement of the Company dated 30 November 2009 in relation to, among other things, the Acquisition and the Subscription

“BMI” BMI Appraisals Limited, the independent valuer appointed by the Company for the valuation of Hongzhuang Gold Mine

“BVI” the British Virgin Islands

“Company” Continental Holdings Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange

“Completion” completion of the transactions contemplated under the Sale and Purchase Agreement

“Completion Date” date of Completion

“Consideration” the consideration of HK$738.0 million payable by the Company for the Sale Shares and the Target Shareholder’s Loan under the Sale and Purchase Agreement

– 1 – DEFINITIONS

“Consideration Share(s)” new Shares to be issued by the Company to satisfy part of the Consideration

“Conversion Shares” new Shares to be issued by the Company upon the conversion of the Convertible Note at an initial conversion price of HK$1.9 per Share (subject to adjustments)

“Convertible Note” the convertible note to be issued to Tamar Investments (or its wholly-owned subsidiary(ies)) on Completion to satisfy part of the Consideration

“Director(s)” director(s) of the Company

“Dr. Chan” Dr. Chan Sing Chuk, Charles, BBS, JP, Chairman and a Director

“EGM” the extraordinary general meeting of the Company to be convened on Thursday, 11 February 2010 at 10:00 a.m. for the purpose of considering and, if thought fit, approving the terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder

“Enlarged Group” the Group as enlarged by the Acquisition

“Gold Mine Licence” the existing mining licence of Hongzhuang Gold Mine issued to Henan Multi-Resources

“Golden Offer” Golden Offer Holdings Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Target Company as at the Latest Practicable Date

“Golden Offer Group” Golden Offer and Henan Multi-Resources

“Group” the Company and its subsidiaries

“Henan Multi-Resources” (Henan Multi-Resources Mining Company, Limited*), which is a wholly foreign owned enterprise established in the PRC and is a wholly-owned subsidiary of Golden Offer

“HK$” Hong Kong dollars, the lawful currency of Hong Kong

“Hong Kong” or “HK” Hong Kong Special Administrative Region of the PRC

“Hongzhuang Gold Mine” the two mining areas, namely “Hongzhuang Mine” and “Yuanling Mine”, both located at the Luanchuan County, Henan Province, the PRC, and are owned by Henan Multi-Resources

– 2 – DEFINITIONS

“Independent Board Committee” the independent board committee of the Company formed by all the independent non-executive Directors to advise the Independent Shareholders on the terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder

“Independent Shareholders” the Shareholders (other than Dr. Chan and his family members and their respective associates) who are not required to abstain from voting at the EGM

“km2” square kilometers

“Last Trading Date” 19 November 2009, being the last trading date of the Shares prior to the issue of the Announcement

“Latest Practicable Date” 21 January 2010, being the latest practicable date for ascertaining certain information prior to printing of this circular

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

“MOLAR” the Ministry of Land and Resources of the PRC ( )

“New Gold Mine Licence” the mining licence of Hongzhuang Gold Mine to be issued to Henan Multi-Resources

“NPC” the National People’s Congress of the PRC ( ), the national legislative body of the PRC

“oz” ounce, a unit of weight. In the precious metals industry, an ounce means a troy ounce equal to 31.1035 grams

“PBOC” the People’s Bank of China

“PRC” the People’s Republic of China and, for the purpose of this circular, excluding Hong Kong, the Macau Special Administrative Region and Taiwan

“Reorganisation” the transfer of the entire issued share capital of (and the outstanding shareholder’s loan due from) Golden Offer from the Vendor to the Target Company, such that Golden Offer will become a wholly-owned subsidiary of the Target Company and the Target Company will become a subsidiary of the Vendor

– 3 – DEFINITIONS

“Sale and Purchase Agreement” the agreement to acquire the Sale Shares and the Target Shareholder’s Loan entered into among the Company, the Vendor and Dr. Chan on 20 November 2009, as supplemented by a supplemental agreement entered into among the same parties on 30 November 2009

“RMB” Renminbi, the lawful currency of the PRC

“Sale Shares” the entire issued and fully paid-up share capital of the Target Company at Completion

“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

“SGE” the Shanghai Gold Exchange

“Share(s)” share(s) in the Company of HK$0.1 each

“Shareholder(s)” holder(s) of the Shares

“sq.m.” square meters

“SRK” SRK Consulting China Limited, an independent technical consultant appointed by the Company in relation to Hongzhuang Gold Mine

“State Council” the State Council of the PRC ( )

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Subscriber” All Max Holdings Limited, a company incorporated in Hong Kong with limited liability

“Subscription” the subscription of the Subscription Shares by the Subscriber pursuant to the Subscription Agreement

“Subscription Agreement” the agreement to subscribe the Subscription Shares entered into between the Company (as issuer) and the Subscriber (as subscriber) on 23 November 2009

“Subscription Share(s)” new Share(s) to be issued by the Company pursuant to the Subscription Agreement

“Tamar Investments” Tamar Investments Group Limited, a company incorporated in the BVI with limited liability and wholly owned by Dr. Chan and Ms. Cheng Siu Yin, Shirley, a Director

– 4 – DEFINITIONS

“Target Company” Big Bonus Limited, a company incorporated in the BVI with limited liability and a wholly-owned subsidiary of the Vendor as at the Latest Practicable Date

“Target Group” the Target Company and its subsidiaries

“Target Shareholder’s Loan” the entire loan and indebtedness owed by the Target Company to the Vendor as at the Completion Date, which is unsecured and interest-free and has no fixed repayment date, other than the Additional Shareholder’s Advance made by the Vendor

“tonne” or “t” metric tonne, equals to 1,000 kilograms

“tpd” tonnes per day

“US$” United States dollar(s), the lawful currency of USA

“USA” the United States of America

“VAT” value added tax

“Vendor” Benefit Well Investments Limited, a company incorporated in the BVI with limited liability and owned by Dr. Chan

“Warrants” the unlisted warrants of the Company issued on 18 January 2010 pursuant to the two consultancy agreements dated 4 December 2009 between the Company and Digichina Trading Limited and Paramount Ability Corporation, respectively, as announced in the Company’s announcement dated 4 December 2009, conferring subscription rights to subscribe up to the aggregate amount of HK$86,250,000 for new Shares at the subscription price of HK$1.725 per Share (subject to adjustment for, among other things, share consolidation, share sub-division, capitalisation of profits or reserves, capital distribution, rights issue, grant of options, warrants or other rights to subscribe for or purchase any Shares) at any time during the period from 1 April 2010 to the day falling 24 months after the date of issue of the Warrants

“Warrant Shares” new Shares to be issued by the Company upon exercises of the subscription rights conferred by the Warrants

“%” per cent.

– 5 – DEFINITIONS

For illustration purpose only, amounts denominated in RMB have been converted into HK$ at a rate of RMB1 = HK$1.13 and amounts denominated in US$ have been converted into HK$ at a rate of US$1 = HK$7.75.

* The unofficial English translations or transliterations of Chinese names are for identification purpose only

– 6 – LETTER FROM THE BOARD

(Incorporated in Hong Kong with limited liability) (Stock Code: 00513)

Executive Directors: Registered Office: Dr. Chan Sing Chuk, Charles, BBS, JP Flats M and N, 1st Floor Ms. Cheng Siu Yin, Shirley Kaiser Estate, Phase III Ms. Chan Wai Kei, Vicki 11 Hok Yuen Street Mr. Chan Wai Lap, Victor Hunghom, Kowloon Hong Kong Non-executive Director: Mr. Chu Wai Kok

Independent non-executive Directors: Mr. Wong Kai Cheong Mr. Yu Shiu Tin, Paul, BBS, MBE, JP Mr. Chan Ping Kuen, Derek Mr. Sze, Irons

25 January 2010 To the Shareholders

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION ACQUISITION OF HONGZHUANG GOLD MINE IN THE PRC INVOLVING THE ISSUES OF CONSIDERATION SHARES AND CONVERTIBLE NOTE AND ISSUE OF NEW SHARES TO INDEPENDENT SUBSCRIBER

The Board announced on 30 November 2009 that the Company, the Vendor and Dr. Chan have entered into the Sale and Purchase Agreement pursuant to which the Company has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Shares and the Target Shareholder’s Loan at a total consideration of HK$738.0 million. The principal asset of the Target Group is its interest in Hongzhuang Gold Mine. On the same date, the Board also announced that the Company also entered into the Subscription

– 7 – LETTER FROM THE BOARD

Agreement, pursuant to which the Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to issue an aggregate of 21,764,705 new Shares at a subscription price of HK$1.7 per Subscription Share. The gross proceeds of the Subscription will be HK$37.0 million (before expenses of approximately HK$0.3 million). The Company intends to use the net proceeds from the Subscription to finance part of the Consideration and for general working capital of the Group.

The main purpose of this circular is to provide you with, among other things, (i) further information on the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder; (ii) the recommendation of the Independent Board Committee and the advice of Access Capital regarding the terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder; (iii) accountants’ report of the Target Group; (iv) pro forma financial information on the Enlarged Group; (v) property valuation reports on the Group and the Target Group; (vi) valuation report on Hongzhuang Gold Mine; (vii) technical report on Hongzhuang Gold Mine; and (viii) notice of the EGM.

(A) THE SALE AND PURCHASE AGREEMENT

Date: 20 November 2009 and supplemented by a supplemental agreement dated 30 November 2009

Parties:

1. The Company as purchaser

2. Benefit Well Investments Limited as vendor

3. Dr. Chan has guaranteed the due and punctual performance and observance by the Vendor of its obligations under the Sale and Purchase Agreement

The Vendor is principally engaged in investment holding and is beneficially owned by Dr. Chan, who is a Director and the controlling Shareholder.

Subject

The Sale Shares, representing the entire issued and fully paid-up share capital of the Target Company, and the Target Shareholder’s Loan. As at the Latest Practicable Date, the Target Shareholder’s Loan amounted to approximately HK$149.8 million. The Vendor has undertaken in favour of the Company that the amount of the Target Shareholder’s Loan will not be less than HK$150.0 million upon Completion. The Target Shareholder’s Loan was provided by the Vendor to finance the operation of the Target Group.

As detailed below, the principal asset of the Target Group is its 100% interest in Hongzhuang Gold Mine in Henan Province, the PRC. Based on the technical report prepared by SRK as set out in appendix VII to this circular, Hongzhuang Gold Mine

– 8 – LETTER FROM THE BOARD has indicated economic basic reserves (122b) of about 11 tonnes (metallic gold) and indicated and inferred intrinsic economic resources (332 and 333) of about 30 tonnes (metallic gold).

Consideration

HK$738.0 million to be satisfied upon Completion in the following manner:

1. as to a sum of HK$113.0 million by payment in cash;

2. as to a sum of HK$300.0 million by way of issue of a total of 176,470,588 Consideration Shares to Tamar Investments (or its wholly-owned subsidiary(ies)); and

3. as to the balance of HK$325.0 million by way of issue of the Convertible Note to Tamar Investments (or its wholly-owned subsidiary(ies)).

The Consideration has been arrived at after arms’ length negotiations between the Company and the Vendor and was determined with reference to (i) the Minimum Gold Mine Value (as defined below) of HK$800.0 million; (ii) the Target Shareholder’s Loan of not less than HK$150.0 million upon Completion; and (iii) the prevailing gold price. The Minimum Gold Mine Value was determined based on a valuation of Hongzhuang Gold Mine of HK$900.0 million as at 31 October 2009 prepared by BMI, the full text of which is set out in appendix VI to this circular. Shareholders’ attention is drawn to the fact that the valuation of Hongzhuang Gold Mine of HK$900 million was chiefly based on the indicated economic basic reserves (122b) of about 11 tonnes (metallic gold) and indicated and inferred intrinsic economic resources (332 and 333) of about 30 tonnes (metallic gold) identified in Hongzhuang Mine of Hongzhuang Gold Mine.

Additional Shareholder’s Advance

Prior to the Completion Date, the Vendor shall advance or procure the advance of the Additional Shareholder’s Advance of US$10,500,400 (equivalent to approximately HK$81,378,100) to the Target Company to pay up in full the outstanding registered capital of Henan Multi-Resources of US$10,500,400 (equivalent to approximately HK$81,378,100). Upon payment of the registered capital of Henan Multi-Resources by the Additional Shareholder’s Advance, the Vendor may procure Henan Multi-Resources to apply the same to settle and discharge the following amounts:

(i) the costs in relation to the application of the New Gold Mine Licence; and

(ii) the total sum of RMB28.8 million (equivalent to approximately HK$32.5 million) (the “Repayable Amount”) on accounts of the Target Group payable to certain companies controlled by Dr. Chan.

The unused portion of the Additional Shareholder’s Advance will be applied as general working capital of Henan Multi-Resources. Upon Completion, the Company shall reimburse the Vendor the full amount of the Additional Shareholder’s Advance

– 9 – LETTER FROM THE BOARD made to the Target Group outstanding at the Completion Date on dollar-for-dollar basis. However, if the costs to obtain the New Gold Mine Licence exceed RMB30.0 million (equivalent to approximately HK$33.9 million), the Vendor shall bear the excess amount and the reimbursement to the Vendor shall be reduced by such excess.

The Repayable Amount was previously provided by certain companies controlled by Dr. Chan for the payment of the fees in relation to the public tender of Hongzhuang Gold Mine. As at the Latest Practicable Date, the Vendor has not yet provided the Additional Shareholder’s Advance to the Target Group.

Conditions precedent

Completion shall be conditional upon satisfaction (or, where applicable, waiver) of a number of conditions precedent summarised below:–

(i) the passing of all resolutions by the Independent Shareholders at a general meeting of the Company approving the entering into of the Sale and Purchase Agreement by the Company and the performance of the transactions contemplated thereunder;

(ii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Consideration Shares and the Conversion Shares;

(iii) the New Gold Mine Licence having been issued to Henan Multi-Resources (and not revoked or otherwise rendered invalid by the authorities in the PRC);

(iv) all existing permits in respect of the operation of the business of the Target Group remaining valid and subsisting and no notice (actual or constructive) having been received by the Vendor or any member of the Target Group that the same will be terminated, revoked, withdrawn or suspended;

(v) all necessary statutory governmental and regulatory obligations having been complied with, and all necessary consents, approvals and waivers from the relevant statutory governmental and regulatory authorities having been obtained and continuing in force;

(vi) the Company having received legal opinion from a PRC lawyer to be appointed by the Company and shall be in such form and substance acceptable to the Company, in respect of Henan Multi-Resources and its assets, business and operations, contracts and commitments, taxation and legal and regulatory aspects;

(vii) the Company having obtained valuation report issued by an independent professional valuer appointed by the Company in respect of the Hongzhuang Gold Mine, which shall comply with the relevant requirements of the Listing Rules, opining on the market value of 100% interest in Hongzhuang Gold

– 10 – LETTER FROM THE BOARD

Mine as at the reference date in compliance with the Listing Rules, provided that such market value shall not be less than HK$800.0 million (the “Minimum Gold Mine Value”);

(viii) the Company having obtained a technical report on Hongzhuang Gold Mine issued by a technical adviser appointed by the Company, which shall comply with the relevant requirements of the Listing Rules;

(ix) all of the conditions precedent to the completion of the Subscription Agreement having been fulfilled in accordance with its terms;

(x) the Company notifying the Vendor in writing that it is reasonably satisfied with the due diligence review on the Target Group;

(xi) the warranties of the Vendor in the Sale and Purchase Agreement remaining true, accurate and not misleading in all material respects;

(xii) the Reorganisation having been completed at the sole costs and expenses of the Vendor; and

(xiii) all necessary consent and approval to the supplemental agreement to the Sale and Purchase Agreement and all the transactions to be made thereunder having been obtained.

The Company may in its sole and absolute discretion at any time before Completion waive the above conditions precedent by notice in writing to the Vendor, but it may not waive conditions (i) to (v), (vii) to (ix) and (xii) if and to the extent that such waiver, if issued, would cause or result in any of the parties to the Sale and Purchase Agreement or any members of the Target Group breaching the Listing Rules and any other applicable law and regulations. As at the Latest Practicable Date, conditions (xii) and (xiii) have been fulfilled.

The Company has appointed a PRC legal adviser to advise the Company if the Target Group has obtained all necessary permits in respect of the operation of the business of the Target Group, including but not limited to business licence, business registration, mine exploration permit and the New Gold Mine Licence and, if so, whether those permits are valid and have a reasonable period to expiry.

If any of the conditions precedent has not been fulfilled (or, where applicable, waived) on or before six months from the date of the Sale and Purchase Agreement, either party to the Sale and Purchase Agreement shall be entitled to rescind the Sale and Purchase Agreement by giving written notice to the other parties. If condition precedent (iii), concerning the issue of the New Gold Mine Licence, shall not be fulfilled by the date falling six months after the date of the Sale and Purchase Agreement (and it is the only unfulfilled condition precedent then), the long stop date shall be automatically extended for three more months (or such shorter period as agreed by the Vendor and the Company in writing). If such condition precedent shall still remain unfulfilled by such extended long stop date, and provided that satisfactory

– 11 – LETTER FROM THE BOARD evidence is provided to demonstrate that the Vendor has taken all commercially reasonable steps to procure issuance of the New Gold Mine Licence and the delay in issuance of such licence is not attributable to the default of the Vendor or the Target Group, the Company may in its sole discretion (but not obligation) further extend the long stop date for up to three more months by written notice to the Vendor.

Convertible Note

Principal terms of the Convertible Note are set out below:

Aggregate principal HK$325.0 million amount: Conversion price: HK$1.9 per Conversion Share, subject to adjustments for, among other things, share consolidation, share sub-division, capitalisation of profits or reserves, capital distribution, rights issue, grant of options, warrants or other rights to subscribe for or purchase any Shares Coupon rate: 1.5% per annum, payable in arrears on 30 June in each year Conversion period: The holder of the Convertible Note shall have the right to convert at any time prior to the date of maturity in whole or in part of the principal amount of the Convertible Note into the Conversion Shares Maturity: Third anniversary of the date of issue of the Convertible Note. If and to the extent that there shall be any outstanding principal amount of the Convertible Note at the date of maturity, the Convertible Note is deemed to be automatically converted into the Conversion Shares Early redemption: At any time after the date of the issue of the Convertible Note and before the fifth business day before the date of maturity, the Company may redeem all or part of the Convertible Note at a price being equal to 100% of the face value of the part of principal amount of the Convertible Note proposed to be redeemed together with interest accrued thereon up to and excluding the date of redemption Ranking: The Convertible Note should rank pari passu with all other present and future unsecured and unsubordinated obligations of the Company Transferability: The Convertible Note may be assigned or transferred to any third party, subject only to compliance with the Listing Rules and all applicable laws and regulations Listing: No application will be made for the listing of the Convertible Note on the Stock Exchange or any other stock exchange

– 12 – LETTER FROM THE BOARD

The terms of the Convertible Note (including the initial conversion price of HK$1.9 per Conversion Share and the coupon rate of 1.5% per annum) have been arrived at after arms’ length negotiations between the Company and the Vendor and were determined with reference to, among other things, (i) borrowing rate of the Company prevailing at the time of entering into the Sale and Purchase Agreement; (ii) the unsecured nature of the Convertible Note; (iii) the principal of the Convertible Note will only be repaid at the option of the Company; (iv) the unlisted nature of the Convertible Note; (v) the borrowing rate of the Company if an additional debt financing of HK$325.0 million (being the principal amount of the Convertible Note) is required by the Group; and (vi) the Share price prevailing at the time of entering into the Sale and Purchase Agreement. Accordingly, the Directors consider that the terms of the Convertible Note are fair and reasonable.

(B) INFORMATION ON THE TARGET GROUP

(i) Corporate information on the Target Group

Set out below is the shareholding structure of the Target Group as at the Latest Practicable Date:

Vendor

100%

Target Company

100%

Golden Offer

100%

Henan Multi-Resources

Hongzhuang Gold Mine

Immediately before the completion of the Reorganisation, both the Target Company and Golden Offer were held directly by the Vendor. As at the Latest Practicable Date, the Reorganisation has been completed and the structure of the Target Group has changed to the structure as set out above. The Target Company is a company incorporated in the BVI on 16 November 2007 and is principally engaged in investment holding.

(ii) Financial information on the Target Group

Save for the Reorganisation, the Target Company has no other significant operation and has not recorded any significant turnover nor profit/loss since its incorporation. As at 30 September 2009, the Target Company had an audited capital deficiency of approximately HK$12,000. Set out below are certain audited consolidated

– 13 – LETTER FROM THE BOARD financial information on the Golden Offer Group for the period from 5 June 2007 (being date of incorporation of Golden Offer) to 30 June 2008, year ended 30 June 2009 and three months ended 30 September 2009:

For the period For the three For the from 5 June months ended year ended 2007 to 30 September 2009 30 June 2009 30 June 2008 HK$’000 HK$’000 HK$’000

Revenue 6,091 ––

Loss before taxation (189) (45,901) (37,293)

Loss for the period/year (189) (45,901) (37,293)

As at 30 September 2009, the audited consolidated capital deficiency of the Golden Offer Group was approximately HK$81.9 million.

Hongzhuang Gold Mine was acquired by Henan Multi-Resources through a public tender at approximately RMB78.0 million (including 2% bidding commission) (equivalent to approximately HK$88.1 million).

Please refer to the section headed “(G) Management discussion and analysis of the Target Group” in this letter from the Board for the detailed discussion of the financial performance and position of the Target Group.

(iii) Operating status

The principal asset of the Target Group is its 100% interest in Hongzhuang Gold Mine. Hongzhuang Gold Mine is located in Luanchuan County, Henan Province, the PRC and includes two mining areas, namely Hongzhuang Mine (1.09 km2) and Yuanling Mine (4.5742 km2). According to the technical report prepared by SRK as set out in appendix VII to this circular, Hongzhuang Mine has indicated economic basic reserves (122b) of about 11 tonnes (metallic gold) and indicated and inferred intrinsic economic resources (332 and 333) of about 30 tonnes (metallic gold), whilst the known resources at Yuanling Mine at altitude 500 to 1,080 meters AMSL was nearly mined-out (the output during trial production runs is about 50 to 80 tpd) based on the information available. Current activity at Yuanling Mine is only limited mining on the remaining known resources to supply ores for trial production runs at the pilot plant.

Note: The resource estimates disclosed are based on the PRC National Standard – Solid Reserve and Resources Classification System ( ) (GB/T17766-1999) (the “Standard”).

– 14 – LETTER FROM THE BOARD

As extracted from the Standard:

(i) Indicated economic basic reserves (122b): The extractable part of the indicated economic basic reserves. It refers to the lot of land where more detailed investigation and feasibility study have been conducted. The result of the feasibility report is that the mining is economical and the measured quantity of reserves is relatively reliable. But that does not take into account any quantities which may be lost in the process of design and mining.

(ii) Indicated intrinsic economic resources (332): It refers to the lot of lands where more detailed investigation has been conducted. The geological reliability is indicated. A summary research has only been done for the feasibility assessment. The economic significance is in the submarginal economic area. The reliability of the measured quantity of resources is relatively high, while the reliability of feasibility assessment is low.

(iii) Inferred intrinsic economic resources (333): It refers to the lot of lands where only preliminary evaluation has been conducted. The geological reliability is inferred. The quantity of resources is calculated only by limited data with low reliability. A summary research has only been done for the feasibility assessment. The economic significance is in the submarginal economic area. The reliability of feasibility assessment is low.

In addition, according to the technical report as set out in appendix VII to this circular, approximately 252,974 tonnes of gold ore is required to refine into one tonne of metallic gold.

The Gold Mine Licence, i.e. existing mining licence, covers the area from altitude 500 to 1,080 meters AMSL for both Hongzhuang Mine and Yuanling Mine. The Gold Mine Licence is for a period from August 2009 to September 2010 with an allowed production capacity of 30,000 tonnes (gold ore) per annum. In addition, Henan Multi-Resources has an exploration licence covering the entire Hongzhuang Mine area below altitude 500 meters AMSL and expiring in January 2010.

The New Gold Mine Licence will cover the area from altitude 150 to 1,080 meters AMSL for Hongzhuang Mine and from altitude 500 to 1,080 meters AMSL for Yuanling Mine. In other words, the New Gold Mine Licence will include all areas currently covered by the Gold Mine Licence and the existing exploration licence. It should be emphasised that, as set out in the sub-section headed “(ix) Future plan” in this letter from the Board below, the Directors plan to focus on the mining activities of Hongzhuang Mine on a two-stage approach and the New Gold Mine Licence will only cover the stage one production. The stage-one operation will only cover approximately 18 tonnes of resources. The balance of approximately 23 tonnes of resources will be covered in the stage-two production, which another mining licence with an estimated cost of approximately RMB 45 million will be required. Based on the relevant PRC laws and regulations, the existing holder of a mining licence has a preferential right when making a renewal application to the identified reserve and resources. On such basis, the Directors are of the view that they do not foresee any obstacles in obtaining the mining licence for the second-stage production.

Set out below is a diagram illustrating details of the Gold Mine Licence, the current exploration licence and the New Gold Mine Licence.

– 15 – LETTER FROM THE BOARD

Current licences Mountains 1,080m AMSL Mining Licence 500 – 1080m Hongzhuang Yuanling Mine Ground level 500 AMSL 600m AMSL Exploration Licence 41 tonnes of below 500m resources

New Gold Mine Licence 1080m AMSL 1,080m AMSL New mining Licence Hongzhuang Yuanling Mine Ground level 500 AMSL 600m AMSL 150m AMSL 41 tonnes of resources

The Vendor undertakes to use all commercially reasonable efforts to procure Henan Multi-Resources to process and complete the application to the relevant government authorities in the PRC for issuance of the New Gold Mine Licence in compliance with the following parameters and conditions:

(i) the term shall not be less than five years (from the date of issue, which is expected to be first half of 2010);

(ii) the geographical scope and location of the mining permit area shall include the existing gold mining area and exploration area designated in the Gold Mine Licence; and

(iii) on such other terms as reasonably acceptable to the Company.

According to a letter from Department of Land and Resources of Henan Province ( , a provincial division of MOLAR) dated 30 November 2009 (the “Approval Letter”), the New Gold Mine Licence, if granted, is expected to cover the area from elevation of 150 to 1,080 meters AMSL for Hongzhuang Mine and the area from elevation of 500 to 1,080 meters AMSL for Yuanling Mine. According to the Approval Letter, (i) the mine has an area of approximately 5.7 km2 and contains ore of approximately 3.9 million tonnes and gold resources of approximately 18 tonnes; (ii) the annual planned production capacity is 120,000 tonnes; and (iii) the operating service period is 20 years. The Directors are of the view that the terms of the Approval Letter are in line with the assumptions adopted in preparing the future plan and the

– 16 – LETTER FROM THE BOARD valuation of Hongzhuang Gold Mine. The management of Henan Multi-Resources confirmed that it did not foresee any difficulties for Henan Multi-Resources to obtain the New Gold Mine Licence.

Area not covered by the Gold Mine Licence will be area outside the horizontal and vertical limits as referred to in this sub-section above. The rights will be those rights as prescribed by the current prevailing mining right laws in PRC. Specifically, the Company believes there may be potential in further depth at Yuanling Mine below the current mining licence 500 meters vertical limit on the basis that the exploration result at Hongzhuang Mine where significant resources are available at below 500 meters AMSL. Henan Multi-Resources is not reporting and has not reported any resources estimate of Yuanling Mine based on exploration result of Hongzhuang Mine. Henan Multi-Resources is speculating that there may be further resources potential at below 500 meters AMSL because it is proven that there exist some significant resources at below 500 meters AMSL in Hongzhuang Mine, which is in the immediate vicinity of Yuanling Mine. This is purely a commercial speculation and not a technical resources estimation at this stage or any official technical exploration work has commenced at this stage. Save for the area to be covered by the New Gold Mine Licence, the Company does not have a formal finalised exploration plan with other areas of Hongzhuang Mine and Yuanling Mine at this stage.

Currently and for the purpose of trial run, Henan Multi-Resources has a pilot processing plant in Hongzhuang Gold Mine with a total production capacity of 30,000 tonnes (gold ore) per annum (on the basis of 100 tonnes per day and 300 production days per year in accordance with the existing licence). Exploration work within mining permit area (including areas above 500 meters AMSL for both Hongzhuang Mine and Yuanling Mine) is mainly for the purpose of supporting production. This will be part of routine mining production activity and will be within the context of the New Gold Mine Licence. Henan Multi-Resources is carrying out alteration work on the production plant so that the production procedure should best fit with the characteristics of the gold ore identified in Hongzhuang Mine. Alteration work, which is expected to cost approximately RMB1 million (equivalent to approximately HK$1.1 million), is expected to be funded by internal resources of the Target Group and completed before Completion. Henan Multi-Resources has obtained the relevant land use right certificates, which will expire in 2055, in relation to its processing plant and supporting facilities, but not the other area in Hongzhuang Gold Mine as exploitation of gold ores in the area does not require obtaining of land use rights.

Generally, the exploration methods included geo-physical and geo-chemical investigation, trenching on the surface, drilling and investigation of the historic artisanal tunnels. Exploration design, planning, supervision, analysis, interpretation and monitoring will be provided by existing staff. The key management team has sufficient experience and expertise for this purpose. External consultant or sub-contractor will be engaged for specialist job, e.g. geo-physical investigation, drilling, result verification, etc. Physical work will be carried out by the current mining contractor team, e.g. trenching or tunneling. The technical staffs to be employed to support exploration work involve various technical professional disciplines, e.g. mining engineer, geologist, surveyor and chemist.

– 17 – LETTER FROM THE BOARD

Hongzhuang Mine is under trial production stage and is currently preparing for the planned expansion to increase production capacity. Key activities before full scale operations include further strengthening of the human resources, preparing various feasibility studies, applying for the New Gold Mine License, and further conducting exploration, trial and pilot experimental production etc. Further exploration work on Hongzhuang Mine will continue so as to prepare for the planned production expansion and identify any additional reserves and resources.

(iv) Competitive advantages

(a) Experienced and dedicated senior management team

At the Group level, Dr. Chan has invested in a number of gold mining projects in Indonesia since 2007. The Indonesia projects have an exploration licence and they are currently at the stage of exploration. He invests and controls the Indonesia projects and plays a supervisory role on these projects. Dr. Chan has also been an executive director and the legal representative of a PRC company principally holding a number of companies engaged in gold mining operations in Sichuan Province of the PRC since early 2009. The Sichuan project has a gold mining licence and an exploration licence and it is still under exploration. Dr. Chan plays a supervisory role on this project. Mr. Victor Chan, a Director, has also been a supervisor ( ) of the aforesaid PRC holding company and plays a supervisory role in the Sichuan project since then. Both Dr. Chan and Mr. Victor Chan have involved in the planning and approval of budget and business strategy of the projects. Executive staff of each project reports to both Dr. Chan and Mr. Victor Chan on a regular basis.

At the Target Group’s level, its senior management team also has extensive experience in the mining industry. Set out below is a list of key management staff of Henan Multi-Resources:

Chief executive – Mr. Terry Au Yeung

Mr. Au Yeung has gained wide exposure in the mining industry and mineral ore trading especially from copper, gold, iron and lateritic ore in Asia. He is an Australian citizen and possesses experience in the mining industry both in China and overseas. Before joining Henan Multi-Resources, Mr. Au Yeung was a consultant to a holding company, which had interest in a Shanghai-listed aluminum primary producer. He was primarily responsible for providing advices to the company for a substantial merger exercise and subsequently listing on the London Stock Exchange.

Mine Manager – Mr. Wang Jian Gong

Mr. Wang has around 19 years of experience in mining and ore processing industry. Before joining Henan Multi-Resources, Mr. Wang was a general manager in a mining company.

– 18 – LETTER FROM THE BOARD

Technical Manager – Mr. He Gang

Mr. He has around 26 years of experience in geo-chemical exploration. Before joining Henan Multi-Resources, Mr. He was a senior engineer in Sichuan Metallurgy and Geological Explorations Institute.

Chief Engineer – Mr. Zhu Chao Chen

Mr. Zhu commenced his career in mining industry from 1970s. During 2002 to 2007, he was a department manager and chief engineer in a gold mine company.

Plant Manager – Mr. Wang Zhong Sheng

Mr. Wang has more than 20 years of experience in ore processing industry. Before joining Henan Multi-Resources, he worked in a mining company responsible for supervising the general operation of the mine.

It is believed that the Target Group’s experienced and dedicated senior management team will contribute to the continuous growth of the Target Group’s business.

(b) A significant portion of the exploration result is in an advanced stage

The exploration result shows that more than one fourth of the resources are attributable to grade “indicated economic basic reserves (122b)”, which enables the owner to commence mining activities immediately. This allows Henan Multi-Resources to generate positive operating cash flow once full production is commenced.

Hongzhuang Gold Mine is situated on a known gold mining belt and is surrounded by a number of gold mines under active production. The indicated and inferred intrinsic economic resources (332 and 333) of about 30 tonnes (metallic gold) at Hongzhuang Mine were identified based on previous exploration work. Henan Multi-Resources may conduct further exploration, which may identify additional economic reserve and/or resources. Also, the indicated economic basic reserves (122b) of about 11 tonnes (metallic gold) and indicated and inferred intrinsic economic resources (332 and 333) of about 30 tonnes (metallic gold) are attributable to part of the area of Hongzhuang Mine only, additional reserve and/ or resources may be identified in the other area of Hongzhuang Gold Mine to be covered by the New Gold Mine Licence. Furthermore, Henan Multi-Resources may also (i) acquire the mining rights in other areas of Hongzhuang Mine currently not covered by the New Gold Mine Licence, e.g. area from altitude below 150 meters AMSL; and (ii) conduct further exploration work in Yuanling Mine for area from altitude 500 to 1,080 meters AMSL. All the above factors will contribute to the growth potential of the business of the Target Group.

– 19 – LETTER FROM THE BOARD

(d) Relationships and experience in the PRC

The Target Group’s management team comprises a combination of Australia, Hong Kong and PRC citizens, giving it the ability to effectively manage PRC business and cultural issues and also access international mining practices and international capital. Such multi-cultural background provides Henan Multi-Resources with advantage over the other mines in terms of negotiations with local customers and suppliers as well as the adoption of international recognised standards of design, development and construction of mining projects.

(e) Well developed public infrastructure in the area

Paved road is connected to the mines and production plant. Hongzhuang Gold Mine is situated close to the transportation hub of the region and is connected to a major national freeway. Grid power supply, water and communication facilities are all available on site.

(f) Adopting best practice

The Target Group seeks to differentiate itself from other mining operations in the PRC by introducing and adhering to applicable PRC or international standards (whichever is higher) in dealing with environmental, health and safety and community relations issues.

The delivery of sustainable benefits for all key stakeholders is a guiding value for the Target Group’s activities. The Target Group aims to achieve this by implementing appropriate policies to health, safety, environmental and community relations in a consistent manner.

The Target Group now has significant experience in implementing these policies from engaging in exploration projects, mine development and mine operations.

Based on the experience of the Board and the senior management of the Target Group, the Directors are of the view that the Target Group has significant experience in implementing policies in relation to environmental, health and safety and community relations issues.

– 20 – LETTER FROM THE BOARD

The Target Group has established applicable standards in dealing with environmental, health and safety and community relations issues including the followings:

Environmental

– Tailing released in the production cycle is closely monitored to ensure its toxic chemical concentration is below allowable limit

– Safety and remedial measures in place in case toxic chemical is detected exceeding allowed level

Health

– Annual body check for each employee

Safety

– Provision of safety equipment such as safety helmets, goggles, masks, ear muffs, boots and gloves

– Dangerous items are stored in accordance with applicable laws and regulations

– Warning signs placed at potentially dangerous area in the processing plant

– Provision of first aid training to all production staff

– Two-man rule for handling of dangerous items

– Wire fence has been erected to prevent unaware personnel from entering or falling into the tailing dam

All these standards have to be complied with by all staff and external contractors of the Target Group. Although the mining operation is outsourced to third party contractor, the management team of the Target Group remains on site to supervise the operation to ensure all applicable laws and regulations are strictly adhered. Any non-compliance or irregularity will be reported during the weekly meeting by the Target Group’s management and staff on site and rectified immediately.

The Target Group is located in PRC and is legally required to comply with prevailing PRC statutory required standards in relation to the environmental, health and safety and community relation issues. The Company confirms that the Target Group complies with these standards, which are also comparable to PRC mining industry standards.

– 21 – LETTER FROM THE BOARD

(v) production procedure

The production at Hongzhuang Gold Mine can be categorised into four procedures, namely mining, ore processing, beneficiation and sales of gold concentrate. Set out below is the flow chart showing the production procedures of the production plant of Hongzhuang Gold Mine after the alteration work:

原礦 Ore

自磨

分級 Classifier Cyclone Separator 旋流球磨 Ball Mill

Mixer 攪拌槽跳汰 Jigger

重精礦 Heavy concentrate Rougher 粗浮 concentration

Cleaner I 精礦I 掃選I Scavenger I

精礦II Cleaner II 掃選II Scavenger II

精礦III Cleaner III 尾礦 Tailing

金精礦 Gold concentrate

Set out below is the detailed discussion of each of the production procedures.

(a) Mining

Hongzhuang Gold Mine is an underground mine. The mining process can be divided into two main phases: (i) creating access to the ore body and (ii) mining the ore body. Mine access, ore and gangue transport and ventilation are generally achieved by a system of horizontal adits, inclines and vertical shafts. Drum winders are employed for the majority of shafts. Access to stopes is via haulage levels at regular vertical intervals, generally around 40 meters. Yuanling Mine has a rail system for ore transportation.

Both major and minor developments at the operating mines are typically carried out with hand-held equipment. Loading to ore and gangue passes is carried out with load-haul-dump machines. The ore and gangue passes are drawn through chutes on the haulage levels with diesel trolley locomotives and mine cars.

– 22 – LETTER FROM THE BOARD

Henan Multi-Resources’ mining operation, particularly mining of ore bodies, and most of the mine construction works are currently outsourced to (Wenzhou Jianfeng Mine Engineering Co Ltd*), an independent third party contractor, and it is the intention of the Target Group to continue the outsourcing of the mining operation. The major terms of the outsourcing agreement include (i) contract price covers all labour and consumables required for the exploration and mining work at Hongzhuang Gold Mine; (ii) contractor must follow production plan as directed by Henan Multi-Resources; (iii) tunnel digging price is RMB1,200/meter for horizontal tunnel and RMB1,480/meter for sloped tunnel; (iv) ore mining prices are RMB120/t for ore with grading of 2.5g/t and RMB136/t with grading between 2.5-3g/t; and (v) the contract period commences in December 2008 and will be terminated upon 1-month prior written notice by either party. The Directors confirm that the terms of the outsourcing agreement are normal commercial terms, fair and reasonable and are within the price range of prevailing industry rate.

(b) Ore processing

Gold in ores from Yuanling Mine is extracted through cyanide leach and carbon in pulp adsorption. Hongzhuang Gold Mine has a processing plant with a series of crushing, milling, tank leaching and adsorption processes. Currently, product from trial production of Yuanling Mine is gold laden carbon particles which are sold to smelters for further processing. The processing plant has an ore processing capacity of approximately 30,000 tonnes per annum (on the basis of 100 tonnes per day and 300 production days per year).

The processing plant is in the process of adding a pilot floatation circuit to test beneficiation of ores from Hongzhuang Mine in preparation for the planned expansion. In this new production flow, the crushed and milled ore would be transferred to the flotation circuit instead of the cyanide leach circuit. The flotation process involves adding special surface modifying chemicals to the pulp, which flows through a series of tanks called flotation cells. Air is pumped to the bottom of the flotation cells and rises through the pulp. The chemicals added to the pulp preferentially attach themselves to and coat the gold-bearing minerals particles. Passing air bubbles attach to the coated gold-bearing mineral particles and float with the air bubbles to the top of the cell, where they form a concentrate froth. This froth, which contains nearly all the gold bearing mineral is collected and dewatered in a thickener. The product is referred to as flotation concentrate. The material that does not float is called tailings and is pumped to tailing dam for disposal.

During the trial and pilot production run period, floatation concentrates are and will be sold to smelter for further processing.

* For identification purpose only

– 23 – LETTER FROM THE BOARD

(d) Sales of gold concentrate

The Target Group does not have a smelting plant and is currently selling gold laden carbon particles, being a kind of gold concentrate, from the trial production to (Yongxing County Guangyin Non-ferrous Metals Scrap Recycling Company Limited*) directly. This customer is an independent third party mainly engaged in non-ferrous metal recycling activities and located in Hunan Province, the PRC. Currently, the customer arranges its own logistic to pick up the goods from the site of Hongzhuang Gold Mine.

The Group is considering to develop its own smelting plant in the future, but there is no concrete plan up to the Latest Practicable Date.

(vi) Human resources

Henan Multi-Resources has an experienced management team to oversee its operation. All members of its management team have appropriate qualifications and relevant experience in the mining industry. All key members of the management team are engaged under employment contracts currently with remaining term of approximately 2.3 years in average. On the basis that (i) upon Completion, the entire management team of Henan Multi-Resources will be retained by the Group; (ii) Dr. Chan has been involved in mining operations for years; and (iii) the Group is currently seeking for engaging appropriate experts to join the management team to oversee the business in mining operation, the Directors consider that the Group has sufficient knowledge and expertise in operating Hongzhuang Gold Mine.

(vii) Permits and licences

Set out below is a list of key permits and licences applicable to the operation of Hongzhuang Gold Mine:

Licence/permit Expiry

Gold Mine Licence September 2010 Dangerous chemical storage certificate April 2010 (Note) Water usage certificate July 2014 Business licence April 2038 Certificate of approval for establishment of enterprises April 2038 with investment of Taiwan, Hong Kong, Macao and overseas Chinese in the PRC Tax department registration certificate Undefined Foreign currency registration certificate for foreign Undefined enterprises

* For identification purpose only

– 24 – LETTER FROM THE BOARD

Note: Dangerous chemical storage certificate normally has a validity period of within one year. The Directors do not foresee any problems in renewing the certificate when it expires.

Enterprises engaged in the mining or exploration of mineral resources must obtain mining and exploration permits, as the case may be. Furthermore, if the mining activities involve gold resources, the Gold Operating Permit ( ) must also be obtained. The management of the Target Group do not foresee any obstacle in receiving the Gold Operating Permit and they expect to receive it before the end of 2010. Moreover, anyone who exploits mineral resources must pay a resources tax and resources compensation levy in accordance with relevant regulations of the State. According to the Mineral Resources Compensation Levy Rate Table ( ) announced on the official website of the Department of Land and Resources of Henan Province ( ), the compensation levy rate applicable to the gold mine, including Henan Multi-Resources, is 4%. Further information is set out on in appendix IX to this circular.

To the best knowledge of the Directors, no claim in relation to the Gold Mine Licence has been made or notified either by third parties against any member of the Target Group or vice versa up to the Latest Practicable Date.

(viii) Technical report

SRK has been engaged as the independent technical consultant to the Company regarding Hongzhuang Gold Mine. In particular, the Directors wish to draw the Shareholders’ attention to section 8.2 of the technical report about the findings by SRK on the reserves and resources of Hongzhuang Gold Mine. Summary of these findings are set out below:

¼ Henan Multi-Resources’ resources and reserves estimates were reported in accordance with the requirements of the Chinese system. It is SRK’s opinion that the current individual estimates are reliable and represent a reasonable global estimate for 122b, 332 and 333 of the relevant Mineral Resources although they are not in full compliance with the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”) standard.

¼ The JORC Code requires vigorous recording of mineral deposit sampling, assaying, check calculations and resource estimates. If any of these steps cannot be investigated thoroughly, the technical adviser is required under the JORC Code to state the reason why the resources and reserves estimate does not meet the JORC Code standard.

¼ The resources estimate for Hongzhuang Gold Mine involves the original sample assays done by geological brigade and Jinqu Company. The traditional Chinese recording system is based on paper reports, not digital records or databases and often uses geological sections drawn on paper. Henan Multi-Resources records most of its geological information in non-digital format. SRK noticed that the original data done by geological brigade was not available except the paper reports.

– 25 – LETTER FROM THE BOARD

¼ The procedures adopted by SRK were to review the resources and reserves estimates provided by Henan Multi-Resources and, wherever possible, to reassign the resources and reserves estimates and to compare the same with categories similar to those used by the JORC Code. Henan Multi-Resources’ mines are underground mines for which resources and reserves estimates are often subject to higher levels of uncertainty compared to those for open pit mines because of a more restricted ability to intersect and sample the deposit.

Furthermore, “current individual estimates” of resources and/or reserves as set out above refer to both the resources and/or reserves of Hongzhuang Gold Mine and Yuanling Gold Mine of approximately 41 tonnes of the resources and/or reserves (metallic gold) as set out in the tables on pages VII-6 and VII-7 of the technical report.

Full details of its technical report is set out in appendix VII to this circular. Further information regarding the technical report is set out as follows:

¼ The pilot production plant is now only at a trial production stage and therefore production policy and recovery rate are not applicable as the plant is not in full production and the final production process is still to be determined. Given the plant is currently at this stage, production is not within the scope of the technical report, which will not cover any detail discussion on production.

¼ In the sub-section headed “Resources/Reserves Estimation” of the executive summary of the technical report, SRK states that “Since there is no feasibility study to be conducted in the Hongzhuang mine, SRK used the category 332 resources instead of category 2S22 and 2M22 resources, and SRK points out that more than half of the resources of Hongzhuang Gold Mine are out of the mining license vertical limited boundary as shown in the resources maps of four ore bodies. It should note that Henan Multi-Resources is applying a new expansion mining license, and this application has been approved by the Land and Resource Bureau of Henan Province on 30 November 2009 as shown in Appendix No.3, so all the resource in the Hongzhuang mine will be included in the new mining licence. It should remind that the recoverable resource tonnage is 3.9238 million tonnes and the gold metal amount is 17.86 tonnes with the Au grade of 4.55g/t in the approval, which is much less than the result estimated by Jinqu in July 2007.” Furthermore, SRK also states that “The Henan Jinqu Gold Corporation Limited updated the resources/reserves report in July 2007 after conducting the geological exploration including drillings and adits in Hongzhuang Gold mine by Jinqu, and No. 4 ore body was discovered in the exploration, but the resource has not been properly reported and certified by government agents.” The reason for these statements in the technical report is because of the recoverable resource tonnage and the gold metal amount reported to and certified by the government agents or under the approval only represent the first stage mining operation currently applied by Henan Multi-Resources and the balance (i.e. being the result estimated by Jinqu in July 2007 less the amount under the approval) will be applied in the future for the second stage mining operation. It should be emphasised that all the resources in the Hongzhuang Mine will be included in the New Gold Mining

– 26 – LETTER FROM THE BOARD

Licence. Moreover, it should be noted that the amount of reserves or resources identified after exploration stage is not required to be reported to and/or certified by any government agents in the PRC immediately. The reporting requirement is only applicable at the mining stage. The authority to be reported and certified is MOLAR. This reporting and certification is part of the process of applying for mining licence when MOLAR needs to assess the resources as part of the overall considerations in granting the mining license. Once the assessment is made and before granting the license, a license fee based on RMB 4-6 per gram of metallic gold will be charged to the applicant. Henan Multi-Resources decided, at this stage for cash flow consideration, only to file the resources to cover the production need of stage one expansion plan at 400 tpd (see details in the sub-section headed “(ix) Future plan” below) for a reasonable period of not less than five years. The decision to file the balance of the resources will be made when stage two of the expansion plan for 600 tpd is launched.

¼ In the sub-section headed “Resources/Reserves Estimation” of the executive summary of the technical report, SRK states that “As Hongzhuang Gold Mine of Henan Multi-Resources started mining in Yuanling area since May 2009, the resources/reserves dated by the technical report time should be re-considered. SRK has reviewed the processing production data of recent five months (from May 2009 to September 2009) provided by Henan Multi-Resources. SRK re-travelled to the mine site in January 2010 and was told that the processing plant stopped from September 2009 due to adding one flotation production line. SRK has been told that the production tonnage was about equal to the amount of transport tonnage. SRK points out that the gold grade in production (average 2.68g/t) is much less than the grade of the original geological body (6.73g/t). It should remind that the recoverable resource tonnage is 3.9238 million tonnes and the gold metal amount is 17.86 tonnes (with the Au grade of 4.55g/t) in the approval, which is much less than the result estimated by Jinqu in July 2007.” The Company considers the gold grade or resources in Yuanling Mine is irrelevant as the key reserves/resources are located in Hongzhuang Mine. In fact, as set out in the valuation report of Hongzhuang Gold Mine in appendix VI to this circular, BMI has already taken into account the reduced gold grade in production in their valuation of Hongzhuang Gold Mine.

¼ In the sub-section headed “Resources/Reserves Estimation” of the executive summary of the technical report, the word “Resources” is a generic description based on translation from Chinese text which is the language used in all of the original reports. It generally refers to the minerals underground. In “Recoverable Resources of No. 96234 Vein” table, the “Recoverable” is the mathematical difference between “Total” and “Mined-out”. This description of “Recoverable” is just a convenient description used in the table only and has no other specific industry-wide meaning.

¼ As set out in table 7-6 of the technical report, two samples, disguised as “ZK84H50” and “ZK584H100”, are standard samples used as a reference for internal quality control purpose. Typically these are extra samples of known

– 27 – LETTER FROM THE BOARD

gold content put in but without the knowledge of the testing laboratory for the purpose of checking the accuracy of the laboratory result. Two samples, sample 10 and 27, are blank samples put in, positioned just after two high grade samples to ensure accurate results from the immediately following samples. These are also quality assurance technical measures. Sample 46 (ZK505H50CD) and sample 50 (CM8004AY8D) are duplicated samples as denoted by the suffix “D”. Again, these are also quality assurance technical measures. Sample 30 (ZK484H75) had no result due to some internal error. Therefore a total of 53 samples submitted for laboratory testing but only 46 results are reported and shown on table.

¼ In relation to section 7.6 of the technical report and based on the Company’s understanding, SRK considers the bias to be reasonable though some of them are quite large. However SRK is not satisfied with the traditional assay method which Hongzhuang Gold Mine applied. Overall, SRK considers the results to be acceptable, though not good enough. However, SRK wishes to emphasise that these 40 samples are just for verification, and they do not indicate that all the original assays (which include others that SRK did not check) are acceptable.

¼ In table 8.5 of the technical report, out of boundary refers to resources that are outside the vertical boundary limit of the current expiring mining licence but will be included in the New Gold Mining License.

(ix) Future plan

The Directors plan to focus on the mining activities of Hongzhuang Mine in the upcoming years on a two-stage approach. Management plans to develop a new production plant close to the Hongzhuang Mine site with a total production capacity of 300,000 tonnes (gold ore) (based on 300 working days per year at 1,000 tonnes per day) in two to three years. Stage one involves the building of a plant with a 400-tpd production line. The New Gold Mine Licence will cover the stage one operation. Upon successful operation and subject to availability of funding and further PRC regulatory approval, stage two will involve the construction of a 600-tpd production line. The Directors do not foresee any major difficulty in obtaining the relevant regulatory approval or in acquisition of relevant land site for the construction of new plant facility. The new production plant will use substantially the same technology and procedures under pilot study at the existing production plant. Upon completion of the new production plant, which may include smelting facilities, the Target Group will produce either gold laden carbon particles for sales to domestic smelters or metallic gold for sales in the official market in the PRC respectively.

The investment costs of the stage one of the new production plant are expected to be approximately RMB280.0 million (equivalent to approximately HK$316.4 million and in addition to the Consideration) over an investment horizon of around five years. The investment costs comprise (i) construction of new plant facility (including acquisition of relevant land site) and mine system of RMB234.5 million (equivalent to approximately HK$265.0 million); (ii) working capital of the new plant of RMB5.5 million (equivalent to approximately HK$6.2 million); (iii) fees for the New Gold Mine Licence of RMB30.0 million (equivalent to approximately HK$33.9 million); and (iv)

– 28 – LETTER FROM THE BOARD other consultation and planning expenses of RMB10.0 million (equivalent to approximately HK$11.3 million). The management of Henan Multi-Resources commissioned a pre-feasibility study of the 1,000-tpd processing plant in April 2009, and the estimation of investment in the plant and mining facility and working capital requirement above were made based on the findings. The objective of the pre-feasibility study was to have a preliminary assessment, from both technical and financial points of view, on the feasibility of building a 1,000-tpd project. The content of the report covered geology, design concept on infrastructure, production and exploration, mining methods, mining engineering, beneficiation, tailing dam, transportation, hydrology, power and communication, ventilation, civil engineering, environmental issues and economic analysis. The conclusion of the study recommended feasible appropriate mining system and ore processing production method for the most optimal financial return. The expansion plan is prepared by the Directors after due and careful enquiry and is considered fair and reasonable. The investment costs are expected to be financed by operating cash flows from stage one operation, internal resources, equity financing and/or debt financing.

The license fee for the stage two of the new production plant is estimated to be about RMB45.0 million (equivalent to approximately HK$50.9 million), which will be financed through cash generated from the operations of stage one. Also, addition investment in plant facility and mine system of RMB14.5 million (equivalent to approximately HK$16.4 million) and working capital of RMB5.5 million (equivalent of approximately HK$6.2 million) will be required for stage two operation. Funding for the stage two operation is expected to be financed by the cash flow from stage one operation of the new production plant and internal resources, equity financing and/or debt financing of the Group.

In stage one, the whole mining system including most of the infrastructure and peripheral support systems such as adits, inclines, shafts, rail system, ventilation system, drainage system, access road, etc. These facilities are common to and required by both stage one and stage two mining output. On the factory side, the building, tailing dam and most of the auxiliary supporting services will be built to accommodation 1,000-tpd capacity but with only one production line of 400-tpd capacity inside the factory. In stage two, the main addition will be an additional production line of 600-tpd inside the existing factory building, extra mining output equipment, e.g. extra rail cars, etc. Accordingly, the investment cost for stage one will be much higher than that for stage two.

There is currently no exploration plan or long-term production plan for Yuanling Mine. Currently, activities at both Hongzhuang Mine and Yuanling Mine are limited mining to support trial production run at pilot plant.

Save and except for the acquisition of the Target Company under the Sale and Purchase Agreement, the Company has not made any commitment on its investment in Hongzhuang Gold Mine.

The Directors consider that the Enlarged Group will have sufficient human resources to handle such expansion given (i) the construction of the new production plant will be outsourced to third party contractor; (ii) third party consultants will be

– 29 – LETTER FROM THE BOARD engaged for certain design construction and specialist project; and (iii) the current management team of Henan Multi-Resources has sufficient and relevant industrial experience for the proposed expansion.

Based on (i) the cash and cash equivalents of HK$45.8 million of the Group as at 30 June 2009; (ii) the special dividend paid to the Shareholders on 7 December 2009 of HK$93.8 million; (iii) the net proceeds received from the disposal of a property of the Company, which was completed on 16 October 2009, of HK$399.0 million after the repayment of relevant bank loan of HK$439.0 million; (iv) cash consideration of HK$113.0 million payable for the Acquisition; (v) proceeds receivable from the Subscription of HK$37.0 million and; (vi) proceeds from issuing the Warrants of HK$86.3 million, the Group will have a cash balance of HK$361.3 million. In addition, the Group has unutilised bank facilities of approximately HK$282.5 million as at the Latest Practicable Date. Based on the above, the Directors consider that the Group has sufficient financial resources for the mining operation in Hongzhuang Mine.

(x) Additional information

¼ Location, accessibility and infrastructure – Both the Hongzhuang and Yuanling Properties are located at Shizimiao Town, Luanchuan County, Henan Province of People’s Republic of China. The Yuanling property is seated to the northwest of the Hongzhuang area, with minimum distance approximately 1,500 meters (Southeast corner of Yuanling mine to Northwest corner of Hongzhuang mine). The Hongzhuang Gold Mine facilities are close to the mine areas governed by Shizimiao Town. Accessibility to the mine site is excellent and granted from Shizimiao town with about three kilometres long paved road. The new provincial highway crosses the town, which leads to the Luanchuan County centre located about 20 kilometres apart. There are several highways crossing the county to nearby big cities such as Sanmenxia, Luoyang and Zhengzhou. The total mileage from Hongzhuang Gold Mine to Zhengzhou, the capital of Henan Province is approximately 350 kilometres. Grid power supply, water and communication facilities are all available on site. There is access to internet and mobile phone network. Shizimiao township administrates twenty-one villages with a total population of 19,684 providing manpower for the mining operations. Each village has its own primary school and a first-aid station. The township has a central primary school, a junior high school and an adult education school, a post office and a health centre with basic medical equipment.

¼ Environmental, safety and social issues – Management of Henan Multi-Resources is committed to meeting health, safety and environmental standards as stipulated by the regulatory authorities. Measures have been implemented at the plant to monitor toxic chemical level in waste product. Tailing released in the production cycle is closely monitored to ensure its toxic concentration is below allowable limit. Protective equipment such as helmets, goggles, masks, ear muffs, boots and gloves are provided. There is an annual body check for each employee. Hongzhuang Gold Mine has developed a good relationship with the local community as it was previously owned by the State. There is still a police outpost at the entrance of the processing plant to serve the plant, the living complex and the local

– 30 – LETTER FROM THE BOARD

community. In return for providing the premises and facility, security guards at the processing plant regularly receive basic law enforcing training from the police authority.

¼ Licences and permits – Enterprises engaged in the mining or exploration of mineral resources must obtain mining and exploration permits. The existing Gold Mine Licence will expire in September 2010. Management of Henan Multi Resources does not foresee any problems in renewing the licence. Furthermore, if the mining activities involve gold resources, the Gold Operating Permit must also be obtained. Management expects to receive the permit before the end of 2010.

¼ Supply of labour and technical expertise – There is a concentration of mining operators in the region, hence the nearby towns (such as Shizimiao town identified in technical report) offer supplies of machinery and labour. On the other hand, these nearby mining operations may also draw the required labour away from that of the Target Group.

The Group is currently principally engaged in (i) design, manufacturing, marketing and trading of fine jewellery and diamonds; and (ii) property investment. The Group has generated revenue from North America, Europe, Hong Kong and other locations.

The executive Directors have identified the opportunity offered by the Acquisition to ride on the trend of increase in gold price. The gold price increased from around US$880 per oz in early 2009 to around US$1,100 per oz recently, representing an increase of approximately 25.0%. Based on the prevailing monetary policy adopted by the Federal Reserve of the USA and the global macroeconomic environment, the Directors are optimistic on the prospect of gold price.

Although the Acquisition will increase the level of risk exposure of the Group (as set out in the section headed “(D) Risk factors for the Acquisition” below), given (i) the consideration for the Acquisition is fixed at HK$738 million; (ii) the valuation of Hongzhuang Gold Mine, which is prepared based on the prevailing gold prices and market and economic environments, is more than HK$900 million; (iii) the Directors’ view about the prospect of gold price as set out in paragraph above; (iv) the Directors’ view of the potential return of the Acquisition outweighs the related risks on the basis that the management of the Group and the Target Group has experience in controlling the risks; (v) experience of Dr. Chan and the management team of the Target Group in monitoring and controlling related risks (e.g. the Group employs local mining experts and legal opinions are often sought to ensure compliance with government regulations; the management team comprises of personnel recruited locally in the PRC and overseas outside Hong Kong giving it the ability to employ international mining practices and these key personnel are secured under employment contracts, etc.); and (vi) the terms of the Acquisition, the Directors consider that the Acquisition are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 31 – LETTER FROM THE BOARD

(D) RISK FACTORS FOR THE ACQUISITION

The Acquisition will increase the level of risk exposure of the Group. Shareholders should be aware of the risk factors set out below, which may not be exhaustive, when considering the Acquisition.

(i) Fluctuation in the price of and demand for gold

The price of gold in the PRC is highly dependent on its price in the international market, which has been very volatile in recent years. The Directors consider that there are many factors which may influence the price of and demand for gold in the international market, including but not limited to the stability of the international economic situations and the fluctuation of the global political and social conditions which are beyond the control of the Group.

(ii) Uncertainties in exploration

The actual amounts of gold resources in Hongzhuang Gold Mine may vary from the estimations, and there is no assurance that the exploration works to be performed by Henan Multi-Resources can lead to discovery of economically feasible resources.

(iii) Government regulations

The mining industry is subject to various government policies and regulations, including but not limited to, exploitation, development, taxation, labour standards, vocational health and safety, waste treatment, environment monitoring, protection and control, operational management and other matters. Any change to those policies may increase the operating costs of Henan Multi-Resources and hence, adversely affect the operating results of the Group.

(iv) Valuation of Hongzhuang Gold Mine

The valuation of Hongzhuang Gold Mine involved various assumptions and therefore the valuation might or might not effectively reflect the true value of Hongzhuang Gold Mine.

(v) New business for the Group

The Acquisition constitutes an investment in a new business sector for the Group. Although the Group will have an experienced management team to oversee the operation of the Target Group immediately upon the Completion, the Group may still not be able to control the related operational risks of this new business.

(vi) Significant and continuous capital investment

The mining business requires significant and continuous capital investment. Mining projects may not be completed as planned or scheduled, may exceed the original budgets and may not achieve the intended economic results or commercial

– 32 – LETTER FROM THE BOARD

viability. Thus, the actual capital investment for operation and development of Henan Multi-Resources may significantly exceed the Group’s budgets because of factors beyond the Group’s control.

(vii) Mining permits and exploration permits

All mineral resources of the PRC are owned by the State pursuant to the Mineral Resources Law of the PRC. Mining enterprises must obtain mining and/or exploration permits prior to undertaking any mining and/or exploration activities, and the mining permits and exploration permits are limited to a specific area and licence period, which in the case of the New Gold Mine Licence, will be not less than five years. Therefore whether Henan Multi-Resources can carry out mining and exploration activities depends on its ability to obtain mining and exploration permits from the relevant PRC authorities and to obtain necessary renewals of the New Gold Mine Licence when it expires.

(viii) Human resources

Henan Multi-Resources’ operation depends on its experienced management team. There is no assurance that such parties will continue to provide services to Henan Multi-Resources or will honour the agreed terms and conditions of their employment contracts. Any loss of key personnel or failure to recruit and retain personnel for Henan Multi-Resources’ future operations and development may have a material adverse impact on its business.

Save for the risk factors of valuation of Hongzhuang Gold Mine, new business for the Group and human resources, which are specific to the Group, the rest of the risk factors are applicable to the entire gold mining industry.

(E) SUBSCRIPTION AGREEMENT

Date: 23 November 2009 Parties: the Company, as issuer All Max Holdings Limited, as subscriber

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, All Max Holdings Limited and its ultimate beneficial owner (being Mr. Ronald Kee-Young Chao (“Mr. Chao”)) are third parties independent of the Company and its connected persons.

Subscription

The Subscriber has agreed to subscribe for an aggregate of 21,764,705 new Shares at a subscription price of HK$1.7 per Subscription Share.

– 33 – LETTER FROM THE BOARD

Conditions precedent

Completion of the Subscription is conditional upon fulfilment of the following conditions:

(i) the passing of resolution by the Independent Shareholders at a general meeting of the Company approving the Subscription Agreement and the transactions contemplated thereunder;

(ii) the Listing Committee of the Stock Exchange having granted (either unconditionally or subject only to conditions to which the Company does not reasonably object) approval for the listing of and permission to deal in the Subscription Shares; and

(iii) all conditions precedent to completion of the Sale and Purchase Agreement having been fulfilled or, where applicable, waived (other than any conditions which require the fulfilment of the conditions under the Subscription Agreement) and the Sale and Purchase Agreement is not terminated, amended or modified in any material respect.

The gross proceeds of the Subscription will be HK$37.0 million (before expenses of approximately HK$0.3 million). The Company intends to use the net proceeds from the Subscription to finance part of the Consideration and for general working capital of the Group.

The Subscription is inter-conditional to the Acquisition primarily because the Group requires a secured funding to finance part of the Consideration. The Directors consider that it is the best alternative for the Company to finance part of the Consideration by way of the Subscription as it will enhance the capital base of the Company and is relatively efficient when comparing with other fund raising alternatives. Mr. Chao was procured by Dr. Chan to solicit for the subscription of the Subscription Shares as Mr. Chao was a prospective investor of a minority stake in Hongzhuang Gold Mine.

(F) PRICE COMPARISONS FOR CONSIDERATION SHARES, CONVERSION SHARES AND SUBSCRIPTION SHARES

The Consideration Shares and Subscription Shares will be issued at HK$1.7 per Share which represents (Note):

(i) a discount of approximately 51.6% to the closing price of HK$3.51 per Share on the Latest Practicable Date as quoted on the Stock Exchange;

(ii) a discount of approximately 15.0% to the closing price of HK$2.00 per Share on the Last Trading Date as quoted on the Stock Exchange on the date of the Announcement;

(iii) a discount of approximately 2.3% to the average closing price per Share of approximately HK$1.74 for the last ten trading days up to and including the Last Trading Date;

– 34 – LETTER FROM THE BOARD

(iv) a premium of approximately 3.7% over the average closing price per Share of approximately HK$1.64 for the last 21 trading days up to and including the Last Trading Date (i.e. from the next trading date subsequent to the publication of the Company’s 2008/09 results up to and including the Last Trading Date); and

(v) a discount of approximately 44.1% to the audited consolidated net assets value attributable to equity holders of the Company per Share of approximately HK$3.04 as at 30 June 2009 (as calculated based on the equity attributable to equity holders of the Company of approximately HK$1,044.6 million as at 30 June 2009, the special dividend of approximately HK$93.8 million and the number of outstanding Shares of 312,830,334 as at 30 June 2009, as extracted from the Company’s 2008/09 annual report).

The Conversion Shares will be issued at HK$1.9 per Share which represents (Note):

(i) a discount of approximately 45.9% to the closing price of HK$3.51 per Share on the Latest Practicable Date as quoted on the Stock Exchange;

(ii) a discount of approximately 5.0% to the closing price of HK$2.0 per Share on the Last Trading Date as quoted on the Stock Exchange on the date of the Announcement;

(iii) a premium of approximately 9.2% over the average closing price per Share of approximately HK$1.74 for the last ten trading days up to and including the Last Trading Date;

(iv) a premium of approximately 15.9% over the average closing price per Share of approximately HK$1.64 for the last 21 trading days up to and including the Last Trading Date (i.e. from the next trading date subsequent to the publication of the Company’s 2008/09 results up to and including the Last Trading Date); and

(v) a discount of approximately 37.5% to the audited consolidated net assets value attributable to equity holders of the Company per Share of approximately HK$3.04 as at 30 June 2009 (as calculated based on the equity attributable to equity holders of the Company of approximately HK$1,044.6 million as at 30 June 2009, the special dividend of approximately HK$93.8 million and the number of outstanding Shares of 312,830,334 as at 30 June 2009, as extracted from the Company’s 2008/09 annual report).

Note: Closing prices of the Shares on or before 25 November 2009 have been adjusted for the special and final dividends of HK$0.31 per share for the year ended 30 June 2009. The price comparisons above are performed on such basis.

When allotted and issued, the Consideration Shares and the Subscription Shares will represent approximately:

(i) 63.4% of the existing issued share capital of the Company;

(ii) 38.8% of the issued share capital of the Company as enlarged by the issues of the Consideration Shares and the Subscription Shares; and

– 35 – LETTER FROM THE BOARD

(iii) 29.1% of the issued share capital of the Company as enlarged by the issues of the Consideration Shares, the Subscription Shares and the Conversion Shares.

When allotted and issued, the Conversion Shares will represent approximately:

(i) 54.7% of the existing issued share capital of the Company; and

(ii) 25.1% of the issued share capital of the Company as enlarged by the issues of the Consideration Shares, the Subscription Shares and the Conversion Shares.

The Consideration Shares, the Conversion Shares and the Subscription Shares will be issued by the Company under specific mandates to be considered at the EGM. The Consideration Shares, the Conversion Shares and the Subscription Shares, when issued and alloted, will rank pari passu in all respects with all the Shares then in issue. Since the Consideration Shares, the Conversion Shares and the Subscription Shares will be issued after 1 December 2009, being the record date of final dividend and special dividend for the year ended 30 June 2009, the holders of the Consideration Shares, the Conversion Shares and the Subscription Shares will not be entitled to the final dividend and special dividend for the year ended 30 June 2009.

An application has been made to the Stock Exchange by the Company for the listing of, and permission to deal in, the Consideration Shares, the Conversion Shares and the Subscription Shares.

The Directors consider that the terms of issue of the Consideration Shares, the Conversion Shares and the Subscription Shares are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Save for the proposed issues of the Consideration Shares, the Convertible Note and the Subscription Shares and the issue of Warrants, the Company did not have any fund raising activities during the past 12 months.

(G) MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

For the period from 16 November 2007 to 30 June 2008 for the Target Company and for the period from 5 June 2007 to 30 June 2008 for the Golden Offer Group

The Target Company had net current liabilities of HK$7,000 as at 30 June 2008. Dr. Chan, being the ultimate beneficial owner of the Target Company, intended to provide continuing financial support to the Target Company. The Golden Offer Group had net current liabilities of approximately HK$118.9 million as at 30 June 2008, of which approximately HK$105.8 million and HK$38.4 million were amounts due to a shareholder and related parties respectively. The shareholder and the related parties intended not to demand repayment of the amounts due to them by the Golden Offer Group until such time when the repayment would not affect the ability of the Golden Offer Group to fully repay other creditors.

– 36 – LETTER FROM THE BOARD

The Target Company was largely financed by the amount due to a shareholder of HK$7,000 as at 30 June 2008, which was unsecured, interest-free, repayable on demand and denominated in Hong Kong dollars. The Golden Offer Group was largely financed by the amounts due to a shareholder and related parties totaling approximately HK$144.1 million as at 30 June 2008, which were unsecured, interest-free and repayable on demand. The aforesaid amounts and the cash and cash equivalent as at 30 June 2008 were both denominated in RMB.

The Golden Offer Group mainly operates in the PRC and the sole business is mining and exploration of mineral reserves. The Golden Offer Group had not commenced production but incurred approximately HK$34.1 million consultancy fee in relation to the mining operation during the period.

The Golden Offer Group had 50 employees as at 30 June 2008 and the total remuneration for the period was HK$144,000. Employee remuneration packages were maintained at competitive levels and employees were rewarded on a performance-related basis.

The Golden Offer Group intended to complete the application of mining rights in the coming year and it was expected to be financed by the amount from a shareholder.

Gearing ratio of the Target Company (defined as total borrowings (excluding amount due to a shareholder) less cash and bank deposits divided by equity) was nil as at 30 June 2008. Gearing ratio of the Golden Offer Group (defined as total borrowings (excluding amounts due to a shareholder and related parties) less cash and bank deposits divided by equity) was nil as at 30 June 2008.

Neither the Target Company nor the Golden Offer Group had any exposure to fluctuations in exchange rates or had any related hedges as at 30 June 2008.

The Target Company did not hold any significant investment or have any material acquisition or disposal during the period from 16 November 2007 to 30 June 2008. It had no employee, no charge on its asset (if any) and no contingent liability as at 30 June 2008.

Save for the deposit paid for acquisition of property, plant and equipment, mining rights and prepaid lease payments of approximately HK$82.7 million as at 30 June 2008, the Golden Offer Group did not hold any significant investment or have any material acquisition or disposal during the period from 5 June 2007 to 30 June 2008. It had no charge on its assets and no contingent liability as at 30 June 2008.

For the year ended 30 June 2009

The Target Company had net current liabilities of HK$12,000 as at 30 June 2009. Dr. Chan, being the ultimate beneficial owner of the Target Company, intended to provide continuing financial support to the Target Company. The Golden Offer Group had net current liabilities of approximately HK$173.3 million as at 30 June 2009, of which approximately HK$117.4 million and HK$32.7 million were amounts due to a

– 37 – LETTER FROM THE BOARD shareholder and related parties respectively. The shareholder and the related parties intended not to demand repayment of the amounts due to them by the Golden Offer Group until such time when the repayment would not affect the ability of the Golden Offer Group to fully repay other creditors.

The Target Company was largely financed by the amount due to a shareholder of HK$12,000 as at 30 June 2009, which was unsecured, interest-free, repayable on demand and denominated in Hong Kong dollars. The Golden Offer Group was largely financed by the amounts due to a shareholder and related parties totaling approximately HK$150.0 million as at 30 June 2009, which were unsecured, interest-free and repayable on demand. The aforesaid amounts and the cash and cash equivalent of approximately HK$1,329,000 as at 30 June 2009 were denominated in RMB and the rest of the cash and cash equivalent was denominated in United States dollars.

The Golden Offer Group mainly operates in the PRC and the sole business is mining and exploration of mineral reserves. The Golden Offer Group had not commenced production but incurred approximately HK$34.2 million consultancy fee in relation to the mining operation for the year.

The Golden Offer Group had 90 employees as at 30 June 2009 and the total remuneration for the year was HK$3,869,000. Employee remuneration packages were maintained at competitive levels and employees were rewarded on a performance-related basis.

The Golden Offer Group intended to continue its existing exploration plan, which included building tunnels and mining structures, in the coming year and it was expected to be financed by the amount from a shareholder.

Gearing ratio of the Target Company (defined as total borrowings (excluding amount due to a shareholder) less cash and bank deposits divided by equity) was nil as at 30 June 2009. Gearing ratio of the Golden Offer Group (defined as total borrowings (excluding amounts due to a shareholder and related parties) less cash and bank deposits divided by equity) was nil as at 30 June 2009.

Save for cash and cash equivalent denominated in United States dollar of approximately HK$1,361,000, neither the Target Company nor the Golden Offer Group had any exposure to fluctuations in exchange rates or had any related hedges as at 30 June 2009.

The Target Company did not hold any significant investment or have any material acquisition or disposal during the year ended 30 June 2009. It had no employee, no charge on its asset (if any) and no contingent liability as at 30 June 2009.

Save for acquisition of the property, plant and equipment, mining rights and prepaid lease payments of approximately HK$91.6 million as at 30 June 2009, the Golden Offer Group did not hold any significant investment or have any material acquisition or disposal during the year ended 30 June 2009. It had no charge on its assets and no contingent liability as at 30 June 2009.

– 38 – LETTER FROM THE BOARD

For the three months ended 30 September 2009

The Target Company had net current liabilities of HK$12,000 as at 30 September 2009. Dr. Chan, being the ultimate beneficial owner of the Target Company, intended to provide continuing financial support to the Target Company. The Golden Offer Group had net current liabilities of approximately HK$178.1 million as at 30 September 2009, of which approximately HK$145.1 million and HK$32.7 million were amounts due to a shareholder and related parties respectively. The related parties were companies outside the Target Group but under common control of Dr. Chan. Pursuant to the Sale and Purchase Agreement, the amounts due to the related parties shall be repaid by the Vendor prior to Completion. The shareholder and the related parties intended not to demand repayment of the amounts due to them by the Golden Offer Group until such time when the repayment would not affect the ability of the Golden Offer Group to fully repay other creditors.

The Target Company was largely financed by the amount due to a shareholder of HK$12,000 as at 30 September 2009, which was unsecured, interest-free, repayable on demand and denominated in Hong Kong dollars. The Golden Offer Group was largely financed by the amounts due to a shareholder and related parties totaling approximately HK$177.8 million as at 30 September 2009, which were unsecured, interest-free and repayable on demand. The aforesaid amounts and the cash and cash equivalent as at 30 September 2009 were denominated in RMB.

The Golden Offer Group mainly operates in the PRC and the sole business is mining and exploration of mineral reserves. The Golden Offer Group commenced trial production during the period and recorded turnover of approximately HK$6.1 million for sale of intermediate products from various trial production runs during the period.

The Golden Offer Group had 99 employees as at 30 September 2009 and the total remuneration for the year was HK$1,530,000. Employee remuneration packages were maintained at competitive levels and employees were rewarded on a performance-related basis.

The Golden Offer Group intended to continue with its existing expansion plan, which included feasibility studies and trial production runs, in the remaining period of the current year and it was expected to be financed by the amount from a shareholder.

Gearing ratio of the Target Company (defined as total borrowings (excluding amount due to a shareholder) less cash and bank deposits divided by equity) was nil as at 30 September 2009. Gearing ratio of the Golden Offer Group (defined as total borrowings (excluding amounts due to a shareholder and related parties) less cash and bank deposits divided by equity) was nil as at 30 September 2009.

Neither the Target Company nor the Golden Offer Group had any exposure to fluctuations in exchange rates or had any related hedges as at 30 September 2009.

– 39 – LETTER FROM THE BOARD

The Target Company did not hold any significant investment or have any material acquisition or disposal during the three months ended 30 September 2009. It had no employee, no charge on its asset (if any) and no contingent liability as at 30 September 2009.

Save for the property, plant and equipment, mining rights and prepaid lease payments of approximately HK$96.3 million as at 30 September 2009, the Golden Offer Group did not hold any significant investment or have any material acquisition or disposal during the three months ended 30 September 2009. It had no charge on its assets and no contingent liability as at 30 September 2009.

Accounting policies, estimates and assumptions

In respect of the accounting policies, estimates and assumptions The Target Group is now only in the early stage of its expected life and there has been no change in the estimate or assumption in the past, and the Directors are of the view that the estimation and assumption are accurate so far.

(H) SHAREHOLDING STRUCTURE

Set out below are the shareholding structures of the Company (i) as at the Latest Practicable Date; (ii) immediately upon Completion and completion of the Subscription, but prior to the conversion of the Convertible Note; (iii) immediately upon Completion, completion of the Subscription and after full conversion of the Convertible Note at the initial conversion price; and (iv) immediately upon Completion, completion of the Subscription, full conversion of the Convertible Note at the initial conversion price and the issue of the Warrant Shares.

Immediately upon Immediately upon Completion, completion Immediately upon Completion, completion of the Subscription, Completion and of the Subscription and full conversion of the completion of the after the full Convertible Note at the Subscription, but prior conversion of the initial conversion price As at the Latest to the conversion of the Convertible Note at the and the issue of the Practicable Date Convertible Note initial conversion price Warrant Shares

Tamar Investments 158,816,303 50.768% 335,286,891 65.605% 506,339,522 74.230% 506,339,522 69.161% Chan Wai Lap, Victor 270,000 0.086% 270,000 0.053% 270,000 0.040% 270,000 0.037% Chu Wai Kok, a Director 8,000 0.003% 8,000 0.002% 8,000 0.001% 8,000 0.001% Chan Ping Kuen, a Director 20,000 0.006% 20,000 0.004% 20,000 0.003% 20,000 0.003% Subscriber – 0.000% 21,764,705 4.259% 21,764,705 3.191% 21,764,705 2.973% Other Shareholders 153,716,031 49.137% 153,716,031 30.077% 153,716,031 22.535% 203,716,031 27.825%

Total 312,830,334 100% 511,065,627 100% 682,118,258 100% 732,118,258 100%

Completion of the Acquisition will not result in a change of control of the Company.

– 40 – LETTER FROM THE BOARD

(I) FINANCIAL IMPACT OF THE ACQUISITION ON THE GROUP

Upon Completion, the Target Group will become wholly-owned subsidiaries of the Company and the financial results of the Target Group will be consolidated into the Group’s financial statements.

As set out in the unaudited pro forma consolidated balance sheet of the Group in appendix III to this circular, if the Acquisition had been completed on 30 June 2009, the total asset as at 30 June 2009 would be increased by approximately HK$864.0 million, while the total liability as at 30 June 2009 would be increased by approximately HK$235.3 million. The gearing ratio, calculated based on total interest bearing liabilities over total equity, would be decreased from 69.3% to 43.3%.

As set out in the unaudited pro forma income statement of the Group in appendix III to this circular, if the Acquisition had been completed on 1 July 2008, profit attributable to the equity holders of the Company for the year ended 30 June 2009 would be increased from approximately HK$135.9 million to approximately HK$155.4 million, while earnings per share would be decreased from HK44.5 cents to HK30.9 cents.

(J) FINANCIAL AND TRADING PROSPECT OF THE ENLARGED GROUP

Upon Completion, the Group will engage in three business sectors, namely, (i) design, manufacturing, marketing and trading of fine jewellery and diamonds; (ii) property investment; and (iii) mining operation.

The Directors have no intention to change the business strategy of the Enlarged Group. The Enlarged Group will continue to engage in the product development, manufacture and marketing of fine jewellery directed at the middle to upper segments of the market and maintaining its position as one of the leaders in fine jewellery manufacturing. The Enlarged Group will also continue to identify new projects for its property development business.

Management will take over and resume production of the newly acquired gold mine. Priority will be given to the application and securing of the New Gold Mine Licence. Work will be carried out to prepare the mining system and upgrade existing production facility for the expanded mining activities.

The gold laden carbon particles or all metallic gold (if smelting plant is developed by the Target Group) to be produced by the Target Group will be sold to the domestic smelters or in the official market (i.e. SGE) respectively.

There are numerous gold mine operators at Henan and neighboring provinces and hence also many smelters which form part of the supporting peripheral industry for the gold mining industry. These smelters are principally engaged in the refinery and sale of gold and silver bullion with raw material supplied from gold mine operators. Some also extend their business to the recovery of other valuable trace metals contained in gold laden carbon particles, other gold concentrates and production of sulfuric acid etc.

– 41 – LETTER FROM THE BOARD

SGE is the only official gold market in PRC. SGE thereafter, approved by the State Council and founded by the People’s Bank of China, performs the regulated functions stipulated by Management Rules of Gold Exchange and organises gold transactions with the principle of openness, fairness, justness and honesty. Brief detail of SGE can be found in its website at http://www.sge.sh/web/show_col.asp?cid=20.

The gold, either gold laden carbon particles or metallic gold produced from the mining operation will provide a hedge against the input for its jewellery manufacturing. In other words, the Enlarged Group will effectively lock in the purchase price of gold for its jewellery manufacturing activities.

The Directors have (i) no plan to divest any existing business of the Group; (ii) no intention to make significant changes to the Group’s business; and (iii) not entered into any agreement, arrangement, understanding or negotiation about any further acquisition of assets (other than the Acquisition and the entering into of the non-legally binding memorandum for formation of a joint venture company as set out in the announcement of the Company dated 18 January 2010) whether concluded or not.

(K) LISTING RULES IMPLICATIONS

The Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules. Dr. Chan is a Director and controlling Shareholder who, through Tamar Investments, held approximately 50.768% of the issued share capital of the Company as at the Latest Practicable Date. Accordingly, the Vendor, being a company owned by Dr. Chan, is a connected person of the Company and the transactions contemplated under the Sale and Purchase Agreement also constitute connected transactions for the Company under Chapter 14A of the Listing Rules and are subject to the approval of the Independent Shareholders at the EGM by way of poll. The Subscription Agreement, which is inter-conditional with the Sale and Purchase Agreement, is also subject to the approval of the Independent Shareholders at the EGM by way of poll.

(L) EXTRAORDINARY GENERAL MEETING

The EGM will be held to consider and, if thought fit, approving the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder. Notice of the EGM is set out on pages EGM-1 to EGM-3 of this circular.

The Vendor and its associates (including Dr. Chan and Tamar Investments) and the Subscriber and its associates (to the extent any of them holds any Share at the time of the EGM) having interests in the Sale and Purchase Agreement and/or the Subscription Agreement different from the Independent Shareholders will abstain from voting in respect of the resolutions for approval of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder.

A form of proxy for use at the EGM is enclosed. Whether or not you will be able to attend the EGM, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Company’s registered address at Flats M and N, 1st Floor, Kaiser Estate, Phase III, 11 Hok Yuen Street, Hunghom, Kowloon,

– 42 – LETTER FROM THE BOARD

Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment (as the case may be) should you so wish.

(M) RECOMMENDATION AND FURTHER INFORMATION

On the basis of the information set out in this circular, the Directors consider that the passing of the resolutions for the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. As such, the Directors recommend the Shareholders to vote in favor of these resolutions as set out in the notice of the EGM.

Your attention is drawn to the letters from the Independent Board Committee and Access Capital as set out in this circular. Access Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder. Your attention is also drawn to the appendices to this circular.

Yours faithfully, for and on behalf of CONTINENTAL HOLDINGS LIMITED Chan Sing Chuk, Charles Chairman

– 43 – LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation to the Independent Shareholders from the Independent Board Committee regarding the terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder for the purpose of incorporation in this circular:

(Incorporated in Hong Kong with limited liability) (Stock Code: 00513)

25 January 2010

To the Independent Shareholders

Dear Sirs,

We refer to the circular dated 25 January 2010 issued by the Company (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed as the Independent Board Committee to advise you as to whether, in our opinion, the terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder are fair and reasonable as far as the Independent Shareholders are concerned and the Acquisition and the Subscription are in the interests of the Company and the Shareholders as a whole. Access Capital has been appointed as the independent financial adviser to advise us and the Independent Shareholders in this respect. Details of its advice, together with the principal factors taken into consideration in arriving at such advice, are set out on pages 46 to 67 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 7 to 43 of the Circular and the additional information set out in the appendices to the Circular.

– 44 – LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder and the advice of Access Capital, we consider that the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder are fair and reasonable as far as the Independent Shareholders are concerned and the Acquisition and the Subscription are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Sale and Purchase Agreement and the Subscription Agreement, and the transactions contemplated thereunder.

Yours faithfully, Independent Board Committee Mr. Wong Kai Cheong, Mr. Yu Shiu Tin, Paul, BBS, MBE, JP, Mr. Chan Ping Kuen, Derek, Mr. Sze, Irons Independent non-executive Directors

– 45 – LETTER FROM ACCESS CAPITAL

The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from Access Capital Limited prepared for incorporation into this circular.

Suite 606, 6th Floor Bank of America Tower 12 Harcourt Road Central Hong Kong

25 January 2010

To: The Independent Board Committee and the Independent Shareholders of Continental Holdings Limited

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION ACQUISITION OF HONGZHUANG GOLD MINE IN THE PRC INVOLVING THE ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE NOTE AND ISSUE OF NEW SHARES TO INDEPENDENT SUBSCRIBER

I. INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders with regard to the Acquisition and the Subscription, details of which are set out in the letter from the Board (the “Letter from the Board”) contained in the circular of Continental Holdings Limited to the Shareholders dated 25 January 2010 (the “Circular”), of which this letter forms part. Unless otherwise stated, terms defined in the Circular have the same meanings in this letter.

On 20 November 2009, the Company entered into the Sale and Purchase Agreement, pursuant to which, the Company has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Shares and the Target Shareholder’s Loan at a total consideration of HK$738.0 million, which will be satisfied as to HK$113.0 million by way of cash; as to HK$300.0 million by way of issue of a total of 176,470,588 Consideration Shares; and as to the balance of HK$325.0 million by way of issue of the Convertible Note. The issue price of the Consideration Share is HK$1.7 and the initial conversion price of the Convertible Note is HK$1.9.

– 46 – LETTER FROM ACCESS CAPITAL

In addition, on 23 November 2009, the Company entered into the Subscription Agreement, pursuant to which the Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to issue an aggregate of 21,764,705 new Shares at a subscription price of HK$1.7 per Subscription Share. The gross proceeds of the Subscription will be HK$37.0 million (before expenses of approximately HK$0.3 million). The Company intends to use the net proceeds from the Subscription to finance part of the Consideration and for general working capital of the Group.

The Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules. Dr. Chan is a Director and controlling Shareholder who, through Tamar Investments, holds approximately 50.768% of the issued share capital of the Company as at the date of the Sale and Purchase Agreement and the Latest Practicable Date. Accordingly, the Vendor, being a company owned by Dr. Chan, is a connected person of the Company and the transactions contemplated under the Sale and Purchase Agreement also constitute connected transactions for the Company under Chapter 14A of the Listing Rules and are subject to the approval of the Independent Shareholders at the EGM by way of poll. The Subscription Agreement, which is inter-conditional with the Sale and Purchase Agreement, is also subject to the approval of the Independent Shareholders at the EGM by way of poll.

II. THE INDEPENDENT BOARD COMMITTEE

The Board currently consists of nine Directors, namely, Dr. Chan, Ms. Cheng Siu Yin, Shirley, Ms. Chan Wai Kei, Vicki and Mr. Chan Wai Lap, Victor are executive Directors, Mr. Chu Wai Kok is a non-executive Director, Mr. Wong Kai Cheong, Mr. Yu Shiu Tin, Paul BBS, MBE, JP, Mr. Chan Ping Kuen, Derek and Mr. Sze, Irons are independent non-executive Directors.

The Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders as to the fairness and reasonableness of the terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder. As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to (i) whether or not the Acquisition (including the issue of the Consideration Shares and the Convertible Note) and the Subscription are in the interests of the Company and the Shareholders as a whole; (ii) whether or not the respective terms of the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder are fair and reasonable; and (iii) how the Independent Shareholders should vote in respect of the respective resolutions to approve the Sale and Purchase Agreement and the Subscription Agreement, and the respective transactions contemplated thereunder at the EGM.

Apart from the normal advisory fee payable to us in connection with our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders, no arrangement exists whereby we shall receive any other fees or benefits from the Company. We are independent of the Company for the purposes of the Listing Rules.

– 47 – LETTER FROM ACCESS CAPITAL

III. BASES AND ASSUMPTIONS OF THE ADVICE

In formulating our advice, we have relied solely on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company and/or the Executive Directors. We have assumed that all such statements, information, opinions and representations contained or referred to in the Circular or otherwise provided or made or given by the Company and/or its senior management staff and/or the Executive Directors and for which it is/they are solely responsible were true and accurate and valid at the time they were made and given and continue to be true and valid as at the date of the Circular. We have assumed that all the opinions and representations made or provided by the Executive Directors and/or the senior management staff of the Company contained in the Circular have been reasonably made after due and careful enquiry. We have also sought and obtained confirmation from the Company and/or its senior management staff and/or the Executive Directors that no material facts have been omitted from the information provided and referred to in the Circular.

We consider that we have reviewed all currently available information and documents which are available to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinions. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Company and/or its senior management staff and/or the Executive Directors and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We have not, however, carried out any independent verification of the information provided, nor have we conducted any independent investigation into the business and affairs of the Company, the Target Company or any of their respective subsidiaries.

– 48 – LETTER FROM ACCESS CAPITAL

IV. PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our recommendation, we have taken into consideration the following principal factors and reasons:

1. Principal activities of the Group

The Group is principally engaged in (i) design, manufacturing, marketing and trading of fine jewellery and diamonds; and (ii) property investment. The financial results of the Group for each of the two years ended 30 June 2009, as extracted from the Company’s annual report for the year ended 30 June 2009 (the “2009 Annual Report”) are summarised as below.

For the year ended 30 June 2009 2008 HK$’000 HK$’000 (Audited) (Audited)

Turnover: – design, manufacturing, marketing and trading of fine jewellery and diamonds 1,151,465 1,462,746 – property investment 36,861 31,464 – investment 1,296 3,472

1,189,622 1,497,682 Cost of sales (1,061,343) (1,337,277)

Gross profit 128,279 160,405 Changes in fair value of investment properties 101,080 81,445 Profit from operations 78,558 123,341 Profit for the year 135,949 87,088 Attributable to: Equity holders of the Company 135,939 83,477 Minority interests 10 3,611

As shown in the above table, the Group recorded a profit attributable to equity holders of the Company of approximately HK$135.9 million for the year ended 30 June 2009, representing an increase of approximately HK$52.4 million or 62.8% over the year ended 30 June 2008. Such increase is mainly due to (i) a gain in fair value of investment properties of approximately HK$101.1 million and (ii) income tax credit of approximately HK$64.8 million.

– 49 – LETTER FROM ACCESS CAPITAL

The design, manufacturing, marketing and trading of fine jewellery and diamonds segment of the Company has been deteriorating. Set out below is the financial performance of the design, manufacturing, marketing and trading of fine jewellery and diamonds segment of the Company for each of the three years ended 30 June 2009:

Segment Segment For the year ended 30 June revenue results (HK$’000) (HK$’000)

2007 1,594,786 34,558 2008 1,462,746 24,250 2009 1,151,465 (17,842)

As stated in the table above, for the year ended 30 June 2009, the design, manufacturing, marketing and trading of fine jewellery and diamonds segment generated a loss of approximately HK$17.8 million, as compared to the segment profit of approximately HK$24.3 million for the year ended 30 June 2008 and approximately HK$34.6 million for the year ended 30 June 2007. As stated in the 2009 Annual Report, the financial year of 2008-2009 has been a challenging year. Starting with the outbreak of the financial tsunami in the United States of America, the effects slowly trickled down to other countries worldwide. Overall, the year ended 30 June 2009 has been a period of adjustment and caution for the industry. Earlier in 2009 the impact from the weakening macro-environment has resulted in weaker consumer purchasing patterns leading onto a softening of sales. As a result, both the American and European markets reflected a decrease of sales in 2009.

As set out in the 2009 Annual Report, the Company continues to diversify its business activities and investments. In the financial year of 2009, the Group has re-positioned its real estate portfolio through the sale of Continental Diamond Plaza which was completed on 16 October 2009. Going forward, the Group would stay vigilant in identifying sound investments and other business opportunities.

2. Reasons for and benefits of the Acquisition

As stated in the Letter from the Board, the executive Directors have identified an opportunity to ride on the trend of increase in gold price. The gold price increased from around US$880 per oz in early 2009 to around US$1,100 per oz recently, representing an increase of approximately 25.0%. Based on the prevailing monetary policy adopted by the Federal Reserve of the USA and the global macroeconomic environment, the Directors are optimistic on the prospect of gold price.

In light of the above, the Directors are of the view that the Acquisition represents a good opportunity to invest in the natural resources sector and enables the Group to diversify into gold mining business in the PRC. Upon Completion, the Group will engage in three different business sectors, namely, (i) design, manufacturing, marketing and trading of fine jewellery and diamonds; (ii) property investment; and (iii) mining operations.

– 50 – LETTER FROM ACCESS CAPITAL

Gold price experienced volatility during the past years, in particular, during 2008 when the financial crisis affected asset prices globally. We note that gold price generally showed an upward trend and is in fact less volatile than most of the other investments such as equities investments in general and other commodities such as oil, gas and silver.

Based on the information shown in the 2009 Annual Report, we understand that the Group’s design, manufacturing, marketing and trading of fine jewellery and diamonds has been deteriorating and recorded a loss for the year ended 30 June 2009. Notwithstanding that the Group currently has no operations in the gold mining industry and the Acquisition will expand the Group’s business geographically in the PRC, a new market of the Group, in light of the deteriorating performance of the design, manufacturing, marketing and trading of fine jewellery and diamonds business operations of the Group, we consider it strategically appropriate for the Group to seek for other business or development opportunities in broadening its revenue base. The Target Group began trial production and generated revenue for the three months ended 30 September 2009. It is expected to continue generating revenue when it commences commercial production in the future.

We note that the Target Group has not yet recorded any profitable results (details of the Target Group are discussed in the section headed “Principal terms of the Acquisition” below) and Hongzhuang Gold Mine is under trial production stage and is currently preparing for the planned expansion to increase production capacity. Nevertheless, as further discussed in the section headed “Consideration” below, the Consideration was arrived at after arm’s length negotiations between the relevant parties and was determined with reference to, among other things, the Minimum Gold Mine Value based on an independent valuation. As the Target Group only began trial production from 2009, the past track record is not an indication of the future prospects of the Target Group and we do not therefore rely on the previous financial results of the Target Group when assessing the merits of the Acquisition notwithstanding the fact that the Target Group has reported losses in the relevant period.

As stated in the Letter from the Board, the Directors plan to focus on the mining activities of Hongzhuang Gold Mine in the upcoming years. The investment costs of the stage one of the new production plant are expected to be approximately RMB280.0 million (equivalent to approximately HK$316.4 million in addition to the Consideration, but including the fee for application of the New Gold Mine Licence) over an investment horizon of around five years and is expected to be financed by internal resources, equity financing and/or debt financing. Based on (i) the cash and cash equivalents of HK$45.8 million of the Group as at 30 June 2009; (ii) the special dividend paid to the Shareholders on 7 December 2009 of HK$93.8 million; (iii) the net proceeds received from the disposal of a property of the Company, which was completed on 16 October 2009, of HK$399.0 million after the repayment of relevant bank loan of HK$439.0 million; (iv) cash consideration of HK$113.0 million payable for the Acquisition; (v) proceeds receivable from the Subscription of HK$37.0 million; and (vi) proceeds from issuing the Warrants of HK$86.3 million, the Group will have a cash balance of HK$361.3 million. In addition, the Group has unutilised bank facilities

– 51 – LETTER FROM ACCESS CAPITAL of approximately HK$282.5 million as at the Latest Practicable Date. Based on the above, the Directors consider that the Group has sufficient financial resources for the mining operation in Hongzhuang Gold Mine.

As with most of the other investments, mining operations require further capital expenditure after the initial investment. While we note that the Company does not yet have a concrete or finalized plan as to the method of financing such capital expenditure as at the date hereof, we have discussed with the Directors and considered the aforesaid transactions carried out by the Group recently such as the disposal of property and the issue of new Shares and Warrants, we do not see that the Company may encounter any difficulties in funding this project in the near future. In addition, given (i) the Company has successfully conducted fund raising exercises in the past and (ii) the Group has unutilised bank facilities of approximately HK$282.5 million as at the Latest Practicable Date, we are generally of the view that the Group will have sufficient financial resources to satisfy the capital requirements for this project.

As stated in the Letter from the Board, Hongzhuang Gold Mine is operated by a team of professionals and all of the senior management team have extensive experience in the mining industry and worked in other mining companies or institutions in the mining industry prior to joining Henan Multi-Resources. All members of its management team have appropriate qualifications and relevant experience in the mining industry. On the basis that (i) upon Completion, the entire management team of Henan Multi-Resources will be retained by the Group; (ii) Dr. Chan has been involved in mining operations for years; and (iii) the Group may further engage appropriate experts to join the management team of its mining operation, the Directors consider that the Group has sufficient knowledge and expertise in operating Hongzhuang Gold Mine.

Dr. Chan has invested in a number of gold mining projects in Indonesia since 2007. The Indonesia projects have an exploration license and they are currently under exploration at this stage. Dr. Chan invests and controls the Indonesia projects and plays a supervisory role on these projects. Dr. Chan has also been an executive director and the legal representative of a PRC company principally holding a number of companies engaged in gold mining operations in Sichuan Province of the PRC since early 2009. The Sichuan project has a gold mining license and an exploration license and it is still under exploration. Dr. Chan plays a supervisory role on this project. Mr. Victor Chan, a Director, has also been a supervisor of the aforesaid PRC holding company and plays a supervisory role in this Sichuan project since then. As discussed with the Company, while Dr. Chan and Mr. Victor Chan, being the executive Directors, will provide guidance and formulate strategic decisions regarding the Company’s investment in the Hongzhuang Gold Mine at high level, the Target Group currently has its own experienced senior management team including, but not limited to, a mineral ore trading mine manager who has 19 years of experience in mining, an ore processing industry technical manager who has 26 years of experience in geo-chemical exploration and a plant manager who has more than 20 years of experience in ore processing. We further understand that all key members of such management team are engaged under employment contracts currently with remaining term of 2.3 years in average. With the

– 52 – LETTER FROM ACCESS CAPITAL help of the existing management team and Dr. Chan’s experience in mining operations, we concur with the view of the Directors that the Group will have sufficient knowledge and expertise in operating Hongzhuang Gold Mine.

As stated in the Letter from the Board, there are risk factors associated with the Acquisition. Based on our review of such risk factors and further discussions with the Board, we note that certain of such risk factors such as fluctuation in the price and demand of gold, uncertainties in exploration and government regulations on the mining industry are inherent in the gold mining industry in the PRC, which are beyond the control of the Company. On the other hand, there are certain risk factors such as requirement for continuous capital investment, renewals of the mining and exploration permits and need for an experienced management team to operate Hongzhuang Gold Mine, which fall under the operating scope of the Group and are manageable.

In view of the nature of the aforesaid risk factors, we consider that they are not uncommon in the gold mining business and shall not be the particular barriers to the Company’s proposed investment in the industry. We understand that the Board has given a prudent and thorough assessment of such risk factors against the benefits expected to be brought by the Acquisition and concludes that the Acquisition is in the interests of the Company and the Shareholders as a whole. In particular, the Directors are of the view that the potential return of the Acquisition outweighs the related risks on the basis that Dr. Chan and the management team of the Target Group have experience in monitoring and controlling related risks (e.g. the Group employs local mining experts and legal opinions are often sought to ensure compliance with government regulations; the management team consisted of personnel recruited locally in the PRC or overseas outside Hong Kong giving the Group the ability to employ international mining practices and these key personnel are secured under employment contracts, etc.). Both Dr. Chan and Mr. Victor Chan involve in the planning and approval of budget and business strategy of the projects. Executive staff on each project reports to both Dr. Chan and Mr. Victor Chan on a regular basis. As such, we concur with the view of the Directors that the management of the Group and the Target Group have experience in controlling the risks. Based on our discussion with the Directors regarding the potential impact of those risk factors which are in relation to the operating scope of the Target Group, we concur with the Directors’ view that certain risk factors can actually be mitigated or controlled and the potential benefits of the Acquisition shall not be outweighed by them. For instance, regarding the risk factor in relation to continuous capital requirement, given the fact that the Group has already carried out certain transactions (i.e. disposal of properties and issue of Warrants) subsequent to 30 June 2009 to generate additional working capital to enhance its cash position and has existing unutilised bank facilities of approximately HK$282.5 million as at the Latest Practicable Date, the likelihood that the Group would not be able to satisfy the continuous capital requirements for this mining project is remote.

As regards the risk associated with the renewal of mining and exploration permits, the Vendor has undertaken, among other things, that the issuance of the New Gold Mine Licence shall come with the term of not less than five years from the date of the issue. On this basis, the Board is confident that the Target Group will encounter no difficulties in the renewal of the relevant mining and exploration permits before their

– 53 – LETTER FROM ACCESS CAPITAL expiration. As regards the risk in relation to the need for an experienced management team, the Target Group has already had its own experienced senior management team in place and all key members of such management team are engaged under employment contracts currently with remaining term of 2.3 years in average. As such, we concur with the Directors’ view that the Group will have sufficient knowledge and expertise in operating Hongzhuang Gold Mine following completion of the Acquisition.

In summary, given (i) the upward trend of the gold prices; (ii) the prosperous gold mining industry in the PRC (the details of which are set out in the section headed “Outlook of the gold mining industry in the PRC” below); and (iii) the results of the design, manufacturing, marketing and trading of fine jewellery and diamonds segment has been deteriorating since the financial year 2007, we are of the view that the Group’s proposed diversification into the gold mining business through the Acquisition is in the interests of the Company and the Shareholders as a whole.

3. Outlook of the gold mining industry in the PRC

Gold is one of the most well-known metals in the world. According to GFMS, the precious metals consultancy, the world’s top 3 gold production countries are the PRC, the USA and South Africa. The PRC became the world’s top gold producing country in 2007 and extended the lead from South Africa in 2008. In 2008, the PRC’s gold production was 288 tonnes, while the production of USA and South Africa in 2008 was 234 tonnes and 232 tonnes, respectively. According to “China Mining Report Q4 2009” published by Business Monitor International Ltd., gold mining in the PRC is concentrated on the three provinces of Shandong, Jiangxi and Henan (where the Hongzhuang Gold Mine is located), which together accounted for approximately 46.4% of 2008’s output.

– 54 – LETTER FROM ACCESS CAPITAL

The following chart sets out the gold price per oz for the five-year period up to the date of the Sale and Purchase Agreement which had an upward trend. It also reveals that the gold price per oz increased by approximately 31% from 1 January 2009 to the date of the Sale and Purchase Agreement, from US$870 per oz to US$1,140 per oz.

Source: Global Insight

According to a research report by Standard & Poor’s, the outlook for gold is positive. On the basis that (i) short-term interest rates is expected to remain low which reduces the opportunity cost of holding gold as an investment; (ii) global mine production has been declining for the past 10 years; and (iii) greater volatility of the major world currencies will boost demand for gold as a monetary reserve asset, it is generally expected that the prospects of gold price is optimistic.

4. Exploration and mining rights

In accordance with the relevant PRC laws, exploration permits and mining operation permits must be obtained from the relevant government bodies for exploration, mining and processing of minerals in the PRC.

As set out in the Letter from the Board, the Gold Mine Licence issued to Henan Multi-Resources is for a period from August 2009 to September 2010. The Vendor undertakes to use all commercially reasonable efforts to procure Henan Multi-Resources to process and complete the application to the relevant government authorities in the PRC for issuance of the New Gold Mine Licence in compliance with the following parameters and conditions:

(i) the term shall not be less than five years (from the date of issue, which is expected to be first half of 2010);

(ii) the geographical scope and location of the mining permit area shall include the existing gold mining area and exploration area designated in the Gold Mine Licence; and

– 55 – LETTER FROM ACCESS CAPITAL

(iii) on such other terms as reasonably acceptable to the Company.

The management of Henan Multi-Resources has confirmed that it does not foresee any difficulties for Henan Multi-Resources to obtain the New Gold Mine Licence. It is also one of the conditions precedent of the Sale and Purchase Agreement that the New Gold Mine Licence having been issued to Henan Multi-Resources (and not revoked or otherwise rendered invalid by the authorities in the PRC).

5. Principal terms of the Acquisition

5.1 Assets to be acquired

Pursuant to the Agreement, the Company has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Shares and the Target Shareholder’s Loan at a total consideration of HK$738.0 million. As at the Latest Practicable Date, the Target Shareholder’s Loan amounted to approximately HK$149.8 million.

Background and financial information on the Target Group was set out in the Letter from the Board. The principal asset of the Target Group is its 100% interest in Hongzhuang Gold Mine. The Gold Mine Licence is for a period from August 2009 to September 2010 and covers a mining area of 5.6642 km2 with an allowed production capacity of 30,000 tonnes (gold ore to be processed) per annum. Hongzhuang Gold Mine is located in Luanchuan County, Henan Province, the PRC and includes two mining areas, namely Hongzhuang Mine (1.09 km2) and Yuanling Mine (4.5742 km2). Based on the information from the technical report (the “Technical Report”) prepared by SRK Consulting China Limited (an independent consulting practice that provides focused advice and solutions to the earth and water resource industries) as set out in Appendix VII to the Circular, Hongzhuang Gold Mine has indicated economic basic reserves (122b) of about 11 tonnes (metallic gold) and indicated and inferred intrinsic economic resources (332 and 333) of about 30 tonnes (metallic gold), whilst the known resources at Yuanling Mine at altitude 500 to 1,080 meters was nearly mined-out (the output during trial runs is about 50 to 80 tpd) based on the information obtained by them. Current activity at Yuanling Mine is only limited mining on the remaining known resources to supply ores for trial production run at the pilot plant. We note that while the gold grade in trial production of Yuanling Mine (average 2.68g/t) was much less than the grade of the original geological body (6.73g/t), the gold metal of Yuanling Mine was only 0.08 tonne and such information has not affected the valuation of Hongzhuang Gold Mine. Further information on the Hongzhuang Gold Mine is set out in the Letter from the Board and the Technical Report.

– 56 – LETTER FROM ACCESS CAPITAL

5.2 Consideration

As mentioned above, the Consideration of HK$738.0 million is for the acquisition of both the Sale Shares and the Target Shareholder’s Loan, which is to be satisfied upon Completion in the following manner:

(i) as to a sum of HK$113.0 million by payment in cash;

(ii) as to a sum of HK$300.0 million by way of issue of a total of 176,470,588 Consideration Shares to Tamar Investments (or its wholly-owned subsidiary(ies)); and

(iii) as to the balance of HK$325.0 million by way of issue of the Convertible Note to Tamar Investments (or its wholly-owned subsidiary(ies)).

As set out in the Letter from the Board, the Consideration was arrived at after arm’s length negotiations between the Company and the Vendor and was determined with reference to (i) the Minimum Gold Mine Value (as defined in the Letter from the Board) of HK$800.0 million; (ii) the Target Shareholder’s Loan of not less than HK$150.0 million upon Completion; and (iii) the prevailing gold price. The Minimum Gold Mine Value was determined based on a valuation of Hongzhuang Gold Mine of HK$900.0 million as at 31 October 2009.

As discussed with the Company, we understand that the decision to settle part of the consideration in the form of Consideration Shares and Convertible Note was arrived at after careful consideration. The arrangement fee/drawdown fee of a bank loan and the interest rate are considerably more costly than the issue of Convertible Note. Security is not required under the Convertible Note while it is usually the case for borrowing a bank loan. In addition, there is no commitment of repayment of the Convertible Note as it is either converted into the Conversion Shares by the holders during the conversion period or automatically converted at maturity. As the Convertible Note is repayable at the discretion of the Company, the flexibility offered by issuing the Convertible Note is more favourable than a bank loan. The alternatives such as rights issue and/or open offer are time consuming and usually more costly for the Company than the issue of consideration shares and convertible notes. Due to time constraint and the reasons as set out above, the Company did not attempt other financing alternatives. Based on the foregoing, we concur with the view of the Directors that the source of funding for the Consideration is appropriate in the present case and in the interest of the Company and the Shareholders as a whole.

For the purposes of evaluating the fairness and reasonableness of the Consideration, we have reviewed the accountants’ report on the Target Company and its wholly-owned subsidiary, Golden Offer, as set out in Appendix II, and noted that they had not yet commenced any commercial operations as at 30 September 2009. Both the Target Company and Golden Offer had capital deficiency as at 30 September 2009, which mainly represented the administrative

– 57 – LETTER FROM ACCESS CAPITAL expenses incurred since their establishment. While the Target Company was only a shell company with no asset as at 30 September 2009, Golden Offer had non-current assets comprising property, plant and equipment, mining rights and prepaid lease payments in the aggregate amount of approximately HK$96.3 million and current assets comprising mainly other receivables, deposits and prepayments and cash and cash equivalent in the aggregate amount of approximately HK$3.5 million. As at 30 September 2009, the amounts due by Golden Offer to Dr. Chan and related parties amounted to a total of approximately HK$177.8 million.

Given the fact that the principal asset of the Target Group is its 100% interest in Hongzhuang Gold Mine and the Target Group has not yet commenced commercial operations and therefore shown no track record for the assessment for future profitability, we consider it relevant and appropriate, for the purposes of evaluating the fairness and reasonableness of the Consideration, to assess the commercial value of the Hongzhuang Gold Mine which had not been reflected on the respective accountants’ report on the Target Company or Golden Offer as at 30 September 2009. In this connection, we note that the Circular has contained a valuation report on the Hongzhuang Gold Mine (the “Valuation Report”) which has been conducted by an independent valuer, BMI Appraisals Limited (the “Valuer”), as set out in Appendix VI to the Circular.

Based on our review of the Valuation Report and our further discussion with the Valuer, we understand that the Valuer has been instructed by the management of the Company to analyse and provide opinion on the market value of a 100% interest in Hongzhuang Gold Mine which includes two mining areas in Hongzhuang and Yuanling. During the course of their work, the Valuer has referred to the Technical Report.

For the purpose of the valuation, the Valuer has been furnished with the financial and operational data related to the Hongzhuang Gold Mine, which were given by the senior management of the Company. The valuation of the Hongzhuang Gold Mine required consideration of all pertinent factors affecting the economic benefits of the Hongzhuang Gold Mine and its abilities to generate future investment returns. The factors considered by the Valuer in the valuation included, but were not limited to, the following:

– the business nature of the Hongzhuang Gold Mine;

– the financial and operational information of the Hongzhuang Gold Mine; and

– the specific economic environment and competition for the market in which the Hongzhuang Gold Mine are exposed to.

We have also discussed with the Valuer regarding the methodologies adopted and assumptions made in arriving at the relevant valuation. In this connection, we understand that the Valuer has considered three generally accepted valuation

– 58 – LETTER FROM ACCESS CAPITAL methods, namely the market approach, the cost approach and the income approach and that the Valuer considers the market approach to be the most appropriate method to assess the market value of the Hongzhuang Gold Mine. For determining the market value, the Valuer has selected a number of recent sale and purchase transactions relating to gold mines in the PRC. The Valuer then used the average adjusted consideration price to gold metal resource multiple of the comparable transactions to determine the market value of the Hongzhuang Gold Mine. Based on our discussion with the Valuer, we consider that, the assumptions, the basis and the methodology for the valuation of the Hongzhuang Gold Mine are fair and reasonable.

Having considered all of the above, we are of the opinion that the market valuation of the Hongzhuang Gold Mine as opined by the Valuer provides a valid benchmark for assessing the fairness and reasonableness of the Consideration. On the basis that (i) the Acquisition is essentially for the purchase of the Hongzhuang Gold Mine; (ii) the Consideration of HK$738.0 million is approximately 18% less than the aforesaid valuation of the Hongzhuang Gold Mine of HK$900 million; and (iii) the rising market price of gold since the date of valuation in the Valuation Report as well as the optimistic future of gold, we are of the opinion that the Consideration is fair and reasonable so far as the Independent Shareholders are concerned.

5.3 The Consideration Shares

Pursuant to the Sale and Purchase Agreement, HK$300.0 million of the Consideration will be satisfied by way of issue of a total of 176,470,588 Consideration Shares at an issue price of HK$1.7 per Share (the “Issue Price”) which represents (Note):

(i) a discount of approximately 15.0% to the closing price of HK$2.00 per Share on the Last Trading Date;

(ii) a discount of approximately 2.3% to the average closing price per Share of approximately HK$1.74 for the last ten trading days up to and including the Last Trading Date;

(iii) a premium of approximately 3.7% over the average closing price per Share of approximately HK$1.64 for the last 21 trading days up to and including the Last Trading Date (i.e. from the next trading date subsequent to the publication of the Company’s 2008/09 result up to and including the Last Trading Date);

(iv) a discount of approximately 44.1% to the audited consolidated net assets value attributable to equity holders of the Company per Share of approximately HK$3.04 as at 30 June 2009 (as calculated by the equity attributable to equity holders of the Company of approximately HK$1,045.9 million as at 30 June 2009, the special dividend of

– 59 – LETTER FROM ACCESS CAPITAL

approximately HK$93.8 million and the number of outstanding Shares of 312,830,334 as at 30 June 2009, as extracted from the 2009 Annual Report); and

(v) a discount of approximately 51.6% to the closing price of HK$3.51 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Note: previous closing price of the Shares has been adjusted as ex-special and ex-final dividends on 25 November 2009. The above calculations are performed on such basis.

In order to assess the fairness and reasonableness of the Issue Price, we have attempted to compare the Issue Price with the issue price of shares under other similar transactions that were carried out by companies listed on the Stock Exchange with underlying businesses and market capitalisation similar to that of the Group. However, we have not been able to identify any of such transactions. Alternatively, we have reviewed the transactions announced by other companies listed on the Main Board of the Stock Exchange which involve issue of consideration shares (the “Consideration Shares Comparables”) during the last two months preceding the Last Trading Date. As the Consideration Shares Comparables involve issuance of consideration shares as part of the consideration for acquisitions, we are generally of the view that the Consideration Shares Comparables are able to provide a relevant and appropriate reference for our analysis of the Issue Price on the grounds that the issue price of listed securities is often determined by reference to the prevailing market conditions. In addition, we consider that the period of about two months prior to the date of the Sale and Purchase Agreement is able to reflect the recent market conditions for the purpose of our analysis. Although the Consideration Shares Comparables are not engaged in similar businesses as the Company and the terms of issuance may vary due to the differences between the Company and the respective Consideration Shares Comparables in terms of different financial standing or business performance, we are of the view that the Consideration Shares Comparables still provide a reasonable comparison basis as they could reflect recent market trends of the terms used in issuing consideration shares as consideration for an acquisition. The references of issue prices to the closing prices of the Consideration Shares Comparables are set out as below.

(Discount)/ premium to/over the average (Discount)/ closing price for premium to/over the last 10 trading the closing price days up to and Date of Stock on the last including the last announcement Company code trading day trading day

13-Nov-09 Grandtop International 2309 2.11 2.92 Holdings Limited 13-Nov-09 Minmetals Land 230 (4.07) (3.28) Limited

– 60 – LETTER FROM ACCESS CAPITAL

11-Nov-09 Cinda International 111 (2.44) Not disclosed Holdings Limited 5-Nov-09 Hopefluent Group 733 6.06 0.48 Holdings Limited 29-Oct-09 China Botanic 2349 (4.08) 0.00 Development Holdings Limited 22-Oct-09 Xian Yuen Titanium 353 (37.00) (39.40) Resources Holdings Limited 21-Oct-09 Vision Tech 922 20.37 8.70 International Holdings Limited 15-Oct-09 Town Health 3886 1.24 2.35 International Holdings Company Limited 13-Oct-09 Berjaya Holdings 288 (72.97) (72.30) (HK) Limited 9-Oct-09 Vodone Limited 82 (10.71) (9.09) 1-Oct-09 RBI Holdings Limited 566 1.23 2.57 23-Sep-09 Sino-Tech 724 (68.40) (57.60) International Holdings Limited 22-Sep-09 Fushan International 639 1.20 2.17 Energy Group Limited Average (12.9) (13.5) Maximum 20.4 8.7 Minimum (73.0) (72.3)

30 Nov 09 the Company (15.0) (2.3)

Source: website of the Stock Exchange – www.hkex.com.hk

The above table shows that out of the total of 13 Consideration Shares Comparables, seven Consideration Shares Comparables had the issue prices set at a discount to the closing prices as at the respective last trading days, ranging approximately 2.44% to 72.97%. On the other hand, six Consideration Shares Comparables had the issue prices set at a premium over the closing prices as at

– 61 – LETTER FROM ACCESS CAPITAL the respective last trading days, ranging approximately 1.20% to 20.37%. As a whole, the issue price of the Consideration Shares Comparable compared to the closing prices as at the respective last trading days range from a discount of approximately 73.0% to a premium of approximately 20.4% with an average discount of approximately 12.9%. The Issue Price of HK$1.7 represents a discount of approximately 15.0% to the closing price of HK$2.0 per Share on the Last Trading Date, which is slightly higher than the average discount of approximately 12.9% of the Consideration Shares Comparables. Nevertheless, if a longer time frame is taken into account, the magnitude of the discount would drop substantially and for a 10-day average, the Issue Price of HK$1.7 represents a discount of only about 2.3%, which is significantly less than the relevant average discount of approximately 13.5% of the Consideration Shares Comparables. Accordingly, we consider that the Issue Price of the Consideration Shares, as part of the payment terms under the Sale and Purchase Agreement, is fair and reasonable so far as the Independent Shareholders are concerned.

5.4 The Convertible Note

As set out in the Letter from the Board, the Convertible Note bears interest of 1.5% per annum and has a maturity of three years with the principal amount up to HK$325.0 million. The conversion price will be HK$1.9 per Conversion Share (subject to adjustments) (the “Conversion Price”) and the holder of the Convertible Note has the right to convert at any time prior to the date of maturity in whole or in part of the principal amount of the Convertible Note into the Conversion Shares. At the date of maturity, any outstanding principal amount of the Convertible Note is deemed to be automatically converted into the Conversion Shares.

In order to assess the fairness and reasonableness of the principal terms of the Convertible Note, we have attempted to compare the principal terms of the Convertible Note with the terms of other convertible notes or bonds issued by companies listed on the Stock Exchange with underlying businesses and market capitalisation similar to that of the Group. However, we have not been able to identify any of such issues. Alternatively, we have identified, to our best knowledge, all those convertible bonds or notes which are issued for the purpose of satisfying part of the consideration for acquisitions by companies listed on the Main Board of the Stock Exchange for the two months period prior and up to the Last Trading Date (the “CN Comparables”). As the terms of a convertible note/ bond are usually determined with reference to the prevailing market conditions, we consider that such time frame is appropriate for the purposes of our comparison In addition, we consider that the period of about two months prior to the date of the Sale and Purchase Agreement is able to reflect the recent market condition for the purpose of our analysis. While the CN Comparables are not engaged in similar businesses as the Company and their financial position may be different from that of the Company, we are of the view that the CN Comparables still provide a reasonable comparison basis as they could reflect recent market trends of the terms used in issuing convertible securities (such as maturity, coupon

– 62 – LETTER FROM ACCESS CAPITAL rate and premium or discount of conversion price) as part of the consideration for an acquisition. Details of our findings on the CN Comparables are summarised in the table below:

Premium/ (discount) of the initial conversion price over/to the closing price of shares on the Date of Stock Principal last trading announcement Company name code amount Maturity Coupon day (HK$ million) (Years) (%) (%)

18-Nov-09 Ching Hing 692 1,680.0 3 2 4.76 (Holdings) Limited 13-Nov-09 Grandtop 2309 909.1 10 Nil 2.11 International Holdings Limited 10-Nov-09 China Strategic 235 7,800.0 0.5 Nil (65.52) Holdings Limited 22-Oct-09 Xian Yuen Titanium 353 1,053.8 5 Nil (37.00) Resources Holdings Limited 21-Oct-09 Vision Tech 922 1,190.0 10 Nil 29.63 International Holdings Limited 13-Oct-09 Berjaya Holdings 288 2,190.0 10 3.5 (72.97) (HK) Limited 11-Oct-09 Asia Coal Limited 835 2,325.0 5 Nil (28.60) 1-Oct-09 RBI Holdings 566 3,815.0 4 Nil 1.23 Limited 27-Sep-09 Bright International 1163 5,920.0 3 Nil (9.09) Group Limited 23-Sep-09 Sino-Tech 724 950.4 5 Nil (68.40) International Holdings Limited 23-Sep-09 Yun Sky Chemical 663 1,855.0 5 Nil (69.20) (International) Holdings Limited

Average 5.5 0.5 (28.5) Maximum 10.0 3.5 37.00 Minimum 0.5 Nil (72.97)

30 Nov 09 the Company 325.0 3 1.5 (5.00)

Source: website of the Stock Exchange – www.hkex.com.hk

– 63 – LETTER FROM ACCESS CAPITAL

5.4.1 Interest rate

As shown in the above table, the interest rates of the CN Comparables range from nil to 3.5% per annum. As the interest rate of the Convertible Note is 1.5% per annum which falls within the range for the CN Comparables, we consider the interest rate of the Convertible Note is not excessive in comparison with market rates and is acceptable to the Company so far as the Independent Shareholders are concerned.

5.4.2 Maturity

The CN Comparables have a maturity ranging from half year to ten years, with an average maturity of about 5.5 years. As the maturity of the Convertible Note is three years which falls within the range for the CN Comparables, we consider the maturity of the Convertible Note is in line with market practice. In addition, given that at the date of maturity, any outstanding principal amount of the Convertible Note will be automatically converted into the Conversion Shares in full, we are of the view that the Convertible Note will not otherwise have any potential adverse impact on the cash flow of the Group as to the repayment in the future, which is in the interests of the Company and the Shareholders as a whole.

5.4.3 Conversion Price

As shown in the above table, six of the eleven CN Comparables have the conversion prices which represent a discount to their respective closing prices as at the last trading day. On the other hand, five CN Comparables have the conversion prices which represent a premium over their respective closing prices as at the last trading day. On average, the conversion price of the CN Comparables represents a discount of approximately 28.5% to the closing price of the shares as at the last trading day. In the present case, the Conversion Price represents a discount of 5.00% to the closing price per Share as at the Last Trading Date. When compared to the average discount of approximately 28.5% in the case of the CN Comparables, the slight discount as represented by the Conversion Price over the closing price as at the Last Trading Date appears to be more favourable to the Company as such discount is smaller than the respective average percentage for the CN Comparables. On this basis, we are of the view that the Conversion Price is fair and reasonable so far as the Independent Shareholders are concerned.

In summary, given the fact that (i) the issue of the Consideration Shares alone may not be able to satisfy the Consideration in full; (ii) due to the automatic conversion at maturity, the Convertible Note will not have any potential adverse impact on the cash flow of the Group and may enhance the capital base of the Company when conversion takes place; (iii) the terms of the Convertible Note appear to be in line with those prevailing in the market when compared to the recent issues of the convertible bonds by other listed companies of the Stock Exchange; and (iv) the benefits expected to be brought by the Acquisition, we consider the issue of the Convertible Note, as part of the payment terms under the

– 64 – LETTER FROM ACCESS CAPITAL

Sale and Purchase Agreement, to be in the interests of the Company and the Shareholders as a whole and the terms of the Convertible Note are fair and reasonable.

5.5 The Subscription

As set out in the Letter from the Board, the Subscriber has agreed to subscribe for an aggregate of 21,764,705 new Shares at a subscription price of HK$1.7 per Subscription Share (the “Subscription Price”). The gross proceeds of the Subscription will be HK$37.0 million (before expenses of approximately HK$0.3 million). The Company intends to use the net proceeds from the Subscription to finance part of the Consideration and for general working capital of the Group. The Subscription Price of HK$1.7 per Share is the same as the Issue Price.

Pursuant to the Sale and Purchase Agreement, one of the conditions precedent for the Completion is that all of the conditions precedent to the completion of the Subscription Agreement having been fulfilled in accordance with its terms. In other words, the Subscription is part and parcel of the implementation of the Acquisition. Based on our analysis of the Issue Price, details of which are set out in the section headed “The Consideration Shares” above, we are of the view that the Issue Price is fair and reasonable. As the Subscription Price is the same as the Issue Price and the net proceeds from the Subscription will be used to finance part of the Consideration, we are also of the view that the Subscription is fair and reasonable and in the interests of the Company and Shareholders as a whole.

6. Possible financial effect as a result of the Acquisition

6.1 Accounting effect

Following Completion, each of the Target Company and its subsidiaries (i.e. Golden Offer and Henan Multi-Resources) will become a subsidiary of the Company and their financial results will be consolidated into the Group’s financial results.

In addition, the implementation of the Acquisition is expected to give rise to goodwill or excess in the net fair value of the net identifiable assets over the fair value of the total cost of the Acquisition of approximately HK$65.8 million. Goodwill represents the excess of the combined value of (i) fair value of net identifiable assets of the Target Group to be acquired and (ii) Target Shareholder’s Loan over (i) the fair value of cost of business combination at Completion and (ii) transaction costs directly attributable to the Acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. The extent to which any goodwill impairment provision may be required in the Group’s future financial statement would depend on the assessment as to whether any impairment on goodwill may be necessary.

– 65 – LETTER FROM ACCESS CAPITAL

6.2 Cash position, gearing and total equity

Based on the Company’s audited consolidated balance sheet as at 30 June 2009 set out in Appendix I to the Circular, the Group had cash and cash equivalents of approximately HK$45.8 million as at 30 June 2009. Given the total current assets of approximately HK$1,327.3 million and total current liabilities of approximately HK$383.4 million as at 30 June 2009, the Group had net current assets of approximately HK$943.9 million or a current ratio of approximately 3.5. In addition, the gearing ratio of the Group as at 30 June 2009 was approximately 39%, as represented by the net debt of the Group divided by total equity plus net debt.

Based on the unaudited pro forma consolidated balance sheet of the Group set out in Appendix III to the Circular, prepared on the assumptions that the Acquisition had been completed on 30 June 2009, the Group would have a deficit of cash and cash equivalents in the amount of approximately HK$66.6 million. In addition, the total current assets and the total current liabilities of the Group would become approximately HK$1,217.1 million and HK$387.2 million, respectively, representing a net-current-assets position of approximately HK$829.9 million or a net current ratio of approximately 3.1.

Based on the aforesaid pro forma financial information, it seems that the Group might not have sufficient cash to complete the Acquisition as there would be a deficit in the cash and cash equivalents of the Group. Nevertheless, it should be noted that such pro forma consolidated balance sheet does not take into account those transactions carried out by the Group after 30 June 2009 which have provided the Group with significant amount of cash (i.e. the net proceeds of approximately HK$399 million from the disposal of Continental Diamond Plaza at a consideration of HK$838 million). As set out in the Circular, the Directors have confirmed that, having taken into account the banking facilities and the internal financial resources available to the Group, the Enlarged Group will have sufficient working capital for its present requirements for at least twelve months from the date of the Circular. On this basis, we are of the opinion that the Acquisition will not adversely affect the sufficiency of working capital of the Group.

Given that the Convertible Note will either automatically be converted into Shares upon maturity or at any time before maturity at the discretion of the holders of the Convertible Note, the issue of the Convertible Note would not result in any increase of the Group’s gearing ratio as the Convertible Note does not compose a financial liability to the Company. On the other hand, the total equity of the Company will be significantly enhanced as a result of the recognition of the premium on the issue of Consideration Shares and Subscription Shares as well as the equity component of the Convertible Note.

In summary, given the overall favourable financial effects of the Acquisition on the Group, we are of the view that the Acquisition is in the interests of the Company and the Shareholders as a whole.

– 66 – LETTER FROM ACCESS CAPITAL

7. Potential dilution effect on the shareholdings of the Independent Shareholders

As at the Latest Practicable Date, the Independent Shareholders were interested in approximately 49.137% of the issued share capital of the Company. If the Acquisition is approved and becomes unconditional, the Company will issue 176,470,588 Consideration Shares and Convertible Note of HK$325.0 million to Tamar Investments (or its wholly-owned subsidiary(ies)). The aggregate shareholding interests of the Independent Shareholders in the Company immediately upon Completion will be reduced to approximately 30.077% as a result of the issue of the Consideration Shares and the Subscription Shares but before any conversion of the Convertible Note. If the Convertible Note is fully converted immediately following Completion, the aggregate shareholding interests of the Independent Shareholders in the Company will be reduced further to approximately 22.535%, representing an overall dilution of approximately 54.14% from their existing shareholdings of approximately 49.137%.

Having considered (i) the existing loss-making business operations in the design, manufacturing, marketing and trading of fine jewellery and diamonds segment; (ii) the Acquisition represents an opportunity for the Company to diversify into the gold mining business in the PRC the prospects of which appears to be promising; (iii) both the Issue Price and the Conversion Price are fair and reasonable having taken into account the current market prices of the Shares; and (iv) it may be difficult for the Group to use other fund raising exercises such as rights issue or open offer in light of the significant amount of the funds required for the Acquisition as well as the necessity of the underwriting arrangement to be in place, we are of the view that the dilution on the shareholding interests of the Independent Shareholders in the Company as a result of the issue of the Consideration Shares, the Subscription Shares and the Conversion Shares is acceptable.

V. RECOMMENDATION

Having considered the principal factors and reasons as set out above, we are in the opinion that the Acquisition (including the issue of the Consideration Shares and the Convertible Note) and the Subscription are in the interests of the Company and the Shareholders as a whole and the respective terms of the Sale and Purchase Agreement and the Subscription Agreement and the respective transactions contemplated thereunder are fair and reasonable. Therefore, we would advise the Independent Board Committee to recommend the Independent Shareholders that they should vote in favour of the relevant resolutions to approve the Sale and Purchase Agreement and the Subscription Agreement and the respective transactions contemplated thereunder at the EGM.

Yours faithfully For and on behalf of Access Capital Limited Alexander Tai Principal Director

– 67 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

1. Financial Summary

The following is a summary of the audited consolidated income statement of the Group for each of the three years ended 30 June 2007, 2008 and 2009, and the audited assets and liabilities of the Group as at 30 June 2007, 2008 and 2009 (as extracted from the financial statements of the Company’s annual reports for the years ended 30 June 2007, 2008 and 2009).

For the year ended 30 June 2009 2008 2007 HK$’000 HK$’000 HK$’000

RESULTS Revenue 1,189,622 1,497,682 1,632,180

Profit before income tax 71,142 101,073 259,794 Income tax credit/(expenses) 64,807 (13,985) (52,898)

Profit before minority interests 135,949 87,088 206,896 Minority interest (10) (3,611) (92,910)

Net profit attributable to equity holders of the Company 135,939 83,477 113,986

Earnings per Share – Basic (HK$) 0.445 0.298 0.410

Dividend per Share (HK$) 0.320 0.025 0.030

As at 30 June 2009 2008 2007 HK$’000 HK$’000 HK$’000

ASSETS, LIABILITIES AND MINORITY INTEREST Total assets 2,013,672 1,673,773 1,683,031 Total liabilities (967,771) (795,200) (882,841)

1,045,901 878,573 800,190 Minority interests (1,274) (1,865) (1,208)

Shareholders’ fund 1,044,627 876,708 798,982

– I-1 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

2. Latest published financial statements

Set out below are the latest published audited consolidated financial statements of the Group for the year ended 30 June 2009, together with the accompanying notes relating thereto and the comparative figures for the year ended 30 June 2008 as extracted from the annual report of the Company for the year ended 30 June 2009. References to page numbers in this section are to the page numbers of such annual report of the Company.

Consolidated Income Statement For the year ended 30 June 2009

2009 2008 Notes HK$’000 HK$’000

Revenue 6 1,189,622 1,497,682 Cost of sales (1,061,343) (1,337,277)

Gross profit 128,279 160,405 Selling and distribution costs (21,465) (26,676) Administrative expenses (111,890) (73,143) Other operating expenses (17,446) (18,690) Changes in fair value of investment properties 101,080 81,445

Profit from operations 78,558 123,341 Finance costs 7 (12,187) (19,733) Share of results of associates (701) (681) Share of results of jointly controlled entities 5,472 (1,854)

Profit before income tax 8 71,142 101,073

Income tax credit/(expense) 9 64,807 (13,985)

Profit for the year 135,949 87,088

Attributable to: Equity holders of the Company 10 135,939 83,477 Minority interests 10 3,611

Profit for the year 135,949 87,088

Dividends 11 Interim dividend 3,128 2,798 Proposed final dividend 3,128 4,197 Proposed special dividend 93,849 –

100,105 6,995

Earnings per share for profit attributable to the equity holders of the Company during the year 12

– Basic HK44.5 cents HK29.8 cents

– Diluted N/A N/A

– I-2 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Consolidated Balance Sheet As at 30 June 2009

2009 2008 Notes HK$’000 HK$’000

ASSETS AND LIABILITIES

Non-current assets Property, plant and equipment 15 435,836 50,723 Leasehold land/Land use rights 16 8,883 9,119 Investment properties 17 – 752,400 Interests in associates 19 3,051 3,606 Interests in jointly controlled entities 20 216,382 131,978 Available-for-sale financial assets 21 12,974 14,177 Long term receivables 22 – 6,135 Deferred tax assets 32 9,217 8,890

686,343 977,028

Current assets Inventories 23 295,492 338,573 Trade receivables 24 106,942 168,745 Prepayments, deposits and other receivables 29,177 42,257 Current portion of long term receivables 22 1,305 4,926 Financial assets at fair value through profit or loss 25 10,324 12,763 Due from associates 19 330 493 Due from a jointly controlled entity 20 – 120 Cash and cash equivalents 26 45,759 128,868

489,329 696,745 Assets classified as held for sale 33 838,000 –

1,327,329 696,745

– I-3 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

2009 2008 Notes HK$’000 HK$’000

Current liabilities Trade payables 27 (157,142) (199,930) Other payables and accruals (62,883) (46,170) Derivative financial instruments 28 (170) – Provision for tax (11,623) (17,183) Due to associates 19 (288) (538) Due to jointly controlled entities 20 – (3) Bank loans, secured 29 (141,633) (90,870)

(373,739) (354,694) Liabilities associated with assets classified as held for sale 33 (9,628) –

(383,367) (354,694)

Net current assets 943,962 342,051

Total assets less current liabilities 1,630,305 1,319,079

Non-current liabilities Loans from minority shareholders 30 (1,125) (1,125) Bank loans, secured 29 (541,263) (372,409) Promissory note 31 (42,000) – Deferred tax liabilities 32 (16) (66,972)

(584,404) (440,506)

Net assets 1,045,901 878,573

EQUITY Equity attributable to the Company’s equity holders Issued capital 34 31,283 27,980 Reserves 35 916,367 844,531 Proposed dividend 96,977 4,197

1,044,627 876,708 Minority interests 1,274 1,865

Total equity 1,045,901 878,573

– I-4 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Balance Sheet As at 30 June 2009

2009 2008 Notes HK$’000 HK$’000

ASSETS AND LIABILITIES

Non-current assets Interests in subsidiaries 18 617,916 572,306 Interests in associates 19 –– Long term receivables 22 – 5,703

617,916 578,009

Current assets Prepayments, deposits and other receivables 73 84 Current portion of long term receivables 22 958 958 Due from subsidiaries 18 134,525 47,986 Due from an associate 19 88 Cash and cash equivalents 26 85 82

135,649 49,118

Current liabilities Other payables and accruals (879) (300) Provision for tax (1,064) (1,730)

(1,943) (2,030)

Net current assets 133,706 47,088

Net assets 751,622 625,097

EQUITY Equity attributable to Company’s equity holders Issued capital 34 31,283 27,980 Reserves 35 623,362 592,920 Proposed dividend 96,977 4,197

Total equity 751,622 625,097

– I-5 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Consolidated Cash Flow Statement For the year ended 30 June 2009

2009 2008 Notes HK$’000 HK$’000

Cash flows from operating activities Profit before income tax 71,142 101,073 Adjustments for: Finance costs 12,187 19,733 Share of results of associates 701 681 Share of results of jointly controlled entities (5,472) 1,854 Depreciation of property, plant and equipment 8,349 9,026 Amortisation of leasehold land/land use rights 236 239 Bad debts written off – 2,227 Amount due from an associate written off – 1,070 Write back against inventories (4,991) (3,342) Provision for long term receivables 8,449 1,195 Provision for trade receivables 3,205 9,006 Write back of long outstanding payables – (1,232) Write back of amount due to a related party – (103) Impairment loss on available-for-sale financial assets – 3,865 Impairment loss on property, plant and equipment 2,261 – Gain on disposal of leasehold land/land use rights – (3) Loss on disposal of property, plant and equipment 65 45 Loss on deregistration of subsidiaries – 66 Loss on disposal of subsidiaries 23 – Changes in fair value in investment properties (101,080) (81,445) Fair value loss on derivative financial instruments 1,485 39

Operating (loss)/profit before working capital changes (3,440) 63,994 Decrease in inventories 48,072 12,120 Decrease in trade receivables 58,598 13,393 Decrease/(Increase) in prepayments, deposits and other receivables 13,891 (11,952) Decrease in financial assets at fair value through profit or loss 2,439 9,750 Increase in balances with associates (87) (1,116) Decrease in balances with jointly controlled entities 117 1,954 Decrease in trade and other payables and accruals (16,453) (6,866) Increase in derivative financial instruments (1,315) –

– I-6 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

2009 2008 Notes HK$’000 HK$’000

Cash generated from operations 101,822 81,277 Interest paid (16,923) (19,733) Dividend paid (8,220) (11,414) Hong Kong profits tax paid (7,071) (19,520)

Net cash generated from operating activities 69,608 30,610

Cash flows from investing activities Additions to property, plant and equipment (5,966) (7,459) Proceeds from disposal of property, plant and equipment 3 593 Proceeds from disposal of an investment property 15,480 105,000 Disposal of subsidiaries (net of cash and cash equivalents disposed of) 40 (2,000) – Acquisition of subsidiaries (net of cash and cash equivalents acquired) 39 (130,053) – Proceeds from disposal of leasehold land/land use rights – 183 Receipt of long term receivables 1,307 111 Increase in loans to a jointly controlled entity (76,000) (37,000)

Net cash (used in)/generated from investing activities (197,229) 61,428

Cash flows from financing activities Repayment of amount due to a related party – (148,639) Repayment of loan from a minority shareholder – (20,380) New bank loans 65,000 148,724 Repayment of bank loans (12,883) (44,111) Repayment of promissory note (8,000) –

Net cash generated from/(used in) financing activities 44,117 (64,406)

– I-7 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

2009 2008 Notes HK$’000 HK$’000

Net (decrease)/increase in cash and cash equivalents (83,504) 27,632

Cash and cash equivalents at beginning of year 128,868 102,168

Effect of foreign exchange rate changes, net 395 (932)

Cash and cash equivalents at end of year 45,759 128,868

Analysis of balances of cash and cash equivalents

Cash and bank balances 45,759 72,984 Short term time deposits – 55,884

45,759 128,868

– I-8 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Consolidated Statement of Changes in Equity For the year ended 30 June 2009

Minority Total Equity attributable to equity holders of the Company interests equity Share Non- Exchange Investment Issued premium distributable Other fluctuation revaluation Retained Proposed capital account reserve reserve reserve reserve profits dividend Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Balance at 1 July 2007 27,980 158,373 273,606 (8,779) 1,938 2,289 337,979 5,596 798,982 1,208 800,190

Exchange differences on translation of the financial statements of foreign subsidiaries, associates and jointly controlled entities –– ––3,108 –––3,108 – 3,108 Change in fair value of available-for-sale financial assets –– –– –(465) ––(465) – (465)

Net income recognised directly in equity –– ––3,108 (465) ––2,643 – 2,643 Profit for the year –– –– – –83,477 – 83,477 3,611 87,088

Total recognised income and expense for the year –– ––3,108 (465) 83,477 – 86,120 3,611 89,731

Deregistration of subsidiaries –– –– – ––––66 66 Dividend paid to minority shareholders –– –– – ––––(3,020) (3,020) Payment of final 2007 dividend –– –– – ––(5,596) (5,596) – (5,596) Interim 2008 dividend –– –– – –(2,798) – (2,798) – (2,798) Proposed final 2008 dividend –– –– – –(4,197) 4,197 –––

Balance at 30 June 2008 27,980 158,373* 273,606* (8,779)* 5,046* 1,824* 414,461* 4,197 876,708 1,865 878,573

– I-9 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Balance at 1 July 2008 27,980 158,373 273,606 (8,779) 5,046 1,824 414,461 4,197 876,708 1,865 878,573

Exchange differences on translation of the financial statements of foreign subsidiaries, associates and jointly controlled entities –– ––5,330 –––5,330 – 5,330 Change in fair value of available-for-sale financial assets –– –– –(1,203) ––(1,203) – (1,203)

Net income recognised directly in equity –– ––5,330 (1,203) ––4,127 – 4,127 Profit for the year –– –– – –135,939 – 135,939 10 135,949

Total recognised income and expense for the year –– ––5,330 (1,203) 135,939 – 140,066 10 140,076

Shares issued upon acquisition of subsidiaries (note 39) 3,303 32,370 –– – –––35,673 – 35,673 Disposal of subsidiaries (note 40) –– –– – ––––(201) (201) Dividend paid to minority shareholders –– –– – ––––(400) (400) Payment of final 2008 dividend –– –– – ––(4,197) (4,197) – (4,197) Additional final 2008 dividend –– –– – –(495) – (495) – (495) Interim 2009 dividend –– –– – –(3,128) – (3,128) – (3,128) Proposed final 2009 dividend and special dividend –– –– – –(96,977) 96,977 –––

Balance at 30 June 2009 31,283 190,743* 273,606* (8,779)* 10,376* 621* 449,800* 96,977 1,044,627 1,274 1,045,901

* These reserve accounts comprise the consolidated reserves of HK$916,367,000 (2008: HK$844,531,000) in the consolidated balance sheet.

– I-10 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Notes to the Financial Statements For the year ended 30 June 2009

1. GENERAL INFORMATION

Continental Holdings Limited (the “Company”) is a limited liability company incorporated and domiciled in Hong Kong. The address of its registered office is FlatsM&N,1stFloor, Kaiser Estate, Phase III, 11 Hok Yuen Street, Hunghom, Kowloon, Hong Kong. The Company’s shares are listed on The Stock Exchange of Hong Kong Limited.

The Company and its subsidiaries (the “Group”) are principally engaged in the following activities:

– Design, manufacturing, marketing and trading of fine jewellery and diamonds

– Property investment

– Investment

Upon completion of a very substantial acquisition of the entire equity interest in Precious Palace International Limited (“Precious Palace”) and its subsidiary, Well Friendship Investment Limited (collectively the “Precious Group’’) on 22 September 2008 as detailed in note 39, 50.13% of the Company’s shares are held by Tamar Investments Group Limited (“Tamar”), a company incorporated in the British Virgin Islands. Details of this transaction have been set out in the Company’s circular dated 27 August 2008 and the Company’s announcement dated 16 September 2008. In the opinion of the directors, as at the balance sheet date, the Company’s ultimate holding company is Tamar.

The financial statements on pages 45 to 166 have been prepared in accordance with Hong Kong Financial Reporting Standards (’’HKFRSs’’) which collective terms included all applicable Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations (“Int”) issued by the Hong Kong Institute of Certified Public Accountants (’’HKICPA’’) and the requirements of the Hong Kong Companies Ordinance. The financial statements also include the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The financial statements for the year ended 30 June 2009 were approved for issue by the board of directors on 20 October 2009.

2. ADOPTION OF NEW OR AMENDED HKFRSs

During the year, the Group has applied for the first time the following new standards, amendments and interpretations (the new “HKFRSs”) issued by the HKICPA, which are relevant to and effective for the Group’s financial statements for the annual period beginning on 1 July 2008:

HKAS 39 & HKFRS 7 (Amendments) Reclassification of Financial Assets HK(IFRIC) – Int 12 Service Concession Arrangements HK(IFRIC) – Int 13 Customer Loyalty Programmes HK(IFRIC) – Int 14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The new HKFRSs have no material effect on how the results and financial positions for the current and prior period have been prepared and presented. Accordingly, no prior period adjustment is required.

– I-11 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

At the date of authorisation of these financial statements, the following new or amended HKFRSs have been published but are not yet effective, and have not been adopted early by the Group.

HKAS 1 (Revised) Presentation of Financial Statements 1 HKAS 32, HKAS 39 & HKFRS 7 Puttable Financial Instruments and Obligations Arising on (Amendments) Liquidation 1 HKAS 23 (Revised) Borrowing Costs 1 HKAS 27 (Revised) Consolidated and Separate Financial Statements 2 HKAS 39 (Amendment) Eligible Hedged Items 2 HKFRS 1 (Revised) First-time Adoption of HKFRSs 2 HKFRS 1 (Amendment) Additional Exemptions for First-time Adopters 4 HKFRS 1 & HKAS 27 (Amendments) Cost of an Investment in a Subsidiary, Jointly Controlled Entity and an Associate 1 HKFRS 2 (Amendment) Share-based Payment – Vesting Conditions and Cancellations 1 HKFRS 2 (Amendment) Group Cash-settled Share-based Payment Transactions 4 HKFRS 3 (Revised) Business Combinations 2 HKFRS 7 (Amendment) Improving Disclosures about Financial Instruments 1 HKFRS 8 Operating Segments 1 HK(IFRIC) – Int 15 Agreements for the Construction of Real Estate 1 HK(IFRIC) – Int 16 Hedges of a Net Investment in a Foreign Operation 3 HK(IFRIC) – Int 17 Distribution of Non-Cash Assets to Owners 2 HK(IFRIC) – Int 18 Transfer of Assets from Customers 5 Various Annual Improvements to HKFRSs 2008 6 Various Annual Improvements to HKFRSs 2009 7

Notes:

1 Effective for annual periods beginning on or after 1 January 2009

2 Effective for annual periods beginning on or after 1 July 2009

3 Effective for annual periods beginning on or after 1 October 2008

4 Effective for annual periods beginning on or after 1 January 2010

5 Effective for transfers of assets from customers received on or after 1 July 2009

6 Generally effective for annual periods beginning on or after 1 January 2009 unless otherwise stated in the specific HKFRS

7 Generally effective for annual periods beginning on or after 1 January 2010 unless otherwise stated in the specific HKFRS

The directors anticipate that all of the pronouncements will be adopted in the Group’s accounting policy for the first period beginning after the effective date of the pronouncement.

Amongst these new standards and interpretations, HKAS 1 (Revised) Presentation of Financial Statements is expected to materially change the presentation of the Group’s financial statements. The amendment affects the presentation of owner changes in equity and introduces a statement of comprehensive income. The Group will have the option of presenting items of income and expenses and components of other comprehensive income either in a single statement of comprehensive income with subtotals or in two separate statements (a separate income statement followed by a statement of other comprehensive income). This amendment does not affect the financial positions or results of the Group but will give rise to additional disclosures.

– I-12 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

In addition, HKFRS 8 Operating Segments may result in new or amended disclosures. The directors are in the process of identifying reportable operating segments as defined in HKFRS 8.

The directors are currently assessing the impact of the other new or amended HKFRSs upon initial application. So far, the directors have preliminarily concluded that the initial application of these HKFRSs is unlikely to have a significant impact on the Group’s results and financial positions.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

The significant accounting policies that have been used in the preparation of these financial statements are summarised below. These policies have been consistently applied to all the years presented unless otherwise stated.

These financial statements have been prepared on the historical cost basis except for investment properties and certain financial assets and liabilities, which are stated at fair values. The measurement bases are fully described in the accounting policies below.

It should be noted that accounting estimates and assumptions have been used in preparing these financial statements. Although these estimates and assumptions are based on management’s best knowledge and judgement of current events and actions, actual results may ultimately differ from those estimates and assumptions. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

3.2 Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 30 June each year.

3.3 Subsidiaries

Subsidiaries are entities (including special purpose entities) over which the Group has the power to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are excluded from consolidation from the date that control ceases.

Business combinations (other than for combining entities under common control) are accounted for by applying the purchase method.

This involves the estimation of fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group’s accounting policies.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated in preparing the consolidated financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

In the Company’s balance sheet, subsidiaries are carried at cost less any impairment loss. The results of the subsidiaries are accounted for by the Company on the basis of dividends received and receivable at the balance sheet date.

Minority interest represents the portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned by the Group and are not the Group’s financial liabilities.

– I-13 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Minority interests are presented in the consolidated balance sheet within equity, separately from the equity attributable to the equity holders of the Company. Profit or loss attributable to the minority interests are presented separately in the consolidated income statement as an allocation of the Group’s results. Where losses applicable to the minority exceeds the minority interests in the subsidiary’s equity, the excess and further losses applicable to the minority are allocated against the minority interest to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. Otherwise, the losses are charged against the Group’s interests. If the subsidiary subsequently reports profits, such profits are allocated to the minority interest only after the minority’s share of losses previously absorbed by the Group has been recovered.

3.4 Associates

Associates are those entities over which the Group is able to exert significant influence, generally accompanying a shareholding of between 20% and 50% of voting rights but which are neither subsidiaries nor investment in a joint venture. In consolidated financial statements, investment in associates is initially recognised at cost and subsequently accounted for using the equity method. Under the equity method, the Group’s interest in the associate is carried at cost and adjusted for the post-acquisition changes in the Group’s share of the associate’s net assets less any identified impairment loss, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). The consolidated income statement includes the Group’s share of the post-acquisition, post-tax results of the associate for the year, including any impairment loss on goodwill relating to the investment in associate recognised for the year.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. For this purpose, the Group’s interest in the associate is the carrying amount of the investment under the equity method together with the Group’s long term interests that in substance form part of the Group’s net investment in the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The cost of acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group, plus any costs directly attributable to the investment.

The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. After the application of equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associates. At each balance sheet date, the Group determines whether there is any objective evidence that the investment in associate is impaired. If such indications are identified, the Group calculates the amount of impairment as being the difference between the recoverable amount (see note 3.12) of the associate and its carrying amount.

Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in the income statement in the determination of the Group’s share of the associate’s profit or loss in the period in which the investment is acquired.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where the associate uses accounting policies other than those of the Group for like transactions and events in similar circumstances, adjustments are made, where necessary, to conform the associate’s accounting policies to those of the Group when the associate’s financial statements are used by the Group in applying the equity method.

In the Company’s balance sheet, investments in associates are stated at cost less any impairment losses. The results of associates are accounted for by the Company on the basis of dividends received and receivable.

– I-14 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

3.5 Joint ventures

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the venturers.

In consolidated financial statements, investment in jointly controlled entities are initially recognised at cost and subsequently accounted for using the equity method. Under the equity method, the Group’s interest in the jointly controlled entities are adjusted for the post-acquisition changes in the Group’s share of the jointly controlled entity’s net assets unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). The consolidated income statement includes the Group’s share of the post-acquisition, post-tax results of the jointly controlled entities for the year, including any impairment loss on goodwill relating to the investment in jointly controlled entities recognised for the year.

When the Group’s share of losses in a jointly controlled entity equals or exceeds its interest in the jointly controlled entity, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the jointly controlled entities. For this purpose, the Group’s interest in the jointly controlled entities are the carrying amount of the investment under the equity method together with the Group’s long term interests that in substance form part of the Group’s net investment in the jointly controlled entities.

Unrealised gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the Group’s interest in the jointly controlled entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where the jointly controlled entities use accounting policies other than those of the Group for like transactions and events in similar circumstances, adjustments are made to conform the associate’s accounting policies to those of the Group when the jointly controlled entities’ financial statements are used by the Group in applying the equity method.

3.6 Foreign currency translation

The financial statements are presented in Hong Kong Dollars (“HK$”), which is also the functional currency of the Company.

In the individual financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions.

At balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the balance sheet date retranslation of monetary assets and liabilities are recognised in the income statement.

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined and are reported as part of the fair value gain or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

In the consolidated financial statements, all individual financial statements of foreign operations, originally presented in a currency different from the Group’s presentation currency, have been converted into HK$. Assets and liabilities have been translated into HK$ at the closing rates at the balance sheet date. Income and expenses have been converted into HK$ at the exchange rates ruling at the transaction dates, or at the average rates over the reporting period provided that the exchange rates do not fluctuate significantly. Any differences arising from this procedure have been dealt with separately in the exchange fluctuation reserve in equity.

– I-15 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Other exchange differences arising from the translation of the net investment in foreign entities are taken to shareholders’ equity. When a foreign operation is disposed of, such exchange differences are recognised in the income statement as part of the gain or loss on disposal.

3.7 Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue and costs, if applicable, can be measured reliably, on the following bases:

(i) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold. This is usually taken as the time when the goods are delivered and the customer has accepted the goods;

(ii) rental income, on a time proportion basis over the lease terms;

(iii) interest income, on a time proportion basis using the effective interest method;

(iv) dividend income, when the shareholder’s right to receive payment is established; and

(v) subcontracting services income, when subcontracting services have been rendered and accepted by the customers.

3.8 Borrowing costs

Borrowing costs incurred for the acquisition, construction or production of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended time. A qualifying asset is an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. Other borrowing costs are expensed when incurred.

3.9 Goodwill

Set out below are the accounting policies on goodwill arising on acquisition of a subsidiary. Accounting for goodwill arising on acquisition of investment in an associate is set out in note 3.4.

Goodwill represents the excess of the cost of a business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. The cost of the business combination is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group, plus any costs directly attributable to the business combination or investment.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 3.12).

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination is recognised immediately in the income statement.

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of gain or loss on disposal.

3.10 Property, plant and equipment

Property, plant and equipment, other than properties under development and construction in progress, are stated at cost, which comprise purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use, less accumulated depreciation and any impairment losses (note 3.12). Subsequent costs are included in the asset’s carrying amount or recognised as a separate

– I-16 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other costs such as repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Factory buildings Over the term of the leases or estimated useful lives of 25 years, whichever is shorter

Commercial buildings Over the term of the leases or estimated useful lives of 33 years, whichever is shorter

Leasehold improvements Over the term of the leases or estimated useful lives of 4 years, whichever is shorter

Plant and machinery 10%-33%

Furniture, fixtures and equipment 17%

Motor vehicles 25%

The depreciation method, assets’ residual values and useful lives, are reviewed and adjusted, if appropriate, at each balance sheet date. The gain or loss on retirement or disposal of an asset of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Construction in progress represents asset under construction and is carried at cost less any accumulated impairment losses, and is not depreciated. Cost comprises direct costs of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment and depreciation commences when the construction work is completed and the asset is ready for use.

Property that is being constructed or developed for future use as investment property is classified as properties under development include payments for leasehold land and land use rights, construction costs and borrowing costs capitalised, if any, and professional fees, which are stated at cost less any impairment losses. When the construction or development is completed, it is reclassified as investment property at fair value. At the date of transfer, the difference between fair value and its previous carrying amount is recorded in the income statement.

3.11 Investment property

Investment properties are land and/or buildings which are owned or held under a leasehold interest to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use.

When the Group holds a property interest under an operating lease to earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it was held under a finance lease.

On initial recognition, investment property is measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment property is stated at fair value. Fair value is determined by external professional valuers, with sufficient experience with respect to both the location and the nature of the investment property. The carrying amounts recognised in the balance sheet reflect the prevailing market conditions at the balance sheet date.

– I-17 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until construction or development is completed, at which time it is reclassified as investment property. Any change between the fair value of the property at that date and its previous carrying amount is recognised in the income statement.

Gains or losses arising from either changes in the fair value or the sale of an investment property are included in the income statement for the period in which they arise.

3.12 Impairment of non-financial assets

Goodwill arising on an acquisition of subsidiaries, property, plant and equipment, leasehold land/land use rights, interests in subsidiaries, associates and jointly controlled entities are subject to impairment testing.

Goodwill are tested for impairment at least annually, irrespective of whether there is any indicator that they are impaired. All other assets are tested for impairment whenever there are indicators that the asset’s carrying amount may not be recoverable.

An impairment loss is recognised as an expense immediately for the amount by which the assets’ carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. 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 assessment of time value of money and the risk specific to the asset.

For the purposes of assessing impairment, where an asset does not generate cash inflows largely independent from those from other assets, the recoverable amount is determined for the smallest group of assets that generate cash inflows independently (i.e. a cash-generating unit). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit, except that the carrying value of an asset will not be reduced below its individual fair value less cost to sell, or value in use, if determinable.

An impairment loss on goodwill is not reversed in subsequent periods including impairment losses recognised in an interim period. In respect of other assets, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the asset’s recoverable amount and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.13 Leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Group

Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.

– I-18 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

(ii) Operating lease charges as the lessee

Where the Group has the right to use the assets held under operating leases, payments made under the leases are charged to the income statement on a straight-line basis over the lease terms except where an alternative basis is more representative of the time pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rental are charged to the income statement in the accounting period in which they are incurred.

(iii) Assets leased out under operating leases as the lessor

Assets leased out under operating leases are measured and presented according to the nature of the assets. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the rental income.

Rental income receivable from operating leases is recognised in the income statement on a straight-line basis over the periods covered by the lease term, except where an alternative basis is more representative of the time pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in the income statement as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

(iv) Leasehold land/land use rights

Leasehold land/land use rights represent up-front payments to acquire long term interests in the usage of the land. They are stated at cost less accumulated amortisation and accumulated impairment, if any. The up-front payments are amortised over the lease period on a straight-line basis and the amortisation is charged to the income statement.

3.14 Financial assets

The Group’s accounting policies for financial assets other than investments in subsidiaries, associates and jointly controlled entries are set out below.

Financial assets are classified into the following categories:

– financial assets at fair value through profit or loss

– loans and receivables

– available-for-sale financial assets

Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and, where allowed and appropriate, re-evaluates this designation at every reporting date.

All financial assets are recognised when, and only when, the Group becomes a party to the contractual provisions of the instrument. All regular way purchases of financial assets are recognised on trade date. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction cost.

Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. At each balance sheet date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognised based on the classification of the financial asset.

– I-19 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

(i) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss.

Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term, or it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent pattern of short-term profit-taking. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments or financial guarantee contracts.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial asset at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

Financial assets may be designated at initial recognition as at fair value through profit or loss if the following criteria are met:

– the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or losses on them on a different basis; or

– the assets are part of a group of financial assets which are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management strategy and information about the group of financial assets is provided internally on that basis to the key management personnel; or

– the financial asset contains an embedded derivative that would need to be separately recorded.

Subsequent to initial recognition, the financial assets included in this category are measured at fair value with changes in fair value recognised in the income statement.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less any impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction cost.

(iii) Available-for-sale financial assets

Available-for-sale financial assets include non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are subsequently measured at fair value. Gain or loss arising from a change in the fair value excluding any dividend and interest income is recognised directly in equity, except for impairment losses (see the policy below) and foreign exchange gains and losses on monetary financial assets, until the financial asset is derecognised, at which time the cumulative gain or loss previously recycled in equity would be recognised in the income statement.

Interest calculated using the effective interest method is recognised in the income statement. Upon disposal, the cumulative gain or loss previously recognised in equity is transferred to the income statement.

For available-for-sale investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition.

– I-20 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Impairment of financial assets

At each balance sheet date, financial assets other than at fair value through profit or loss are reviewed to determine whether there is any objective evidence of impairment. Objective evidence of impairment of individual financial assets includes observable data that come to the attention of the Group about one or more of the followings loss events:

– significant financial difficulty of the debtors;

– a breach of contract, such as default or delinquency in interest or principal payments;

– it becoming probable that the debtors will enter bankruptcy or other financial reorganisation;

– significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and

– significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

Loss events in respect of a group of financial assets include observable data indicating that there is a measurable decrease in the estimated future cash flows from the group of financial assets. Such observable data includes but not limited to adverse changes in the payment status of debtors in the group and, national or local economic conditions that correlate with defaults on the assets in the group.

If any such evidence exists, the impairment loss is measured and recognised as follows:

(i) Financial assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognised in the income statement in the period in which the impairment occurs.

If, in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that it does not result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in the income statement in the period in which the reversal occurs.

(ii) Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, an amount is removed from equity and recognised in the income statement as impairment loss. That amount is measured as the difference between the asset’s acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in the income statement.

Reversals in respect of investment in equity instruments classified as available-for-sale are not recognised in the income statement. The subsequent increase in fair value is recognised directly in equity. Impairment losses in respect of debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. Reversal of impairment losses in such circumstances are recognised in the income statement.

– I-21 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

(iii) Financial assets carried at cost

The amount of impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods.

3.15 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on the estimated selling prices less any estimated costs to be incurred to completion and disposal.

3.16 Accounting for income taxes

Income tax comprises current tax and deferred tax.

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement.

Deferred tax is calculated using the liability method on temporary differences at the balance sheet date between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, tax losses available to be carried forward as well as other unused tax credits, to the extent that it is probable that taxable profits, including existing temporary difference, will be available against which deductible temporary differences, unused tax losses and unused tax credits can be utilised.

Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither taxable nor accounting profit or loss.

Deferred tax liabilities are recognised for taxable temporary differences arising on investment in subsidiaries, associates and jointly controlled entities except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset realised, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised in the income statement, or in equity if they relate to items that are charged or credited directly to equity.

3.17 Cash and cash equivalents

Cash and cash equivalents include cash at banks and in hand, demand deposits with banks and short term highly liquid investments with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of cash flow statement presentation, cash and cash equivalents include bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

– I-22 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

3.18 Share capital and share premium

Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.

Share premium includes any premiums received on the issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium (net of any related income tax benefit) to the extent they are incremental costs directly attributable to the equity transaction.

3.19 Employee benefits

Pension scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ relevant income and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

Prior to the MPF Scheme becoming effective, the Group operated a defined contribution retirement benefits scheme (the “Prior Scheme”) for those employees who were eligible to participate in this scheme. The Prior Scheme operated in a similar way to the MPF Scheme, except that when an employee left the Prior Scheme before his/her interest in the Group’s employer contributions vested fully, the ongoing contributions payable by the Group were reduced by the relevant amount of the forfeited employer’s contributions.

The employees of the subsidiaries which operate in the People’s Republic of China except Hong Kong and Macau (“Mainland China”) are required to participate in a retirement benefits scheme (the “RB Scheme”) operated by the local municipal government. These subsidiaries are required to contribute a certain percentage of their payroll to the RB Scheme to fund the benefits. The only obligation of the Group with respect to the RB Scheme is to pay the ongoing required contributions under the RB Scheme. Contributions under the RB Scheme are charged to the income statement as they become payable in accordance with the rules of the RB Scheme.

Short-term employee benefits

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

Non-accumulating compensated absences are not recognised until the time of leave.

3.20 Financial liabilities

The Group’s financial liabilities include bank loans, accruals, trade and other payables, derivative financial instruments, balances with associates and jointly controlled entities, promissory note and loans from minority shareholders.

Financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. All interest related charges are recognised as an expense in the income statement.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

– I-23 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Where 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 the recognition of a new liability, and the difference in the respective carrying amount is recognised in the income statement.

(a) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(b) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including derivatives which have been separated from their host contracts are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the income statement.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial liability at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

Financial liabilities may be designated at initial recognition as at fair value through profit or loss if the following criteria are met:

– the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognising gains or losses on them on a different basis; or

– the liabilities are part of a group of financial liabilities which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or

– the financial liability contains an embedded derivative that would need to be separately recorded.

Other financial liabilities are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest method.

3.21 Provisions and contingent liabilities

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

– I-24 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

Contingent liabilities are recognised in the course of the allocation of purchase price to the assets and liabilities acquired in a business combination. They are initially measured at fair value at the date of acquisition and subsequently measured at the higher of the amount that would be recognised in a comparable provision as described above and the amount initially recognised less any accumulated amortisation, if appropriate.

3.22 Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer (or guarantor) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

Where the Group issues a financial guarantee, the fair value of the guarantee is initially recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income.

The amount of the guarantee initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognised if and when it becomes probable that the holder of the guarantee will call upon the Group under the guarantee and the amount of that claim on the Group is expected to exceed the current carrying amount i.e. the amount initially recognised less accumulated amortisation, where appropriate.

3.23 Dividends

Dividends proposed by the directors are classified as a separate allocation of retained profits within the capital and reserves section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.

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 recognised immediately as a liability when they are proposed and declared.

3.24 Non-current assets held for sale

A non-current asset (or disposal group) is classified as held for sale if it is highly probable that its carrying amount will be recovered through a sale transaction rather than through continuing use and the asset (or disposal group) is available for sale in its present condition. A disposal group is a group of assets to be disposed of together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

Immediately before classification as held for sale, the measurement of the non-current assets (and all individual assets and liabilities in a disposal group) is brought up-to-date in accordance with the accounting policies before the classification. Then on initial classification as held for sale and until disposal, the non-current assets, or the disposal group, are recognised at the lower of their carrying amount and fair value less costs to sell. The principal exceptions to this measurement policy so far as the accounts of the

– I-25 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Group are concerned are deferred tax assets, financial assets (other than investments in subsidiaries and associates) and investment properties. These assets, even if held for sale, would continue to be measured in accordance with the policies governed with.

As long as a non-current asset is classified as held for sale, or is included in a disposal group that is classified as held for sale, the non-current assets is not depreciated or amortised.

3.25 Segment reporting

In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

In respect of business segment reporting, unallocated costs include corporate expenses and other expenses that cannot be allocated on a reasonable basis to the reportable segments. Segment assets consist primarily leasehold land/land use rights, investment properties, property, plant and equipment, inventories, receivables and operating cash. Segment liabilities comprise operating liabilities and exclude items such as taxation and certain corporate borrowings.

Capital expenditure comprises additions to property, plant and equipment, including additions resulting from acquisitions through acquisition of subsidiaries.

In respect of geographical segment reporting, revenue is based on the country in which the customer is located and total assets and capital expenditure are where the assets are located.

3.26 Related parties

For the purposes of these financial statements, a party is considered to be related to the Group if:

(i) the party has the ability, directly or indirectly through one or more intermediate, to control the Group or exercise significant influence over the Group in making financial and operating decisions, or has joint control over the Group;

(ii) the Group and the party are subject to common control;

(iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;

(iv) the party is a member of the key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;

(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or

(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or any entity that is related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealing with the entity.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

– I-26 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Estimation of impairment losses of available-for-sale financial assets

For available-for-sale financial assets, a significant or prolonged decline in fair value below cost is considered to be objective evidence of impairment. Judgement is required when determining whether a decline in fair value has been significant and/or prolonged. In making this judgement, the historical data on market volatility as well as the price of the specific investment are taken into account. The Group also takes into account other factors, such as industry and sector performance and financial information regarding the issuer/investee.

Provision for impairment of receivables

The policy for the provision for impairment of receivables of the Group is based on the evaluation of collectability and aging analysis of accounts and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness, the collateral security and the past collection history of each client. If the financial conditions of customer of the Group, on whose account provision for impairment has been made, were improved and no impairment of their ability to make payments were noted, reversal of provision for impairment may be required.

Estimate of current tax and deferred tax

The Group is subjected to taxation in various jurisdictions. Significant judgement is required in determining the amount of the provision for taxation and the timing of payment of the related taxation. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the periods in which such determination are made.

During the year and up to the date of these financial statements, the Inland Revenue Department (“IRD”) of Hong Kong is in the process of reviewing the tax affairs of certain subsidiaries of the Group. After taking into account the development of the IRD’s review to date, the directors of the Company are of the opinion that the Group’s tax provision is fairly presented. As at 30 June 2009, in relation to the aforementioned IRD’s review, the Group has purchased a tax reserve certificate amounting to approximately HK$2.8 million.

Since 2008, the Company and a subsidiary were selected for a field audit by the IRD. The field audit is still in progress and after taking into account the development of the IRD’s field audit to date, the directors of the Company are of the opinion that there should not be any material impact on the Company’s and the Group’s tax positions.

Provision for inventories

In determining the amount of allowance required for obsolete and slow-moving inventories, the Group would evaluate ageing analysis of inventories and compare the carrying value of inventories to their respective net realisable value. A considerable amount of judgement is required in determining such allowance. If conditions which have impact on the net realisable value of inventories deteriorate, additional allowances may be required.

Impairment of property, plant and equipment

The Group follows the guidance of HKAS 36 to determine when an asset is impaired. This determination requires significant judgement. In making this judgement, management evaluates, among other factors, the technology, market, economic and legal environment that the Group operates and the business outlook for the Group. Management assesses the impairment at each balance sheet date.

5. SEGMENT INFORMATION

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

– I-27 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products and services they provide. Each of the Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of other business segments. Summary details of the business segments are as follows:

(a) design, manufacturing, marketing and trading of fine jewellery and diamonds;

(b) property investment; and

In determining the Group’s geographical segments, revenues are attributed to the segments based on the location of the customers and assets are attributed to the segments based on the location of the assets.

(a) Business segment

The following tables present revenue, results and certain asset, liability and expenditure information for the Group’s business segments.

Design, manufacturing, marketing and trading of fine jewellery and diamonds Property investment Investment Consolidated 2009 2008 2009 2008 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Segment revenue: Sales to/revenue from external parties 1,151,465 1,462,746 36,861 31,464 1,296 3,472 1,189,622 1,497,682

Segment results (17,842) 24,250 108,810* 108,025* (6,947) (2,518) 84,021 129,757

Unallocated expenses (5,463) (6,416)

Profit from operations 78,558 123,341

Finance costs (12,187) (19,733) Share of results of associates (701) (681) Share of results of jointly controlled entities 5,472 (1,854)

Profit before income tax 71,142 101,073 Income tax credit/ (expense) 64,807 (13,985)

Profit for the year 135,949 87,088

* The changes in fair value of investment properties of HK$101,080,000 (2008: HK$81,445,000) were included in the segment results of the business segment of “Property investment”.

– I-28 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Segment assets 481,238 619,230 1,231,363 753,748 23,980 27,369 1,736,581 1,400,347 Interests in associates 3,051 3,606 Interests in jointly controlled entities 216,382 131,978 Unallocated assets 57,658 137,842

Total assets 2,013,672 1,673,773

Segment liabilities 194,270 236,222 36,587 9,765 379 354 231,236 246,341 Bank loans, secured 682,896 463,279 Promissory note 42,000 – Unallocated liabilities 11,639 85,580

Total liabilities 967,771 795,200

Other segment information: Depreciation 8,153 8,855 137 112 59 59 8,349 9,026 Amortisation on leasehold land/land use rights 236 239 ––––236 239 Non-cash expenses 13,980 17,408 23 –––14,003 17,408 Capital expenditure 2,545 7,459 391,389 –––393,934 7,459

(b) Geographical segment

(i) The following table provides an analysis of the Group’s revenue by geographical market, irrespective of the origin of the goods and services.

Sales revenue by geographical market 2009 2008 HK$’000 HK$’000

North America 558,919 762,303 Europe 411,914 499,675 Hong Kong 194,227 225,828 Other locations 24,562 9,876

1,189,622 1,497,682

– I-29 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

(ii) The following is an analysis of the carrying amount of segment assets and capital expenditure, analysed by the geographical area in which the segment assets are located.

Carrying amount of segment assets Capital expenditure 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000

North America 96,458 132,222 –– Europe 74,831 107,168 86 1,536 Hong Kong 1,364,209 937,098 391,614 318 Mainland China 199,818 218,971 2,234 5,605 Other locations 1,265 4,888 ––

1,736,581 1,400,347 393,934 7,459

6. REVENUE

Revenue, which is also the Group’s turnover, represents the net invoiced value of goods sold, after allowances for returns and trade discounts, subcontracting services income, gross rental income, interest income, and dividend income from investments.

An analysis of the Group’s revenue is as follows:

2009 2008 HK$’000 HK$’000

Sale of goods 1,137,106 1,462,746 Subcontracting services income 14,359 – Gross rental income 36,861 31,464 Interest income 850 2,780 Dividend income from investments 446 692

1,189,622 1,497,682

7. FINANCE COSTS

2009 2008 HK$’000 HK$’000

Interest charges on: Bank loans – wholly repayable within five years 16,361 2,782 – repayable over five years – 16,951 Promissory note wholly repayable within five years 562 –

Total borrowing costs 16,923 19,733 Less: Bank loan interest capitalised in properties under development (4,736) –

12,187 19,733

– I-30 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

8. PROFIT BEFORE INCOME TAX

2009 2008 HK$’000 HK$’000

The Group’s profit before income tax is arrived at after charging/ (crediting): Cost of inventories sold 1,047,469 1,292,926

Gross rental income from investment properties (36,861) (31,464) Outgoings in respect of investment properties 2,541 2,668

Net rental income from investment properties (34,320) (28,796)

Depreciation of property, plant and equipment (note 15) 8,349 9,026 Amortisation of leasehold land/land use rights (note 16) 236 239 Minimum lease payments under operating leases on land and buildings 4,749 5,171 Auditors’ remuneration 925 997 Write back against inventories* (4,991) (3,342) Fair value loss on derivative financial instruments – forward currency contracts 1,485 – – interest rate swap contracts – 39 Net foreign exchange losses/(gains) 11,072 (2,197) Impairment loss on available-for-sale financial assets – 3,865 Impairment loss on property, plant and equipment ** 2,261 – Provision for long term receivables 8,449 1,195 Gain on disposal of leasehold land/land use rights – (3) Loss on disposal of property, plant and equipment 65 45 Bad debts written off – 2,227 Amount due from an associate written off – 1,070 Provision for trade receivables 3,205 9,006 Write back of long outstanding payables – (1,232) Write back of amount due to a related party – (103) Loss on disposal of subsidiaries 23 –

* Write back against inventories for the year was included in “cost of sales” on the face of the consolidated income statement.

** Impairment loss on property, plant and equipment for the year was included in “other operating expenses” on the face of the consolidated income statement.

– I-31 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

9. INCOME TAX (CREDIT)/EXPENSE

Hong Kong profits tax has been provided at the rate of 16.5% (2008: 16.5%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the applicable rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

2009 2008 HK$’000 HK$’000

Current tax Hong Kong 2,757 10,108 Over provision in prior years (281) (9,554)

2,476 554

Deferred tax (note 32) Current year (67,283) 15,982 Attributable to decrease in tax rate – (2,551)

(67,283) 13,431

Total income tax (credit)/expense (64,807) 13,985

Reconciliation between income tax (credit)/expense and accounting profit at applicable tax rates:

2009 2008 HK$’000 HK$’000

Profit before income tax 71,142 101,073

Tax on profit before taxation, calculated at the statutory rate of 16.5% (2008: 16.5%) 11,738 16,677 Effect of different tax rates of subsidiaries operating in other jurisdictions (1,734) (2,261) Tax effect of share of results of associates 116 112 Tax effect of share of results of jointly controlled entities (903) 306 Tax effect of non-deductible expenses 6,429 1,950 Tax effect of non-taxable revenue (2,717) (4,946) Tax effect of prior years’ tax losses utilised this year (1,023) (844) Tax effect of temporary differences recognised this year – 9,366 Tax effect of temporary differences derecognised in associated with the assets classified as held for sale (82,500) – Tax effect of temporary differences not recognised – 58 Tax effect of tax losses not recognised 6,068 5,672 Effect on opening deferred balances resulting from a decrease in tax rate during the year – (2,551) Over provision in prior years (281) (9,554)

Tax (credit)/charge for the year (64,807) 13,985

10. PROFIT ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY

Of the consolidated profit attributable to the equity holders of the Company of HK$135,939,000 (2008: HK$83,477,000), a profit of HK$98,673,000 (2008: HK$19,299,000) has been dealt with in the financial statements of the Company.

– I-32 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

11. DIVIDENDS

(a) Dividends payable to the equity holders of the Company attributable to the year:

2009 2008 HK$’000 HK$’000

Interim – HK$0.010 (2008: HK$0.010) per ordinary share 3,128 2,798 Proposed final – HK$0.010 (2008: HK$0.015) per ordinary share 3,128 4,197 Proposed special – HK$0.300 (2008: Nil) per ordinary share 93,849 –

100,105 6,995

The final and special dividends proposed after the balance sheet date have not been recognised as a liability at the balance sheet date, but reflected as an appropriation of retained profits for the year ended 30 June 2009.

(b) Dividends payable to the equity holders of the Company attributable to the previous financial year, approved and paid during the year:

2009 2008 HK$’000 HK$’000

Final dividend in respect of the previous financial year, approved and paid during the year, of HK$0.015 per ordinary share (2008: HK$0.020 per ordinary share) 4,692* 5,596

* The actual final dividend paid for the year ended 30 June 2008 was HK$4,692,000 due to additional 33,030,303 ordinary shares issued and allotted on 22 September 2008.

12. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit attributable to the equity holders of the Company for the year of HK$135,939,000 (2008: HK$83,477,000), and on the weighted average of 305,319,334 (2008: 279,800,031) ordinary shares in issue during the year.

No diluted earnings per share amounts are shown as the Company has no potential ordinary shares for the years ended 30 June 2009 and 2008.

13. EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTORS’ EMOLUMENTS – NOTE 14)

2009 2008 HK$’000 HK$’000

Wages, salaries, allowances and benefits in kind 102,602 94,045 Pension costs – defined contribution plans 5,715 5,836 Less: Forfeited contributions – (25)

108,317 99,856

– I-33 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

14. DIRECTORS’ REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ remuneration disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance is as follows:

Group 2009 2008 HK$’000 HK$’000

Fees 254 217 Salaries, allowances and benefits in kind 5,330 5,345 Bonus 13,233 2,492 Retirement scheme contributions 237 241

19,054 8,295

Save as disclosed above, none of the executive, non-executive or independent non-executive directors received any fees or other reimbursements or emoluments for both years.

The emoluments of each director, on a named basis, for the years ended 30 June 2009 and 2008 are set out below:

2009 Salaries, allowances Retirement and benefits scheme Fees in kind Bonus contributions Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Executive directors: Chan Sing Chuk, Charles – 3,482 290 154 3,926 Cheng Siu Yin, Shirley – 944 580 43 1,567 Chan Wai Kei, Vicki – 437 181 19 637 Chan Wai Lap, Victor – 467 182 21 670 Non-executive directors: Chu Wai Kok 50 –– –50 Leung Hai Ming, Raymond (note (i)) 17 –– –17 Independent non-executive directors: Wong Kai Cheong 50 –– –50 Yu Shiu Tin, Paul 50 –– –50 Chan Ping Kuen, Derek 50 –– –50 Sze Irons (note (ii)) 37 –– –37

Total 2009 254 5,330 1,233 237 7,054

For the year ended 30 June 2009, included in the employee benefit expenses, there was a bonus of approximately HK$12,000,000 payable to the directors of the Group but the allocation to individual directors from the total bonus pool is not yet determined at the balance sheet date and up to the date of the financial statements are authorised for issue. As a result, the above analysis of directors’ remunerations on a named basis does not reflect the bonus to be allocated to respective directors.

– I-34 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

2008 Salaries, allowances Retirement and benefits scheme Fees in kind Bonus contributions Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Executive directors: Chan Sing Chuk, Charles – 3,500 890 158 4,548 Cheng Siu Yin, Shirley – 960 1,020 43 2,023 Chan Wai Kei, Vicki – 435 275 20 730 Chan Wai Lap, Victor – 450 307 20 777 Non-executive directors: Chu Wai Kok 50 –– –50 Leung Hai Ming, Raymond (note (i)) 50 –– –50 Independent non-executive directors: Wong Kai Cheong 50 –– –50 Yu Shiu Tin, Paul 50 –– –50 Chan Ping Kuen, Derek 17 –– –17

Total 2008 217 5,345 2,492 241 8,295

There was no arrangement under which a director waived or agreed to waive any remuneration during the years.

During the years, no emoluments were paid by the Group to the directors as an inducement to join, or upon joining the Group, or as compensation for loss of office.

Notes:

(i) Leung Hai Ming, Raymond has redesignated from independent non-executive director to non-executive director of the Company on 28 December 2007 and has resigned as non-executive director of the Company on 10 October 2008.

(ii) Sze Irons was appointed as an independent non-executive director of the Company on 2 October 2008.

(b) Five highest paid individuals

The five highest paid individuals during the year included three (2008: three) directors, details of whose emoluments are set out above. Details of the emoluments of the remaining two (2008: two) non-directors, highest paid individuals are as follows:

2009 2008 HK$’000 HK$’000

Salaries, allowances and benefits in kind 1,707 2,552 Retirement scheme contributions 29 30 Bonus 104 126

1,840 2,708

– I-35 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

The number of non-directors, highest paid individuals whose emoluments fell within the following bands is as follows:

Number of individuals 2009 2008

Nil-HK$1,000,000 1 1 HK$1,000,001 to HK$1,500,000 1 1

During the years, no emoluments were paid by the Group to the two highest paid individuals as an inducement to join or upon joining the Group, or as compensation for loss of office.

15. PROPERTY, PLANT AND EQUIPMENT

Group

Furniture, Buildings fixtures, and Properties equipment leasehold under Plant and and motor Construction improvements development machinery vehicles in progress Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 30 June 2007 Cost 67,468 – 58,524 45,557 – 171,549 Accumulated depreciation and impairment (38,124) – (47,874) (36,542) – (122,540)

Net book amount 29,344 – 10,650 9,015 – 49,009

Year ended 30 June 2008 Opening net book amount 29,344 – 10,650 9,015 – 49,009 Additions 498 – 1,544 2,771 2,646 7,459 Disposals (128) – (352) (158) – (638) Depreciation (3,191) – (1,817) (4,018) – (9,026) Exchange realignment 2,660 – 807 452 – 3,919

Closing net book amount 29,183 – 10,832 8,062 2,646 50,723

At 30 June 2008 Cost 64,469 – 60,946 47,334 2,646 175,395 Accumulated depreciation and impairment (35,286) – (50,114) (39,272) – (124,672)

Net book amount 29,183 – 10,832 8,062 2,646 50,723

– I-36 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Year ended 30 June 2009 Opening net book amount 29,183 – 10,832 8,062 2,646 50,723 Acquisition of subsidiaries (note 39) – 383,232 –––383,232 Additions 275 8,157 136 531 1,603 10,702 Transfer 4,369 –––(4,369) – Disposals –––(68) – (68) Depreciation (3,386) – (1,277) (3,686) – (8,349) Impairment ––(1,241) (1,020) – (2,261) Exchange realignment 1,620 – 72 45 120 1,857

Closing net book amount 32,061 391,389 8,522 3,864 – 435,836

At 30 June 2009 Cost 72,992 391,389 59,286 48,157 – 571,824 Accumulated depreciation and impairment (40,931) – (50,764) (44,293) – (135,988)

Net book amount 32,061 391,389 8,522 3,864 – 435,836

Included in properties under development is interest capitalised of HK$4,736,000 (2008: Nil).

At 30 June 2009, the Group’s properties under development and certain buildings with aggregate net book amounts of approximately HK$410,747,000 (2008: HK$17,733,000) were pledged to secure general banking facilities granted to the Group (note 29).

16. LEASEHOLD LAND/LAND USE RIGHTS

Group 2009 2008 HK$’000 HK$’000

Opening net carrying amount 9,119 9,538 Amortisation charge for the year (236) (239) Disposal – (180)

Closing net carrying amount 8,883 9,119

– I-37 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

The Group’s interests in leasehold land/land use rights represent prepaid operating lease payments and their net book values are analysed as follows:

2009 2008 HK$’000 HK$’000

In Hong Kong held on: Medium term lease of between 10 to 50 years 3,683 3,781

Outside Hong Kong, held on: Long term lease of over 50 years 248 248 Medium term lease of between 10 to 50 years 4,952 5,090

8,883 9,119

At 30 June 2009, the Group’s certain leasehold land/land use rights with aggregate carrying amounts of HK$6,528,000 (2008: HK$6,839,000) were pledged to secure general banking facilities granted to the Group (note 29).

17. INVESTMENT PROPERTIES

All of the Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes are measured using the fair value model and is classified and accounted for as investment properties.

Movements of the carrying amounts presented in the consolidated balance sheet can be summarised as follows:

Group 2009 2008 Notes HK$’000 HK$’000

Carrying amount at beginning of the year (a) 752,400 775,955 Disposals (b) (15,480) (105,000) Net gain from fair value adjustments (c) 101,080 81,445 Transfer to assets classified as held for sale (note 33) (838,000) –

Carrying amount at end of the year – 752,400

Notes:

(a) At 30 June 2008, the Group’s investment properties were revalued by Chung, Chan & Associates, an independent firm of chartered surveyors, at HK$752,400,000 on an open market existing use basis by reference to market prices for similar properties. A fair value adjustment on revaluation of HK$81,445,000 arising therefrom was credited to the consolidated income statement for the year ended 30 June 2008.

As at 30 June 2008, all the Group’s investment properties were situated in Hong Kong and were held under medium term leases.

As at 30 June 2008, the Group’s investment properties with carrying amount of HK$752,400,000 were pledged to secure general banking facilities granted to the Group (note 29).

(b) On 25 September 2008, the Group entered into an agreement for sale and purchase with an independent third party in relation to the disposal of an investment property located at Unit A, 12th Floor, Kaiser Estate Phase I, No. 37-45 Man Yue Street, Hunghom, Kowloon, at a consideration of

– I-38 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

HK$15,480,000. The disposal of the aforesaid investment property was completed on 27 October 2008 and a fair value gain of HK$3,080,000 was recognised in the consolidated income statement for the year ended 30 June 2009.

(c) On 16 June 2009, the Group entered into a provisional agreement for sale and purchase (the “Provisional Agreement”) with an independent third party in relation to the disposal of an investment property, the whole block of Continental Diamond Plaza, No. 523, 525, 527 Hennessy Road, Hong Kong (“Continental Diamond Plaza”), at a consideration of HK$838,000,000. As at 30 June 2009, in accordance with HKFRS 5, Continental Diamond Plaza was classified as “Assets classified as held for sale” and its carrying amount was revalued to HK$838,000,000 with reference to the consideration as stipulated in the Provisional Agreement. As a result, a fair value gain of HK$98,000,000 was recognised in the consolidated income statement for the year ended 30 June 2009.

On 16 October 2009, the disposal of Continental Diamond Plaza was completed and the entire sale proceeds have been fully received by the Group.

18. INTERESTS IN SUBSIDIARIES

Company 2009 2008 HK$’000 HK$’000

Unlisted shares, at cost 124,849 95,261 Deemed capital contribution 173,710 173,710 Provision for impairment (25,037) (25,037)

273,522 243,934

Due from subsidiaries 446,394 430,372 Provision against amounts due from subsidiaries (102,000) (102,000)

344,394 328,372

617,916 572,306

Due from subsidiaries classified as current assets 134,525 47,986

The balances with subsidiaries are unsecured, interest-free and not repayable within the next twelve months from the balance sheet date, except for the amounts due from subsidiaries of HK$134,525,000 (2008: HK$47,986,000) which are repayable on demand.

– I-39 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Particulars of the principal subsidiaries as at 30 June 2009 are as follows:

Place of Percentage of incorporation/ Nominal value of equity attributable registration and paid-up registered/ to the Company Name operations issued share capital Direct Indirect Principal activities

Amco Jewelry Limited Hong Kong 2 ordinary shares of 100 – Diamond trading and HK$10 each polishing

Brangredi Limited Hong Kong 1 ordinary share of – 100 Jewellery trading HK$1 each

C.J. (UK) Limited* United Kingdom 1,000 ordinary shares – 100 Jewellery wholesaling of GBP1 each

Conti Diamond Limited Hong Kong 10,000 ordinary – 100 Diamond trading shares of HK$1 each

Mainland China Paid up capital of – 100 Diamond trading and # HK$7,497,760 polishing

Continental Investment Hong Kong 100,000 ordinary 100 – Investment holding Company Limited shares of HK$1 each

Mainland China Paid up capital of – 100 Jewellery # HK$35,000,000 manufacturing

Continental Jewellery Hong Kong 10,000,000 ordinary 100 – Jewellery (Mfg.) Limited shares of HK$1 manufacturing and each wholesaling

Continental Property Hong Kong 2 ordinary shares of – 100 Property investment Holdings Limited HK$1 each

Crystal Gain British Virgin 100 ordinary shares – 100 Property investment Developments Islands of US$1 each Limited

DCGS Management Hong Kong 10,000,000 ordinary – 100 Investment holding/ Service Limited shares of HK$1 providing each management services

Diamond Creation Hong Kong 500,000 ordinary 100 – Investment holding Limited shares of HK$1 each

Man Yue Jewelry Hong Kong 10,000,000 ordinary – 100 Diamond trading and (Factory) Limited shares of HK$1 polishing each

Master Gold British Virgin 1 ordinary share of – 100 Investment holding Development Limited Islands US$1 each

Ming Xiu Diamond Hong Kong 600,000 ordinary 100 – Investment holding Cutting Factory shares of HK$10 Limited each

Mainland China Paid up capital of – 100 Diamond trading and # HK$11,000,000 polishing

– I-40 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Optik Technologies Hong Kong 117,000,000 ordinary 100 – Providing information Limited shares of HK$0.1 technology services each

Patford Company Hong Kong 100 ordinary shares – 100 Property investment Limited of HK$100 each

Realford Company Hong Kong 100 ordinary shares – 100 Property investment Limited of HK$100 each

Vieway Investments British Virgin 2 ordinary shares of 100 – Investment holding Group Limited Islands US$1 each

Wilber Corporate Hong Kong 78,000 ordinary – 100 Investment holding/ Services Limited shares of HK$1 providing corporate services

Yett Holdings Limited British Virgin 100 ordinary shares 100 – Investment holding Islands of US$1 each

Mainland China Paid up capital of – 100 Providing # HK$6,087,638 subcontracting services

Precious Palace British Virgin 1 ordinary share of – 100 Investment holding Islands US$1 each

Well Friendship Hong Kong 1 ordinary share of – 100 Property investment Investment Limited HK$1 each

# Wholly foreign-owned enterprise registered in the Mainland China

* Not audited by Grant Thornton Hong Kong or other Grant Thornton International member firms. The aggregate net assets of these subsidiaries not audited by Grant Thornton amounted to approximately 5% of the Group’s total net assets.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

19. INTERESTS IN ASSOCIATES

Group Company 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000

Unlisted shares, at cost ––9,387 9,387 Share of net assets 6,949 7,504 –– Provision for impairment (3,898) (3,898) (9,387) (9,387)

3,051 3,606 ––

– I-41 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Balances with associates

Group Company 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000

Due from associates 1,589 1,752 8 8 Provision for impairment (1,259) (1,259) ––

330 493 8 8

Due to associates (288) (538) ––

Movements for impairment provision of amounts due from associates are as follows:

Group Company 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000

Balance at beginning of the year 1,259 2,219 –– Amount written off – (960) ––

Balance at end of the year 1,259 1,259 ––

The balances with associates are unsecured, interest-free and repayable on demand.

The summarised financial information of the Group’s associates extracted from their management accounts are as follows:

2009 2008 HK$’000 HK$’000

Total assets 22,996 25,517 Total liabilities (18,118) (25,100) Revenue 17,296 16,877 (Loss)/Profit for the year (911) 318

Particulars of the principal associates as at 30 June 2009 are as follows:

Place of Percentage of incorporation/ ownership Nominal value of registration interest paid-up registered/ and attributable Name issued share capital operations to the Group Principal activities

General Jewellery Paid up capital of Mainland 36 Jewellery (Shanghai) Company RMB9,093,244 China manufacturing and Limited* wholesaling

Real Jewellery Limited* 1,000 ordinary Hong Kong 50 Jewellery shares of HK$1 manufacturing each

* Not audited by Grant Thornton Hong Kong or other Grant Thornton International member firms.

– I-42 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

The above table lists the associates of the Company which, in the opinion of the directors, principally affected the share of associates’ results for the year or formed a substantial portion of the share of net assets of the associates by the Group. To give details of other associates would, in the opinion of the directors, result in particulars of excessive length.

20. INTERESTS IN JOINTLY CONTROLLED ENTITIES

Group 2009 2008 HK$’000 HK$’000

Share of net assets 10,082 1,678 Loans to jointly controlled entities 217,970 141,970

228,052 143,648 Less: Provision for impairment (11,670) (11,670)

216,382 131,978

There was no movement in impairment losses in respect of the loans to jointly controlled entities during the years ended 30 June 2009 and 2008.

The loans to jointly controlled entities are unsecured, interest-free and not repayable within twelve months from the balance sheet date.

Group 2009 2008 HK$’000 HK$’000

Due from a jointly controlled entity – 120

Due to jointly controlled entities – (3)

The balances with jointly controlled entities are unsecured, interest-free and repayable on demand.

Particulars of the principal jointly controlled entity as at 30 June 2009 are as follows:

Place of Percentage of incorporation/ ownership registration interest Nominal value of and attributable Name issued share capital operations to the Group Principal activities

Wealth Plus 50,000 ordinary British Virgin 50 Investment holding Developments Limited shares of US$1 Islands each

– I-43 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

The aggregate amounts relating to the jointly controlled entities attributable to the Group that have been included in the Group’s consolidated financial statements are as follows:

2009 2008 HK$’000 HK$’000

Non-current assets 218,013 123,300 Current assets 3,170 8,748

221,183 132,048

Non-current liabilities (206,300) (130,300) Current liabilities (4,801) (70)

(211,101) (130,370)

Net assets 10,082 1,678

Income 11,708 3,623 Expenses (6,236) (5,477)

Profit/(Loss) for the year 5,472 (1,854)

21. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Group 2009 2008 HK$’000 HK$’000

Listed equity investments, at fair value*: Hong Kong 8,012 9,116 Elsewhere 731 830

8,743 9,946

Unlisted equity investments, at cost** 11,339 11,339 Provision for impairment (7,108) (7,108)

4,231 4,231

Total 12,974 14,177

Market value of listed investments 8,743 9,946

* The fair value of the Group’s listed equity investments has been determined by reference to their quoted bid prices at the balance sheet date.

** The unlisted equity investments are stated at cost less provision for impairment as they do not have quoted market prices in an active market. The directors are of the opinion that the carrying amounts of the unlisted equity investments approximate their fair value.

– I-44 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Movements for impairment provision of available-for-sale financial assets are as follows:

Group 2009 2008 HK$’000 HK$’000

Balance at the beginning of the year 7,108 3,243 Impairment losses recognised – 3,865

Balance at the end of the year 7,108 7,108

22. LONG TERM RECEIVABLES

Group Company 2009 2008 2009 2008 Notes HK$’000 HK$’000 HK$’000 HK$’000

Promissory notes (a) 12,754 14,061 6,701 7,661 Other long term receivables (b) 24,727 24,727 ––

37,481 38,788 6,701 7,661 Provision for impairment (36,176) (27,727) (5,743) (1,000)

1,305 11,061 958 6,661 Amount repayable within one year classified as current assets (1,305) (4,926) (958) (958)

– 6,135 – 5,703

(a) Out of the promissory notes of HK$12,754,000 as at 30 June 2009 (2008: HK$14,061,000), HK$9,133,000 (2008: HK$10,440,000) is secured, interest-free and repayable by 15 annual instalments commencing on 1 October 2001. The remaining balance of HK$3,621,000 (2008: HK$3,621,000) is unsecured, interest-free and repayable by 13 annual instalments commencing on 15 March 2003.

(b) As at 30 June 2009, the balance represents a shareholder’s loan of HK$3,167,000 (2008: HK$3,167,000) advanced to an investee company which is interest-free, unsecured and repayable on 30 June 2015 and a trade receivable balance of HK$21,560,000 (2008: HK$21,560,000), which was interest bearing at 6% per annum, unsecured and repayable on 31 March 2009. In the view of the uncertainty of the repayment of the aforesaid trade receivables, the directors are of the opinion that the said sum was classified as long term receivables despite the maturity date of the said sum was expired during the year ended 30 June 2009.

Movements for impairment provision of long term receivables are as follows:

Group Company 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000

Balance at the beginning of the year 27,727 26,532 1,000 1,000 Impairment losses recognised 8,449 1,195 4,743 –

Balance at the end of the year 36,176 27,727 5,743 1,000

– I-45 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

23. INVENTORIES

Group 2009 2008 HK$’000 HK$’000

Raw materials 143,048 178,917 Work in progress 10,640 8,389 Finished goods 141,804 151,267

295,492 338,573

24. TRADE RECEIVABLES

Group 2009 2008 HK$’000 HK$’000

Trade receivables 134,932 195,828 Less: provision for impairment of receivables (27,990) (27,083)

Trade receivables – net 106,942 168,745

The Group normally applies credit terms to its customers according to industry practice together with consideration of their creditability, repayment history and years of establishment. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables. Overdue balances are regularly reviewed by senior management.

An ageing analysis of trade receivables, net of provision, as at the balance sheet date, based on the date of recognition of the sale, is as follows:

Group 2009 2008 HK$’000 HK$’000

0 – 30 days 40,389 82,269 31 – 60 days 40,412 36,343 61 – 90 days 19,709 17,430 Over 91 days 6,432 32,703

106,942 168,745

There is no concentration of credit risk with respect to trade receivables, as the Group has a large number of customers which are internationally dispersed.

– I-46 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Impairment losses in respect of trade receivables are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade receivables directly. The movement in the provision for impairment of trade receivables is as follows:

Group 2009 2008 HK$’000 HK$’000

Balance at the beginning of the year 27,083 18,077 Impairment losses recognised 3,205 9,006 Amount written off (2,298) –

Balance at the end of the year 27,990 27,083

At each balance sheet date, the Group’s trade receivables were individually and collectively determined to be impaired. The individually impaired trade receivables relate to customers that were in default or delinquency in payments.

The ageing analysis of the Group’s trade receivables as at the balance sheet date, based on due date and net of provision, is as follows:

Group 2009 2008 HK$’000 HK$’000

Neither past due nor impaired 79,069 144,574 0 – 30 days past due 14,927 11,899 31 – 60 days past due 5,888 7,028 61 – 90 days past due 1,583 1,525 91 – 180 days past due 3,237 2,714 181 – 360 days past due 2,216 677 Over 360 days past due 22 328

106,942 168,745

Trade receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

Trade receivables that were past due but not impaired related to a large number of diversified customers that had a good track record with the Group. Based on past experience, the management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group did not hold any collateral in respect of trade receivables that are past due but not impaired.

Trade receivables are short term in nature and hence the directors consider the carrying amount of trade receivables approximates its fair value at the balance sheet date.

25. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Group 2009 2008 HK$’000 HK$’000

Listed equity securities in Hong Kong, at market value 10,324 12,763

The fair value of the Group’s listed equity securities has been determined by reference to their quoted bid prices at the balance sheet date.

– I-47 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Financial assets at fair value through profit or loss are presented within the section on operating activities as part of changes in working capital in the cash flow statement.

Changes in fair value of financial assets at fair value through profit or loss are recorded in other operating expense in the income statement.

26. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include the following components:

Group Company 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000

Cash and bank balances 45,759 72,984 85 82 Short term time deposits – 55,884 ––

45,759 128,868 85 82

Cash at banks earn interest at floating rates based on daily bank deposit rates.

As at 30 June 2009, the Group did not have any short term time deposits. As at 30 June 2008, short term time deposits were placed with the banks and earned interest at the respective short term bank deposit rates ranging from 1.25% to 5% per annum. They had a maturity ranging from one week to three months and were eligible for immediate cancellation without receiving any interest for the last deposit period.

Included in cash and bank balances of the Group is HK$6,767,000 (2008: HK$10,077,000) of bank balances denominated in Renminbi (“RMB”) placed with banks in the Mainland China. RMB is not a freely convertible currency. Under the Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement and Sales and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for foreign currencies through banks that are authorised to conduct foreign exchange business.

The directors consider that the fair value of the short term deposits is not materially different from their carrying amounts because of the short maturity period on its inception.

27. TRADE PAYABLES

An ageing analysis of the trade payables at the balance sheet date is as follows:

Group 2009 2008 HK$’000 HK$’000

0 – 30 days 125,589 104,170 31 – 60 days 19,632 41,260 61 – 90 days 9,201 21,085 Over 91 days 2,720 33,415

157,142 199,930

28. DERIVATIVE FINANCIAL INSTRUMENTS

Group 2009 2008 HK$’000 HK$’000

Forward currency contracts (note (a)) 170 –

– I-48 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Note:

(a) The forward currency contracts are denominated in Canadian dollars and maturity in less than one year.

29. BANK LOANS, SECURED

Group 2009 2008 HK$’000 HK$’000

Bank loans, secured: Repayable within one year 141,633 90,870 Repayable in the second year 176,189 6,343 Repayable in the third to fifth years, inclusive 37,808 18,863 Repayable beyond five years 327,266 347,203

682,896 463,279 Less: Current portion due within one year included under current liabilities (141,633) (90,870)

Non-current portion included under non-current liabilities 541,263 372,409

At 30 June 2009, the Group’s banking facilities were secured by the followings:

(a) assignment of rental income of an investment property under assets classified as held for sale;

(b) legal charges over the Group’s investment property under assets classified as held for sale, certain of the leasehold land and buildings and property under development; and

Details of the bank loans denominated in HK$ and RMB are as follows:

Group 2009 2008 HK$’000 HK$’000

Denominated in HK$ 671,496 445,889 Denominated in RMB 11,400 17,390

682,896 463,279

The bank loans of the Group denominated in HK$ have floating interest rates ranging from 0.65% to 6.30% (2008: 1.98% to 6.22%) per annum. The RMB bank loans have fixed interest rates ranging from 6.08% to 7.88% (2008: 7.34% to 8.02%) per annum.

30. LOANS FROM MINORITY SHAREHOLDERS

The loans are unsecured, interest-free and not repayable within the next twelve months from the balance sheet date.

The directors consider that the carrying amounts of loans from minority shareholders approximate their fair value.

– I-49 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

31. PROMISSORY NOTE

On 22 September 2008, the Group issued promissory note with principal amount of HK$50,000,000 to Brilliant Top Properties Limited (the “Vendor”) as part of the consideration for the acquisition of the Precious Group as detailed in note 39. The promissory note is unsecured, interest-bearing at rate equal to three months of Hong Kong Interbank Offer Rate (“HIBOR”) and matures on 21 March 2011.

Group 2009 2008 HK$’000 HK$’000

Net carrying amount at beginning of the year –– Carrying amount at the date of initial recognition 50,000 – Repayments (8,562) – Interest expenses (note 7) 562 –

Net carrying amount at end of the year 42,000 –

The promissory note with carrying amount of HK$42,000,000 was fully settled subsequent to 30 June 2009.

32. DEFERRED TAX

The following are major deferred tax (assets)/liabilities recognised in the balance sheet and the movements during the current and prior years:

Group

Accelerated Revaluation Provision tax of for depreciation properties receivables Total HK$’000 HK$’000 HK$’000 HK$’000

Balance at 1 July 2007 2,727 60,482 (18,558) 44,651 Deferred taxation arising from decrease in tax rate (credited)/ charged to income statement (156) (3,456) 1,061 (2,551) Charged to income statement for the year 724 6,651 8,607 15,982

Balance at 30 June 2008 and 1 July 2008 3,295 63,677 (8,890) 58,082 Credited to income statement for the year (3,279) (63,677) (327) (67,283)

Balance at 30 June 2009 16 – (9,217) (9,201)

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.

– I-50 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet:

Group 2009 2008 HK$’000 HK$’000

Deferred tax liabilities 16 66,972 Deferred tax assets (9,217) (8,890)

(9,201) 58,082

The Group has tax losses of approximately HK$93,259,000 (2008: HK$83,291,000) that are available for offsetting against future taxable profits of the companies which incurred the losses. Deferred tax assets have not been recognised in respect of these losses as it is not probable that future taxable profits will be available against which these unused tax losses can be utilised. Unused tax losses of HK$48,136,000 (2008: HK$36,582,000) will expire in various dates up to and including 2014. Other unused tax losses may be carried forward indefinitely.

Company

As at 30 June 2009, the Company did not have any significant unprovided deferred tax liabilities (2008: Nil).

33. ASSETS CLASSIFIED AS HELD FOR SALE/LIABILITIES ASSOCIATED WITH ASSETS CLASSIFIED AS HELD FOR SALE

Group 2009 2008 HK$’000 HK$’000

Assets classified as held for sale: Investment properties (note 17(c)) 838,000 –

Liabilities associated with assets classified as held for sale: Other payables and accruals (9,628) –

As at 30 June 2009, the Group’s investment properties which have been classified as held for sale are situated in Hong Kong and are held under medium term leases.

As at 30 June 2009, the Group’s investment properties which have been classified as held for sale with carrying amount of HK$838,000,000 are pledged to secure general banking facilities granted to the Group (note 29).

– I-51 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

34. SHARE CAPITAL

Number of ordinary shares of HK$0.1 each Total HK$’000

Authorised: At 30 June 2008 and 30 June 2009 3,500,000,000 350,000

Issued and fully paid: At 1 July 2007 and 30 June 2008 279,800,031 27,980 Shares issued upon acquisition of subsidiaries (note (a)) 33,030,303 3,303

At 30 June 2009 312,830,334 31,283

Note:

(a) On 22 September 2008, the Company issued 33,030,303 ordinary shares of HK$0.1 each at the price of HK$1.08 per share. The issuance of the new shares was used as part of the consideration for the acquisition of the Precious Group as detailed in note 39.

35. RESERVES

Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity.

Other reserve represents the difference between the consideration paid for the additional interest in the subsidiaries and the minority interest’s share of the assets and liabilities reflected in the consolidated balance sheet at the dates of the acquisitions of the minority interests.

Company

Share Non- premium distributable Retained account reserve profits Total HK$’000 HK$’000 HK$’000 HK$’000

Balance at 1 July 2007 158,373 273,606 148,637 580,616 Profit for the year ––19,299 19,299 Interim 2008 dividend ––(2,798) (2,798) Proposed final 2008 dividend ––(4,197) (4,197)

Balance at 30 June 2008 and 1 July 2008 158,373 273,606 160,941 592,920 Profit for the year ––98,673 98,673 Additional final 2008 dividend ––(496) (496) Interim 2009 dividend ––(3,128) (3,128) Proposed final 2009 dividend and special dividend ––(96,977) (96,977) Shares issued upon acquisition of subsidiaries (note 39) 32,370 ––32,370

Balance at 30 June 2009 190,743 273,606 159,013 623,362

– I-52 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

The non-distributable reserve represents the premium arising on the reduction of the par value of ordinary shares of the Company from HK$2.50 to HK$0.10 per share in 1994.

36. CONTINGENT LIABILITIES

The Company has provided guarantees amounting to HK$935 million (2008: HK$622 million) with respect to bank loans to its subsidiaries. Under the guarantees, the Company would be liable to pay the banks if the banks are unable to recover the loans. At the balance sheet date, no provision for the Company’s obligation under the guarantee contract has been made as the directors considered that it was not probable that the repayment of the loans would be in default.

37. CAPITAL COMMITMENTS

At 30 June 2009, the Group had outstanding capital commitments as follows:

Group 2009 2008 HK$’000 HK$’000

Contracted but not provided for: Construction of buildings – 1,564 Properties under development 3,414 –

3,414 1,564

At 30 June 2009, the Company did not have any capital commitments (2008: Nil).

38. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases certain of its property (note 17) under operating lease arrangements, with leases negotiated for terms ranging from two to five years. None of the leases include contingent rentals.

At 30 June 2009, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Group 2009 2008 HK$’000 HK$’000

Within one year 9,935 31,850 In the second to fifth years, inclusive 550 40,474

10,485 72,324

(b) As lessee

The Group leases certain shops, office properties and staff quarters under operating lease arrangements. Leases (including contingent rental) are negotiated at fixed rate or with reference to level of business and terms ranging from one to three years.

– I-53 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

At 30 June 2009, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Group 2009 2008 HK$’000 HK$’000

Within one year 4,857 5,492 In the second to fifth years, inclusive 3,856 981

8,713 6,473

39. ACQUISITION OF SUBSIDIARIES

On 4 July 2008, the Group entered into a conditional acquisition agreement with Mr. Chan Sing Chuk, Charles (“Mr. Chan”), executive director of the Company, and the Vendor, a company wholly owned by Mr. Chan, in relation to the acquisition of the entire equity interest in the Precious Group and repayment of an interest-free shareholder’s loan owing to the Vendor by the Precious Group in the sum of approximately HK$182,188,000 at a total consideration of HK$215,736,000. The consideration was satisfied by the Group to the Vendor by:

i. a cash consideration of HK$130,063,000;

ii. allotment and issue of 33,030,303 ordinary shares of the Company to the Vendor at $1.08 per share, totalling HK$35,673,000; and

iii. a promissory note issued by the Group in the principal amount of HK$50,000,000 to the Vendor.

The Precious Group is principally engaged in properties development and the transaction was completed on 22 September 2008 upon the approval by the independent shareholders of the Company in the extraordinary general meeting held on 16 September 2008.

The above transaction constituted a very substantial acquisition and connected transaction under the Listing Rules. More details were disclosed in the Company’s circular dated 27 August 2008.

The fair value of the identifiable assets and liabilities of the Precious Group at the date of acquisition and the corresponding carrying amounts immediately before the acquisition are as follows:

Acquiree’s carrying Fair value amount HK$’000 HK$’000

Properties under development (note 15) 383,232 349,672 Cash and bank balance 10 10 Other payables and accruals (6) (6) Bank loans, secured (167,500) (167,500)

Net assets acquired 215,736 182,176

Net cash outflow arising on the acquisition: Cash consideration paid (130,063) Cash and bank balances in subsidiaries acquired 10

(130,053)

– I-54 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Purchase consideration

HK$’000

Purchase consideration settled in cash 130,063 Purchase consideration settled in issue of shares 35,673 Purchase consideration settled in issue of promissory note 50,000 Fair value of net assets acquired (215,736)

Goodwill –

The Precious Group contributed revenue of HK$164,000 and profit of approximately HK$132,000 to the Group for the period from 22 September 2008 to 30 June 2009. If the acquisition had been completed on 1 July 2008, there would be no change to the Group’s revenue and profit for the year as the Precious Group did not derive any revenue or profit before the acquisition. These pro forma information are for illustrative purposes only and are not necessarily an indication of revenue and results of the Group that actually would have been achieved had the acquisition been completed on 1 July 2008, nor are they intended to be a projection of future results.

There was no acquisition of subsidiaries during the year ended 30 June 2008.

40. DISPOSAL OF SUBSIDIARIES

During the year ended 30 June 2009, the Group disposed of its wholly-owned subsidiary, Honest Joy Limited and its subsidiary, Poly Jade Development Limited, to an independent third party, at a cash consideration of HK$1.

The net assets of the disposed subsidiaries at the date of disposal were as follows:

HK$’000

Net assets disposed of:

Cash balances 2,000 Provision for tax (1,776) Minority interests (201)

The Group’s share of net assets disposed of 23

Loss on disposal of subsidiaries (23)

–

Consideration satisfied by: Cash –

The analysis of the net outflow of cash and cash equivalents in respect of the disposal of subsidiaries is as follows:

HK$’000

Cash consideration received – Cash balances disposed of (2,000)

Net outflow of cash and cash equivalents in respect of the disposal of subsidiaries (2,000)

There was no disposal of subsidiaries during the year ended 30 June 2008.

– I-55 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

41. RELATED PARTY TRANSACTIONS

In addition to those related party transactions disclosed elsewhere in these financial statements, during the year, the Group had the following related party transactions.

(a) Subcontracting fees of HK$4,849,000 (2008: HK$6,521,000) paid to certain associates. The subcontracting fees are mutually negotiated between the Group and the associates.

(b) Sales of goods to associates of HK$151,000 (2008: HK$409,000) were made during the year. The terms are mutually negotiated between the Group and the associates.

(c) No management fee income (2008: HK$120,000) were received from an associate. The management fee income was mutually negotiated between the Group and the associate.

(d) Interest expenses of HK$562,000 (2008: Nil) paid to the Vendor, a company wholly owned by Mr. Chan. The interest expenses are charged at three months of HIBOR as detailed in note 31.

(e) The acquisition of the Precious Group as detailed in note 39.

(f) Compensation of key management personnel

Included in employee benefit expenses are key management personnel compensation and comprises the following categories:

2009 2008 HK$’000 HK$’000

Short term employee benefits 20,051 10,029 Post-employment benefits 288 306

20,339 10,335

42. NOTES TO CONSOLIDATED CASH FLOW STATEMENT

The Group has the following major non-cash transaction:

(a) As detailed in note 39, part of the purchase consideration of HK$35,673,000 in respect of the acquisition of the Precious Group was satisfied by the issue of 33,030,303 new ordinary shares at HK$1.08 each of the Company.

(b) As detailed in note 39, part of the purchase consideration in respect of the acquisition of the Precious Group was satisfied by the issue of a promissory note with a principal amount of HK$50,000,000.

43. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s major financial instruments include equity investments, long term receivables, loans to jointly controlled entities, trade receivables, other receivables, cash and cash equivalents, trade payables, other payables and accruals, bank loans, balance with subsidiaries, associates and jointly controlled entities, derivative financial instruments and promissory note. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

– I-56 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Market risk

(i) Foreign currency risk

Group

Foreign currency risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group mainly operates in Hong Kong, the United Kingdom and the Mainland China with most of the transactions denominated and settled in HK$, United States dollars (“US$”), British Pounds and RMB respectively. No foreign currency risk has been identified for the financial assets and financial liabilities denominated in RMB, which is the functional currencies of the subsidiaries in Mainland China to which these transactions relate. The Group’s exposure to foreign currency risk primarily arises from certain financial instruments including available-for-sale financial assets, long term receivables, trade receivables, cash and cash equivalents, trade payables and derivative financial instruments which are denominated in US$, Euro, British Pounds, Canadian Dollars and Philippines Pesos. During the years, the Group did not have foreign currency hedging policy but the management continuously monitor the foreign exchange exposure.

The following table summarises the Group’s major financial assets and liabilities denominated in currencies other than the functional currency of the respective group companies as at 30 June 2009 and 2008.

Expressed in HK$’000 British Canadian Philippines US$ Euro Pounds dollars Pesos

At 30 June 2009

Available-for-sale financial assets 4,231 –––731 Long term receivables –––1,305 – Trade receivables 88,622 110 15,183 –– Cash and cash equivalents 16,193 1,416 9,346 144 – Trade payables (156,996) – (132) –– Derivative financial instruments –––(170) –

Overall net exposure (47,950) 1,526 24,397 1,279 731

Expressed in HK$’000 British Canadian Philippines US$ Euro Pounds dollars Pesos

At 30 June 2008

Available-for-sale financial assets 4,231 –––830 Long term receivables 3,621 ––7,440 – Trade receivables 152,319 1,214 2,309 –– Cash and cash equivalents 88,938 1,290 7,078 123 – Trade payables (198,070) – (1,384) ––

Overall net exposure 51,039 2,504 8,003 7,563 830

– I-57 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

As US$ is pegged to HK$, the Group does not expect any significant movements in the US$/ HK$ exchange rates. No sensitivity analysis in respect of the Group’s financial assets and liabilities denominated in US$ is disclosed as in the opinion of directors, such sensitivity analysis does not give additional value in view of insignificant movement in the US$/HK$ exchange rates as at balance sheet date. The following table indicates the approximate change in the Group’s profit for the year and equity in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the balance sheet date.

2009 2008 Increase/ Increase/ (Decrease) Effect on (Decrease) Effect on in foreign profit in foreign profit exchange for the exchange for the rates year Equity rates year Equity HK$’000 HK$’000 HK$’000 HK$’000

Euro +5% 76 76 +5% 125 125 -5% (76) (76) -5% (125) (125) British Pounds +5% 1,220 1,220 +5% 400 400 -5% (1,220) (1,220) -5% (400) (400) Canadian dollars +5% 64 64 +5% 378 378 -5% (64) (64) -5% (378) (378) Philippines Pesos +5% – 37 +5% – 42 -5% – (37) -5% – (42)

Company

The Company is exposed to foreign currency risk primarily through its long term receivables which are denominated in Canadian dollars. The following table indicates the approximate change in the Company’s profit for the year and equity in response to reasonably possible changes in the foreign exchange rates to which the Company has significant exposure at the balance sheet date.

Canadian dollars +5% 48 48 +5% 333 333 -5% (48) (48) -5% (333) (333)

The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet dates and that all other variables remain constant.

The stated changes represent management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date.

The policies to manage foreign currency risk have been followed by the Group since prior years and are considered to be effective.

– I-58 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

(ii) Equity price risk

Equity price risk related to the risk that the fair values or future cash flows of a financial instrument will fluctuate because of change in market price (other than changes in interest rate and foreign exchange rate). The Group is exposed to equity price risk through its investments in listed equity securities which are classified as at fair value through profit or loss, or available-for-sale. The board of directors manages this exposure by maintaining a portfolio of investments with different risk and return profiles and will consider hedging the risk exposure should the need arises. The Group is not exposed to commodity price risk.

At 30 June 2009, if equity prices had increased/(decreased) by 10% and all other variables were held constant:

– the Group’s profit for the year would increase/(decrease) by approximately HK$1,032,000 (2008: increase/(decrease) by approximately HK$1,276,000). This is mainly due to the changes in financial assets at fair value through profit or loss; and

– the Group’s equity other than retained profits would increase/(decrease) by approximately HK$874,000 (2008: HK$995,000) as a result of the changes in fair value of listed equity investments included in the Group’s available-for-sale financial assets.

This sensitivity analysis has been determined assuming that the price change had occurred at the balance sheet dates and has been applied to the Group’s investment on that date.

The policies to manage equity price risk have been followed by the Group since prior years and are considered to be effective.

(iii) Interest rate risk

Interest rate risk relates to the risk that the fair value or cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is exposed to interest rate risk primarily arising from bank borrowings and promissory note. Majority of the bank borrowings and the promissory note are arranged at variable rates which expose the Group to cash flow interest rate risk. The interest rates and repayment terms of the bank borrowings and the promissory note outstanding at year end dates are disclosed in notes 29 and 31 respectively.

The Group currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arises.

The following table illustrates the sensitivity of the profit after tax for the year and retained earnings to a change in interest rates of +100 basis point and -100 basis point (2008: +100 basis point and -100 basis point) with effect from the beginning of the year. The calculations are based on the Group’s bank balances, interest bearing bank borrowings and promissory note held at each balance sheet date. All other variables are held constant.

2009 2008 HK$’000 HK$’000

If interest rates were 100 basis point (2008: 100 basis point) higher Net profit for the year decrease by (5,116) (3,368)

If interest rates were 100 basis point (2008: 100 basis point) lower Net profit for the year increase by 5,116 3,368

The policies to manage interest rate risk have been followed by the Group since prior year are considered to be effective.

– I-59 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Credit risk

Credit risk refers to the risk that the counterparty to a financial instrument would fail to discharge its obligation under the terms of the financial instruments and cause a financial loss to the Group. The Group’s and the Company’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated and the Company’s balance sheets. In order to minimise the credit risk, the senior management compiles the credit and risk management policies, to approve credit limits and to determine any debt recovery action on those delinquent receivables. In addition, the Group reviews the recoverable amount for each individual account receivables at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the board of directors considers that the Group’s credit risk is effectively controlled and significantly reduced.

The Company’s maximum exposure to credit risk is primarily attributable to amounts due from subsidiaries, other receivables and contingent liabilities in relation to the financial guarantee contracts as detailed in note 36 to the financial statements.

The Group’s credit risk exposure is spread over a number of counterparties and customers. Hence, it has no significant concentration of credit risk by a single debtor.

Credit risk on cash and bank balances is mitigated as cash is deposited in banks of high credit rating.

Further quantitative data in respect of the Group’ exposure to credit risk arising from long term and trade receivables are disclosed in notes 22 and 24 to the financial statements respectively.

None of the Group’s financial assets are secured by collateral or other credit enhancements.

The credit policies have been followed by the Group since prior years and are considered to have been effective in limiting the Group’s exposure to credit risk to a desirable level.

Liquidity risk

Liquidity risk related to the risk that the Group will not able to meet its obligation associated with its financial liabilities. In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows in the short and long term. The management monitors the utilisation of bank borrowings and ensures compliance with loan covenants.

The liquidity policies have been followed by the Group since prior years and are considered to have been effective in managing liquidity risk.

– I-60 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

The maturity profile of the Group’s financial liabilities as at the balance sheet date, based on the contracted undiscounted payments, was as follows:

Group

More than Total More than 2 years contractual Within 1 1 year but but less Carrying undiscounted year or on less than than 5 More than amount cash flow demand 2 years years 5 years HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

As at 30 June 2009 Trade payables 157,142 157,142 157,142 ––– Other payables and accruals 62,883 62,883 62,883 ––– Derivative financial instruments 170 170 170 ––– Due to associates 288 288 288 ––– Bank loans, secured 682,896 742,587 149,919 183,713 45,247 363,708 Loans from minority shareholders 1,125 1,125 – 1,125 –– Promissory note 42,000 42,260 – 42,260 ––

946,504 1,006,455 370,402 227,098 45,247 363,708 Liabilities associated with assets classified as held for sale: Other payables and accruals 9,628 9,628 9,628 –––

956,132 1,016,083 380,030 227,098 45,247 363,708

As at 30 June 2008 Trade payables 199,930 199,930 199,930 ––– Other payables and accruals 46,170 46,170 46,170 ––– Due to associates 538 538 538 ––– Due to jointly controlled entities 3 3 3 ––– Bank loans, secured 463,279 674,461 100,137 15,464 45,317 513,543 Loans from minority shareholders 1,125 1,125 – 1,125 ––

711,045 922,227 346,778 16,589 45,317 513,543

– I-61 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Company

As at 30 June 2009 Other payables and accruals 879 879 879 –––

As at 30 June 2008 Other payables and accruals 300 300 300 –––

Fair values

All financial instruments are carried at amount not materially different from their fair values as at 30 June 2009 and 2008.

44. SUMMARY OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORY

The carrying amounts of the Group’s and the Company’s financial assets and liabilities as recognised at balance sheet dates may be categorised as follows. See notes 3.14 and 3.20 for explanations about how the category of financial instruments affects their subsequent measurement.

Group Company 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000

Financial assets

Non-current assets Available-for-sale financial assets 12,974 14,177 –– Loans and receivables: – Long term receivables – 6,135 – 5,703 – Loans to jointly controlled entities 206,300 130,300 –– – Due from subsidiaries ––344,394 328,372

219,274 150,612 344,394 334,075

Current assets Financial assets at fair value through profit or loss 10,324 12,763 –– Loans and receivables: – Trade receivables 106,942 168,745 –– – Other receivables 11,941 12,637 – 12 – Current portion of long term receivables 1,305 4,926 958 958 – Due from subsidiaries ––134,525 47,986 – Due from associates 330 493 8 8 – Due from a jointly controlled entity – 120 –– – Cash and cash equivalents 45,759 128,868 85 82

176,601 328,552 135,576 49,046

395,875 479,164 479,970 383,121

– I-62 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Group Company 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000

Financial liabilities

Current liabilities Financial liabilities measured at amortised cost: – Trade payables (157,142) (199,930) –– – Other payables and accruals (62,883) (46,170) (879) (300) – Due to associates (288) (538) –– – Due to jointly controlled entities – (3) –– – Bank loans, secured (141,633) (90,870) ––

Financial liabilities at fair value through profit or loss: – Derivative financial instruments (170) –––

Liabilities associated with assets classified as held for sale: – Other payables and accruals (9,628) –––

(371,744) (337,511) (879) (300)

Non-current liabilities Financial liabilities measured at amortised cost: – Loans from minority shareholders (1,125) (1,125) –– – Promissory note (42,000) ––– – Bank loans, secured (541,263) (372,409) ––

(584,388) (373,534) ––

(956,132) (711,045) (879) (300)

45. CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy ratios in order to support its business and maximise shareholders value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the current and previous years.

– I-63 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

The Group monitors capital using a gearing ratio, which is net debts divided by total equity plus net debts. Net debts are calculated as the sum of bank and other borrowings less the sum of cash and cash equivalents as shown in the consolidated balance sheet. The Group aims to maintain the gearing ratio at a reasonable level and the directors are of the opinion that the Group’s gearing ratio was maintained at reasonable level at the balance sheet dates. The gearing ratios as at the balance sheet date were as follows:

Group 2009 2008 HK$’000 HK$’000

Current liabilities Bank loans, secured 141,633 90,870

Non-current liabilities Loans from minority shareholders 1,125 1,125 Bank loans, secured 541,263 372,409 Promissory note 42,000 –

Total debts 726,021 464,404 Less: Cash and cash equivalents (45,759) (128,868)

Net debts 680,262 335,536

Total equity 1,045,901 878,573

Total equity and net debts 1,726,163 1,214,109

Gearing ratio 39.4% 27.6%

3. Management discussion and analysis on the Group

Set out below is the management discussion and analysis of the Group for the three years ended 30 June 2007, 2008 and 2009.

(i) For the year ended 30 June 2009

BUSINESS REVIEW

The financial year ended 30 June 2009 the Group achieved a turnover of HK$1.190 billion (2008: HK$1.498 billion). Profit attributable to equity holders of the Company was HK$136 million (2008: HK$83 million) and earnings per share was HK44.5 cents (2008: HK29.8 cents).

The financial year of 2008-2009 has been a challenging year. Starting with the outbreak of the financial tsunami in the United States, the effects slowly trickled down to other countries worldwide. Overall, this year has been a period of adjustment and caution for the industry. Earlier in the year the impact from the weakening macro-environment has resulted in weaker consumer purchasing patterns leading onto a softening of sales. As a result, both the American and European markets reflected a decrease in sales of 2009.

– I-64 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

As a group, we continue to diversify our business activities and investments. In the financial year of 2009, we have re-positioned our real estate portfolio through the sale of Continental Diamond Plaza. The transaction was completed on 16 October 2009. The disposal of Continental Diamond Plaza generated positive income and adequate cash to the Group. Subsequently the Board has proposed to distribute a special dividend of HK$0.30 per ordinary share. The dividend was based on careful consideration of not affecting the daily operational expenses, Company’s liquidity and cash flow.

BUSINESS OUTLOOK

In the near future, we foresee there will be quite sometime before the luxury goods consumption on a worldwide level begins to pick up. The Group will continue to implement prudent measures to tighten our credit control, currency exposure, and risk management. We remain cautious yet optimistic towards the future outlook of the industry. Going forward, our Group maintains vigilant in identifying sound investments and other business opportunities.

LIQUIDITY, FINANCIAL RESOURCES AND GEARING

As of 30 June 2009, the Group had a moderate gearing ratio of 0.39 (2008: 0.28), which is calculated on net debt divided by total equity plus net debt. Net debt is calculated as the sum of bank and other borrowings less cash and bank balances. Total cash and cash equivalents were HK$45,759,000 (2008: HK$128,868,000) which were mainly denominated in Hong Kong Dollar, US Dollar and British Pound, while bank loans were HK$682,896,000 (2008: HK$463,279,000) which were mainly denominated in Hong Kong Dollar and Renminbi and other borrowings in respect of promissory note were HK$42,000,000 (2008: Nil) which were denominated in Hong Kong Dollar. The movement in bank loans represent mainly the acquisition of a property under development. These bank loans are secured by first legal charges over the Group’s investment property classified as held for sale, certain leasehold land and buildings, property under development, assignment of rental income of an investment property classified as held for sale and corporate guarantees executed by the Company.

In line with the Group’s prudent financial management, the directors considered that the Group has sufficient working capital to meet its operational requirements.

PLEDGE OF ASSETS

As of 30 June 2009, the Group’s investment property classified as held for sale, certain leasehold land and buildings and property under development with an aggregate net book/carrying value of HK$1,255,275,000 (2008: HK$776,972,000) were pledged to certain banks to secure general banking facilities granted to the Group.

– I-65 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

CAPITAL STRUCTURE

All the Group’s borrowings are denominated in local Hong Kong Dollar and Renminbi. Interest is determined on the basis of Hong Kong Inter-bank Offering Rate or Prime Rate and Renminbi fixed rate. There was no change to the Group’s capital structure during the year ended 30 June 2009. In the light of the current financial position of the Company and provided there is no unforeseeable circumstance, the management does not anticipate the need to change the capital structure.

NUMBER OF EMPLOYEES, REMUNERATION POLICIES AND SHARE OPTION SCHEMES

The Group employs a total of approximately 1,200 employees with the majority in the PRC. The Group remunerates its employees largely based on the industrial practice. There is no share option scheme being adopted by the Company.

EXPOSURE TO FINANCIAL RISK AND RELATED HEDGES

The Group utilises conservative strategies on its financial risk management and the market risk is kept to minimum. With the exception of the UK subsidiaries, all transactions and the borrowings of the Group are primarily denominated in US Dollar and Hong Kong Dollar respectively. The risk of foreign exchange fluctuations is minimal under the peg. During the year, the Group made use of the foreign exchange forward contract in order to minimise the exchange rate risk as a result of fluctuation in British Pound. Management will continue to monitor the foreign exchange exposure and will take appropriate action when necessary. As of 30 June 2009, the Group has entered into certain foreign exchange forward contract. Details are set out in note 28 to the financial statements on page 135.

SIGNIFICANT INVESTMENT HELD

The key investment held by the Group as at 30 June 2009 was a property under development located in Sheung Wan, Hong Kong which has a value of approximately HK$391 million.

MATERIAL ACQUISITIONS AND DISPOSALS

During the year ended 30 June 2009, the Group acquired a property under development located in Sheung Wan, Hong Kong and disposed of a unit in a building in Hung Hom, Hong Kong at a consideration of approximately HK$15 million.

– I-66 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

SEGMENTAL INFORMATION

The Group’s business segments are (a) design, manufacturing, marketing and trading of fine jewellery and diamonds; (b) property investment; and (c) investment. For the year ended 30 June 2009, the segment of design, manufacturing, marketing and trading of fine jewellery and diamonds recorded segment revenue of approximately HK$1,151 million and segmental loss of approximately HK$18 million. As at 30 June 2009, this segment had assets of approximately HK$481 million and liabilities of approximately HK$194 million. For the year ended 30 June 2009, the segment of property investment recorded segment revenue of approximately HK$37 million and segmental profit of approximately HK$109 million. As at 30 June 2009, this segment had assets of approximately HK$1,231 million and liabilities of approximately HK$37 million. For the year ended 30 June 2009, the segment of investment recorded segment revenue of approximately HK$1 million and segmental loss of approximately HK$7 million. As at 30 June 2009, this segment had assets of approximately HK$24 million and almost no liability.

MATURITY PROFILE OF THE BORROWINGS

As at 30 June 2009, the Group had secured bank loans amounted to approximately HK$683 million, of which approximately HK$142 million was repayable within one year, approximately HK$176 million was repayable in the second year; approximately HK$38 million was repayable in the third to fifth years and approximately HK$327 million was beyond five years. The Group also had loans from minority shareholders amounted to approximately HK$1 million, which was not repayable within the next twelve months from 30 June 2009. In addition, the Group had a promissory note with net carrying amount of HK$42 million as at 30 June 2009, which will mature on 21 March 2011.

CONTINGENT LIABILITIES

The Company has provided guarantees amounting to HK$935 million with respect to bank loans to its subsidiaries. Under the guarantees, the Company would be liable to pay the banks if the banks are unable to recover the loans.

(ii) For the year ended 30 June 2008

BUSINESS REVIEW

During the fiscal year 2008, the Group has achieved a turnover of HK$1.498 billion (2007: HK$1.632 billion). Profit attributable to equity holders of the Company was HK$83 million (2007: HK$114 million) and earnings per share was HK29.8 cents (2007: HK41.0 cents).

It was a challenging year for the Group in 2008. The results of jewellery and diamond trading were affected by the sub-prime mortgage crisis as well as the downturn of U.S. economy. The high volatility of the gold price, appreciation of

– I-67 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Renminbi, global inflation and high production costs in China added pressure to our overall performance. However, with our solid foundation and extensive distribution network, we continue to focus our resources in developing new markets and will remain vigilant about maximizing our operational efficiency and controlling our production costs.

Rental income from properties, with a close to full occupancy, provides a steady income stream to the Group. In the future, the Group will continue to identify potential opportunities both locally and overseas.

BUSINESS OUTLOOK

Looking ahead, we remain cautious as we foresee the business environment is still clouded with uncertainties on the global markets particularly the U.S. economy. Facing with these market conditions, the Group will continue to utilize its core competencies in jewellery and diamonds segments, while keeping an outlook for future investment opportunities. Subsequent to the year end, the Group has acquired a site situated in a prime commercial area in Central district for development. In the long term, the Group holds a cautious yet optimistic view towards its future business development.

LIQUIDITY, FINANCIAL RESOURCES AND GEARING

As of 30 June 2008, the Group had a moderate gearing ratio of 0.28 (2007: 0.26), which is net debt divided by total equity plus net debt. Net debt is calculated as the sum of bank and other borrowings less the sum of time deposits and cash and bank balances. Total cash and bank balances were HK$128,868,000 (2007: HK$102,281,000) which were mainly denominated in Hong Kong Dollars, US Dollars and UK Pounds, while bank loans and overdrafts were HK$463,279,000 (2007: HK$358,779,000) which were mainly denominated in Hong Kong Dollars. The movement represents new bank loans borrowed by the Group to repay amount due to a related party. These bank loans and overdrafts are secured by first legal charges over the Group’s investment properties, certain leasehold land and buildings, assignment of rental income of certain investment properties and corporate guarantees executed by the Company.

In line with the Group’s prudent financial management, the directors considered that the Group has sufficient working capital to meet its operational requirements.

PLEDGE OF ASSETS

As of 30 June 2008, the Group’s investment properties, certain leasehold land and buildings with an aggregate net book/carrying value of HK$776,972,000 (2007: HK$785,086,000) were pledged to certain banks to secure general banking facilities granted to the Group.

– I-68 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

CAPITAL STRUCTURE

All the Group’s borrowings are denominated in local Hong Kong Dollars and PRC Renminbi. Interest is determined on the basis of Hong Kong inter-bank offering rates or Prime Rate and PRC Renminbi fixed rate. There was no change to the Group’s capital structure during the year ended 30 June 2008. In the light of the current financial position of the Company and provided there is no unforeseeable circumstance, the management does not anticipate the need to change the capital structure.

NUMBER OF EMPLOYEES, REMUNERATION POLICIES AND SHARE OPTION SCHEMES

The Group employs a total of approximately 2,100 employees with the majority in the PRC. The Group remunerates its employees largely based on the industrial practice. There is no share option scheme being adopted by the Company.

EXPOSURE TO FINANCIAL RISK AND RELATED HEDGES

The Group utilises conservative strategies on its risk management and the market risk is kept to minimum. With the exception of the UK subsidiaries, all transactions and the borrowings of the Group are primarily denominated mainly in US Dollars and Hong Kong Dollars respectively. The risk of foreign exchange fluctuations is minimal under the peg. The Group’s cashflow and interest rate risks were managed by means of derivative financial instruments such as interest rate swaps, to ensure short to medium term liquidity. During the year, the interest rate swap contracts entered by the Group matured and thereafter, the Group did not use any other derivative financial instrument for hedging purposes. As of 30 June 2008, there was no hedging instrument outstanding.

SIGNIFICANT INVESTMENT HELD

The key investment held by the Group as at 30 June 2008 was the property interest in Continental Diamond Plaza located in Hong Kong.

MATERIAL ACQUISITIONS AND DISPOSALS

During the year ended 30 June 2008, the Group did not have any material acquisition and disposed of an investment property located in Kowloon, Hong Kong at the consideration of approximately HK$105 million.

SEGMENTAL INFORMATION

– I-69 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

segment revenue of approximately HK$1,463 million and segmental profit of approximately HK$24 million. As at 30 June 2008, this segment had assets of approximately HK$619 million and liabilities of approximately HK$236 million. For the year ended 30 June 2008, the segment of property investment recorded segment revenue of approximately HK$31 million and segmental profit of approximately HK$108 million. As at 30 June 2008, this segment had assets of approximately HK$754 million and liabilities of approximately HK$10 million. For the year ended 30 June 2008, the segment of investment recorded segment revenue of approximately HK$3 million and segmental loss of approximately HK$3 million. As at 30 June 2008, this segment had assets of approximately HK$27 million and almost no liability.

MATURITY PROFILE OF THE BORROWINGS

As at 30 June 2008, the Group had secured bank loans amounted to approximately HK$463 million, of which approximately HK$91 million was repayable within one year, approximately HK$6 million was repayable in the second year; approximately HK$19 million was repayable in the third to fifth years and approximately HK$347 million was beyond five years. The Group also had loans from minority shareholders amounted to approximately HK$1 million, which was not repayable within the next twelve months from 30 June 2008.

CONTINGENT LIABILITIES

The Company has executed guarantees amounting to HK$622 million with respect to bank loans to its subsidiaries. Under the guarantees, the Company would be liable to pay the banks if the banks are unable to recover the loans.

(iii) For the year ended 30 June 2007

BUSINESS REVIEW

During the fiscal year of 2007, the Group has achieved a turnover of HK$1.632 billion (2006: HK$1.712 billion). Profit attributable to equity holders of the Company was HK$114.0 million (2006: HK$50.5 million) and earnings per share was HK41.0 cents (2006: HK18.1 cents).

In 2007, the overall market sentiment is quite mixed across regions. In jewellery manufacturing, the year has been challenging with an uncertain U.S. economy and weakening of the Dollar has led to softer consumer spending in the luxury sector. Overall, our jewellery and diamond trading business remain highly competitive as a result of higher gold prices, increasing production costs and the appreciation of Renminbi. However, our non-US business remains quite steady and slightly benefiting from the strong currencies. Withstanding all challenges, we strive at further extending our network of sourcing and distribution.

– I-70 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

Over in properties, rental income continues to provide a steady income stream to the Group. On going, Continental aims to identify potential investment opportunities both in Hong Kong and other countries.

BUSINESS OUTLOOK

Looking ahead, we foresee tough challenges as the market environment intensify due to different aspects of macroeconomic changes. We remain cautious on the overall market outlook. We will continue to focus on our strengths and maximise the Group’s profitability through product innovation, cost reduction and valueadded services. Continental will focus on identifying profitable and better return business opportunities in creating long-term and sustainable value to our shareholders.

LIQUIDITY, FINANCIAL RESOURCES AND GEARING

As of 30 June 2007, the Group had a moderate gearing ratio of 0.45 (2006: 0.39), calculated on the basis of the Group’s bank borrowings over equity attributable to equity holders of the Company. Total cash and bank balances were HK$102,281,000 (2006: HK$116,408,000) which were mainly denominated in Hong Kong Dollars, US Dollars and British Pounds, while bank loans and overdrafts were HK$358,779,000 (2006: HK$272,683,000) which were mainly denominated in Hong Kong Dollars. The movement represents the purchase of investment properties. These bank loans and overdrafts are secured by first legal charges over the Group’s investment properties, certain leasehold land and buildings, assignment of rental income of investment properties and corporate guarantees executed by the Company as at 30 June 2007.

In line with the Group’s prudent financial management, the directors considered that the Group has sufficient working capital to meet its operational requirements.

PLEDGE OF ASSETS

As of 30 June 2007, the Group’s investment properties, certain leasehold land and buildings with an aggregate net book/carrying value of HK$785,086,000 (2006: HK$473,943,000) were pledged to a bank to secure general banking facilities granted to the Group.

CAPITAL STRUCTURE

All the Group’s borrowings are denominated in local Hong Kong Dollars and PRC Renminbi. Interest is determined on the basis of Hong Kong inter-bank offering rates or Prime Rate and PRC Renminbi fixed rate. There was no change to the Group’s capital structure during the year ended 30 June 2007. In the light of the current financial position of the Company and provided there is no unforeseeable circumstance, the management does not anticipate the need to change the capital structure.

– I-71 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

NUMBER OF EMPLOYEES, REMUNERATION POLICIES AND SHARE OPTION SCHEMES

The Group employs a total of approximately 2,400 employees with the majority in the PRC. The Group remunerates its employees largely based on the industrial practice. There is no share option scheme being adopted by the Company.

EXPOSURE TO FINANCIAL RISK AND RELATED HEDGES

The Group utilises conservative strategies on its risk management and the market risk is kept to minimum. With the exception of the UK subsidiary, all transactions and the borrowings of the Group are primarily denominated mainly in US Dollars and Hong Kong Dollars respectively. The risk of foreign exchange fl fluctuations is minimal under the peg. The Group’s cash flow and interest rate risks were managed by means of derivative financial instruments, such as interest rate swaps, to ensure short to medium term liquidity. During the year, the Group did not use any other financial instrument for hedging purposes. As of 30 June 2007, there was no hedging instrument outstanding.

SIGNIFICANT INVESTMENT HELD

The key investment held by the Group as at 30 June 2007 was the property interest in Continental Diamond Plaza located in Hong Kong.

MATERIAL ACQUISITIONS AND DISPOSALS

On 8 September 2006, Honest Joy Limited, an indirect wholly-owned subsidiary of the Company, as purchaser, and Gay Hussar Company Limited as vendor, entered into a sale and purchase agreement in relation to the acquisition of the 60 shares of Poly Jade Development Limited, representing 60% its entire issued share capital, at a consideration of HK$7.92 million. Such transaction is classified as a discloseable transaction under the Listing Rules and more details were included in the Company’s announcement dated 11 September 2006 and the Company’s circular dated 27 September 2006.

On 11 May 2007, Invest Companion Limited, a wholly-owned subsidiary of the Company, as purchaser, Brilliant Top Properties Limited, a company wholly-owned by Mr. Chan Sing Chuk, Charles (“Mr. Chan”), an executive Director, as vendor and Mr. Chan as guarantor, entered into a sale and purchase agreement in relation to the acquisition of the 45 shares of Crystal Gain Developments Limited (“Crystal Gain”), representing 45% of its issued share capital and the shareholders’ loan of Crystal Gain at a consideration of approximately HK$5,400,000. Such transaction is classified as a major and connected transaction under the Listing Rules and more details were included in the Company’s announcement dated 11 May 2007 and the Company’s circular dated 4 June 2007.

– I-72 – APPENDIX I FINANCIAL INFORMATION ON THE GROUP

SEGMENTAL INFORMATION

The Group’s business segments are (a) design, manufacturing, marketing and trading of fine jewellery and diamonds; (b) property investment; and (c) investment. For the year ended 30 June 2007, the segment of design, manufacturing, marketing and trading of fine jewellery and diamonds recorded segment revenue of approximately HK$1,595 million and segmental profit of approximately HK$35 million. As at 30 June 2007, this segment had assets of approximately HK$641 million and liabilities of approximately HK$251 million. For the year ended 30 June 2007, the segment of property investment recorded segment revenue of approximately HK$32 million and segmental profit of approximately HK$241 million. As at 30 June 2007, this segment had assets of approximately HK$778 million and liabilities of approximately HK$152 million. For the year ended 30 June 2007, the segment of investment recorded segment revenue of approximately HK$6 million and segmental profit of approximately HK$2 million. As at 30 June 2007, this segment had assets of approximately HK$42 million and almost no liability.

MATURITY PROFILE OF THE BORROWINGS

As at 30 June 2007, the Group had secured bank loans and overdrafts amounted to approximately HK$358 million, of which approximately HK$8 million was repayable within one year, approximately HK$43 million was repayable in the second year; approximately HK$9 million was repayable in the third to fifth years and approximately HK$298 million was beyond five years. The Group also had loans from minority shareholders amounted to approximately HK$22 million, which was not repayable within the next twelve months from 30 June 2007. In addition, the Group had HK$149 million due to a related party as at 30 June 2007, which was repayable on demand.

CONTINGENT LIABILITIES

The Company has executed guarantees amounting to HK$621 million with respect to bank loans to its subsidiaries. Under the guarantees, the Company would be liable to pay the banks if the banks are unable to recover the loans.

– I-73 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

1. ACCOUNTANTS’ REPORT ON THE TARGET COMPANY

The following is the text of the accountants’ report on the Target Company from the independent reporting accountants, Grant Thornton, Certified Public Accountants, Hong Kong, prepared for incorporation in this circular:

Member of Grant Thornton International Ltd 25 January 2010

The Board of Directors Continental Holdings Limited FlatsM&N,1stFloor Kaiser Estate, Phase III 11 Hok Yuen Street Hunghom, Kowloon Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Big Bonus Limited (“Big Bonus”) in Sections I and II below including the statements of financial position of Big Bonus as at 30 June 2008, 30 June 2009 and 30 September 2009, the statements of comprehensive income, the statements of cash flows and the statements of changes in equity for the period from 16 November 2007 (being the date of incorporation of Big Bonus) to 30 June 2008, for the year ended 30 June 2009 and for the three months ended 30 September 2009 (the “Relevant Periods”) and notes thereto, prepared for inclusion in the circular (the “Circular”) dated 25 January 2010 issued by Continental Holdings Limited (the “Company”) in connection with its proposed acquisition of the entire equity interest in Big Bonus.

Big Bonus was incorporated in the British Virgin Islands (“BVI”) with limited liability on 16 November 2007. The address of Big Bonus registered office is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, the BVI.

Big Bonus was directly wholly owned by Benefit Well Investments Limited (“Benefit Well”), a company incorporated in the BVI with limited liability. Pursuant to a group reorganisation completed on 20 November 2009, Big Bonus has allotted and issued share capital of US$1 (equivalent to HK$8) to Benefit Well in exchange of Benefit Well’s entire equity interest in Golden Offer Holdings Limited (“Golden Offer”), a company incorporated in Hong Kong with limited liability. Upon completion of the reorganisation, Big Bonus became the immediate holding company of Golden Offer at the date of this report. Both

– II-1 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Benefit Well and Big Bonus are ultimatley beneficially wholly owned by Dr. Chan Sing Chuk, Charles (“Dr. Chan”), an executive director of the Company. Big Bonus has not carried on any business since the date of its incorporation.

Big Bonus has adopted 30 June as its financial year end date.

No audited financial statements have been prepared for Big Bonus since its date of incorporation as there are no statutory requirements for it to prepare the audited financial statements.

For the purpose of this report, the director of Big Bonus has prepared the financial statements (the “Underlying Financial Statements”) of Big Bonus for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The Financial Information for the Relevant Periods as set out in this report has been prepared by the director of Big Bonus based on the Underlying Financial Statements of Big Bonus. The Financial Information also includes the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Hong Kong Companies Ordinance.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND REPORTING ACCOUNTANTS

The director of Big Bonus is responsible for the preparation of the Underlying Financial Statements and the Financial Information which give a true and fair view. The directors of the Company are responsible for the contents of the Circular in which this report is included. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently.

For the comparative financial information (the “Comparative Financial Information”) for the three months ended 30 September 2008 (the “Comparative Period”), the director of Big Bonus is responsible for the preparation and the presentation of the comparative financial information in accordance with the accounting policies which are in conformity with HKFRSs.

It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you. We have, for the purpose of this report, examined the Underlying Financial Statements used in preparing the Financial Information and carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

For the comparative financial information for the three months ended 30 September 2008, our responsibility is to express a conclusion on the Comparative Financial Information based on our review and to report our conclusion to you. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2400, “Engagements to

– II-2 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Review Financial Statements” issued by the HKICPA. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

OPINION AND REVIEW CONCLUSION

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of Big Bonus as at 30 June 2008, 30 June 2009 and 30 September 2009 and of the results and cash flows of Big Bonus for each of the Relevant Periods.

Based on our review, which does not constitute an audit, nothing has come to our attention that causes us to believe that the Comparative Financial Information, for the purpose of this report, is not prepared in accordance with the accounting policies which are in conformity with HKFRSs.

– II-3 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

I. FINANCIAL INFORMATION

Statements of Comprehensive Income

Period from 16 November Year 2007 to ended Three months ended 30 June 30 June 30 September 2008 2009 2008 2009 Notes HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Revenue –––– Administrative expenses (7) (5) ––

Loss before income tax 6 (7) (5) –– Income tax expense 7 ––––

Loss for the period/year (7) (5) –– Other comprehensive income for the period/year ––––

Total comprehensive loss for the period/year (7) (5) ––

Loss for the period/year attributable to Equity holder of Big Bonus (7) (5) –– Total comprehensive loss for the period attributable to Equity holder of Big Bonus (7) (5) ––

– II-4 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Statements of Financial Position

As at 30 As at 30 June September 2008 2009 2009 Notes HK$’000 HK$’000 HK$’000

LIABILITY Current liability Amount due to a shareholder 9 (7) (12) (12)

Net current liabilities/Net liabilities (7) (12) (12)

EQUITY Equity attributable to equity holder of Big Bonus Share capital 10 ––– Accumulated losses (7) (12) (12)

Capital deficiency (7) (12) (12)

– II-5 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Statements of Cash Flows

Period from 16 November 2007 Year to ended Three months ended 30 June 30 June 30 September 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Cash flows from operating activities Loss before income tax (7) (5) ––

Operating loss before working capital changes (7) (5) –– Increase in accruals and other payables 7 5 ––

Net cash from operating activities ––––

Net changes in cash and cash equivalents ––––

Cash and cash equivalents at beginning of the period/year ––––

Cash and cash equivalents at end of the period/year ––––

– II-6 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Statements of Changes in Equity

Equity attributable to equity holder of Big Bonus Share Accumulated Capital capital losses deficiency HK$’000 HK$’000 HK$’000

At 16 November 2007 (date of incorporation) ––– Issue of shares –––

Transactions with equity holder ––– Total comprehensive loss for the period – (7) (7)

At 30 June 2008 and 1 July 2008 – (7) (7) Total comprehensive loss for the year – (5) (5)

At 30 June 2009 and 1 July 2009 – (12) (12) Total comprehensive loss for the period –––

At 30 September 2009 – (12) (12)

At 30 June 2008 and 1 July 2008 (audited) – (7) (7) Total comprehensive loss for the period (unaudited) –––

At 30 September 2008 (unaudited) – (7) (7)

– II-7 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

II. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

The Financial Information and the Comparative Financial Information set out in this report have been prepared in accordance with HKFRSs which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the HKICPA and the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and have been consistently applied throughout the Relevant Periods and the Comparative Period.

2. ADOPTION OF NEW OR AMENDED HKFRSS

The HKICPA issued a number of new or amended HKFRSs which are effective during the Relevant Periods and the Comparative Period and in preparing and presenting the Financial Information, Big Bonus has adopted these new or amended HKFRSs consistently throughout the Relevant Periods and the Comparative Period.

Big Bonus has not early adopted the following new or amended HKFRSs which have been published but are not yet effective.

HKAS 24 (Revised) Related Party Disclosures 2 HKAS 32 (Amendment) Classification of Right Issues 3 HKFRS 1 (Amendment) Additional Exemptions for First-time Adopters 1 HKFRS 2 (Amendment) Group Cash-settled Share-based Payment Transactions 1 HKFRS 9 Financial Instruments 5 HK(IFRIC) Int-14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction 2 HK(IFRIC) Int-19 Extinguishing Financial Liabilities with Equity Instruments 4 Various Annual Improvements to HKFRS 2009 6

Notes:

1 Effective for annual periods beginning on or after 1 January 2010

2 Effective for annual periods beginning on or after 1 January 2011

3 Effective for annual periods beginning on or after 1 February 2010

4 Effective for annual periods beginning on or after 1 July 2010

5 Effective for annual periods beginning on or after 1 January 2013

6 Generally effective for annual periods beginning on or after 1 January 2010 unless otherwise stated in the specific HKFRSs

The director of Big Bonus anticipates that all of the pronouncements will be adopted in Big Bonus accounting policy for the first period beginning after the effective date of the pronouncement.

The director of Big Bonus is currently assessing the impact of these new or amended HKFRSs upon initial application. So far, the director of Big Bonus has preliminarily concluded that the initial application of these HKFRSs is unlikely to have a significant impact on Big Bonus’ results and financial positions.

– II-8 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

The significant accounting policies that have been used in the preparation of the Financial Information and the Comparative Financial Information are set out below. The Financial Information and the Comparative Financial Information have been prepared under historical cost convention. The measurement bases are fully described in the accounting policies below.

In preparing the Financial Information, the director of Big Bonus has given consideration to the future liquidity of Big Bonus in lights of its net current liabilities and capital deficiency of HK$7,000, HK$12,000 and HK$12,000 as at 30 June 2008, 30 June 2009 and 30 September 2009 respectively. Notwithstanding this, the Financial Information has been prepared on a going concern basis on the assumption that Big Bonus will continue to operate as a going concern. In the opinion of the director of Big Bonus, Big Bonus will have sufficient cash resources to satisfy its future working capital and other financing requirements after taking into consideration of an undertaking from Dr. Chan, being the ultimate beneficial owner and director of Big Bonus, that he intends to provide continuing financial support to Big Bonus so as to enable Big Bonus to continue in business as a going concern and to meet its liabilities and obligations as and when they fall due for the period at least up to 30 September 2010.

Should Big Bonus be unable to continue in business as a going concern, adjustments might have to be made to provide for any further liabilities which might arise. These adjustments have not yet been reflected in the Financial Information.

It should be noted that accounting estimates and assumptions are used in the preparation of the Financial Information and the Comparative Financial Information. Although these estimates are based on management’s best knowledge and judgement of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information and the Comparative Financial Information, are disclosed in note 4.

3.2 Foreign currency translation

The Financial Information and the Comparative Financial Information are presented in Hong Kong Dollars (“HK$”), which is also the functional currency of Big Bonus.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. At year/period end date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the year/period end date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the year/period end date retranslation of monetary assets and liabilities are recognised in the profit or loss for the year/period.

3.3 Financial liabilities

The financial liabilities of Big Bonus include amount due to a shareholder.

Financial liabilities are recognised when Big Bonus becomes a party to the contractual provisions of the instrument. All interest related charges are recognised as an expense in finance costs in the profit or loss for year/period.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

– II-9 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Payables are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest method.

3.4 Accounting for income taxes

Income tax comprises current tax and deferred tax.

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the year/period end. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year/period. All changes to current tax assets or liabilities are recognised as a component of tax expense in the profit or loss for the year/period.

Deferred tax is calculated using the liability method on temporary differences at the year/period end date between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, tax losses available to be carried forward as well as other unused tax credits, to the extent that it is probable that taxable profits, including existing temporary difference, will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised.

Deferred tax assets and liabilities are not recognised if the temporary difference arises from initial recognition of assets and liabilities in a transaction that affects neither taxable nor accounting profit or loss.

Changes in deferred tax assets or liabilities are recognised in the profit or loss for the year/period or in equity if they relate to items that are charged or credited directly to equity.

3.5 Share capital

Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.

3.6 Related parties

For the purpose of this report, a party is considered to be related to Big Bonus if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control Big Bonus or exercise significant influence over Big Bonus in making financial and operating policy decisions, or has joint control over Big Bonus;

(ii) Big Bonus and the party are subject to common control;

(iii) the party is an associate of Big Bonus or a joint venture in which Big Bonus is a venturer;

(iv) the party is a member of key management personnel of Big Bonus or its parent or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;

(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or

– II-10 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

(vi) the party is a post-employment benefit plan which is for the benefit of employees of Big Bonus, or of any entity that is a related party of Big Bonus.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Big Bonus did not use critical accounting estimates and judgements in the preparation of the Financial Information and the Comparative Financial Information.

5. SEGMENT INFORMATION

No separate segment information is prepared as Big Bonus had not yet commenced business during the Relevant Periods and the Comparative Period.

6. LOSS BEFORE INCOME TAX

Period from 16 November 2007 Three months ended to 30 June Year ended 30 September 2008 30 June 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Loss before income tax is arrived at after charging: Auditors’ remuneration –––– Preliminary incorporating expenses 7 –––

7. INCOME TAX EXPENSE

No provision for Hong Kong profits tax has been provided as Big Bonus did not derive any assessable profits in Hong Kong during the Relevant Periods and the Comparative Period.

Reconciliation between income tax expense and accounting loss at applicable tax rates is as follows:

Period from 16 November 2007 Three months ended to 30 June Year ended 30 September 2008 30 June 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Loss before income tax (7) (5) ––

Tax on loss before income tax at the applicable tax rates (1) (1) –– Tax effect of non-deductible expenses 1 1 ––

Income tax expense ––––

– II-11 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

The Hong Kong SAR Government enacted a reduction in the profits tax rate from 17.5% to 16.5% with effect from the year of assessment 2008/2009. Accordingly, the relevant current tax has been calculated using the new tax rate of 16.5% during the year ended 30 June 2009 and three months ended 30 September 2009.

No deferred tax liabilities have been provided for the Relevant Periods and the Comparative Period as there are no material temporary differences.

8. DIRECTORS’ REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) There were no director’s emoluments and senior management’s emoluments incurred during the Relevant Periods and the Comparative Period. There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Periods and the Comparative Period.

(b) During the Relevant Periods and the Comparative Period, Big Bonus did not incur any employee benefit expenses. Thus, the disclosure on remunerations to five highest paid individuals was not presented in the Financial Information and the Comparative Financial Information.

9. AMOUNT DUE TO A SHAREHOLDER

The amount due was unsecured, interest-free and repayable on demand.

10. SHARE CAPITAL

As at 30 As at 30 June September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Authorised capital 50,000 ordinary shares of US$1 each 390 390 390

HK$ HK$ HK$

Issued and fully paid capital 1 ordinary share of US$1 8 8 8

Big Bonus was incorporated with an authorised share capital of US$50,000 divided into 50,000 ordinary shares of US$1 each.

On 16 November 2007, 1 share of US$1 was issued at par to the subscriber to provide the initial capital to Big Bonus.

11. CONTINGENT LIABILITIES

Big Bonus did not have any material contingent liabilities at each of the year/period end.

12. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Big Bonus major financial instruments include amount due to a shareholder. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Foreign currency risk

Foreign currency risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Big Bonus does not have significant foreign currency risk as all the transactions and balances are predominately in HK$.

– II-12 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

(ii) Interest rate risk

Interest rate risk relates to the risk that the fair value or cash flows of a financial instrument will fluctuate because of changes in market interest rates. Big Bonus has no interest-bearing financial assets and liabilities at each of the year/period end dates. Hence, Big Bonus was not exposed to cash flow and fair value interest rate risk.

(iii) Credit risk

Credit risk refers to the risk that the counterparty to a financial instrument would fail to discharge its obligation under the terms of the financial instruments and cause as a financial loss to Big Bonus. Big Bonus has no financial assets at each of the year/period end dates. Hence, Big Bonus was not exposed to credit risk.

(iv) Fair value

All financial instruments are carried at amount not materially different from their fair values as at 30 June 2008, 30 June 2009 and 30 September 2009.

(v) Liquidity risk

Big Bonus’ policy is to regularly monitor its liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.

Big Bonus had net current liabilities and capital deficiency of HK$7,000, HK$12,000 and HK$12,000 as at 30 June 2008, 30 June 2009 and 30 September 2009 respectively. The liquidity of Big Bonus is primarily dependent on its ability to generate adequate cash inflow from operations to meet its debt obligations and an undertaking from Dr. Chan, being the ultimate beneficial owner and the director of Big Bonus, that he intends to provide continuing financial support to Big Bonus so as to enable Big Bonus to continue in business as a going concern and to meet its liabilities and obligations as and when they fall due for the period at least up to 30 September 2010. In the opinion of the director of Big Bonus, Big Bonus’ exposure to liquidity risk is limited.

The liquidity policies have been followed by Big Bonus during the Relevant Periods and the Comparative Period and are considered to have been effective in managing liquidity risks.

The maturity profile of Big Bonus’ financial liabilities as at each of the year/period end dates, based on the contracted undiscounted payments, was as follows:

Total contractual Carrying undiscounted amount cash flow On demand HK$’000 HK$’000 HK$’000

As at 30 June 2008 Amount due to a shareholder 7 7 7

As at 30 June 2009 Amount due to a shareholder 12 12 12

As at 30 September 2009 Amount due to a shareholder 12 12 12

– II-13 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

13. SUMMARY OF FINANCIAL LIABILITY BY CATEGORY

The carrying amounts of Big Bonus’ financial liabilities recognised at each of the year/period end dates may also be categorised as follows. See note 3.3 for explanation about how the category of financial instruments affects their subsequent measurement.

As at 30 As at 30 June September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Current liability Financial liabilities measured at amortised cost: – Amount due to a shareholder (7) (12) (12)

14. CAPITAL MANAGEMENT POLICIES AND PROCEDURES

Big Bonus objectives when managing capital are:

(i) To safeguard Big Bonus’ ability to continue as a going concern, so that it continues to provide returns and benefits for shareholder;

(ii) To support Big Bonus’ stability and growth; and

(iii) To provide capital for the purpose of strengthening Big Bonus’ risk management capability.

Big Bonus actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of Big Bonus and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. Big Bonus currently does not adopt any formal dividend policy. Management regards total equity and the continuing financial support from Dr. Chan as set out in note 3.1 as capital, for capital management purpose.

15. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Big Bonus were prepared in respect of any period subsequent to 30 September 2009.

Yours faithfully,

Grant Thornton Certified Public Accountants 6th Floor, Nexxus Building 41 Connaught Road Central Hong Kong

– II-14 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

2. ACCOUNTANTS’ REPORT ON THE GOLDEN OFFER GROUP

The following is the text of the accountants’ report on the Golden Offer Group from the independent reporting accountants, Grant Thornton, Certified Public Accountants, Hong Kong, prepared for incorporation in this circular:

Member of Grant Thornton International Ltd

25 January 2010

The Board of Directors Continental Holdings Limited FlatsM&N,1stFloor Kaiser Estate, Phase III 11 Hok Yuen Street Hunghom, Kowloon Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Golden Offer Holdings Limited (“Golden Offer”) and its subsidiary (collectively referred to as the “Golden Offer Group”) in Sections I and II below including the statements of financial position of Golden Offer as at 30 June 2008, 30 June 2009 and 30 September 2009, the consolidated statements of financial position of the Golden Offer Group as at 30 June 2008, 30 June 2009 and 30 September 2009, the consolidated statements of comprehensive income, the consolidated statements of cash flows and the consolidated statements of changes in equity for the period from 5 June 2007 (being the date of incorporation of Golden Offer) to 30 June 2008, for the year ended 30 June 2009 and for the three months ended 30 September 2009 (the “Relevant Periods”) and notes thereto, prepared for inclusion in the circular (the “Circular”) dated 25 January 2010 issued by Continental Holdings Limited (the “Company”) in connection with its proposed acquisition of the entire equity interest in Big Bonus Limited (“Big Bonus”).

Golden Offer was incorporated in Hong Kong with limited liability on 5 June 2007. The address of Golden Offer’s registered office is Flat M, 1st Floor, Kaiser Estate, Phase III, 11 Hok Yuen Street, Hunghom, Kowloon, Hong Kong. The principal activity of Golden Offer during the Relevant Periods is investment holding.

At the year/period end date, Golden Offer was directly wholly owned by Benefit Well Investments Limited (“Benefit Well”), a company incorporated in the British Virgin Islands (“BVI”) with limited liability. Pursuant to a group reorganisation completed on 20 November

– II-15 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

2009, Golden Offer became the wholly owned subsidiary of Big Bonus. Both Benefit Well and Big Bonus are ultimately beneficially wholly owned by Dr. Chan Sing Chuk, Charles (“Dr. Chan”), an executive director of the Company.

At 30 September 2009, Golden Offer has the following subsidiary:

Proportion of nominal value of paid-up Place of capital directly Registered Paid-up incorporation/ held by Nature of Name of subsidiary capital capital registration Golden Offer business

US$20,000,000 US$9,499,600 The People’s 100% Mining and Henan Multi-Resources Mining Republic of exploration of Company Limited # China (the mineral (“Henan Multi-Resources”) “PRC”) reserves

# For identification purpose only

Henan Multi-Resources was established by Golden Offer as a wholly-owned foreign enterprise in the PRC on 2 April 2008. The statutory financial statements of Henan Multi- Resources for the period from 2 April 2008 to 31 December 2008 were prepared in accordance with the relevant accounting rules and regulations applicable to companies established in the PRC. Henan Multi-Resources has adopted 31 December as its statutory financial year end date. The statutory financial statements for the period from 2 April 2008 to 31 December 2008 were audited by (Note: For identification purpose, the English name of the firm is Henan Yonghua Lianhe Certified Public Accountants Co., Limited. The official name of the firm is in Chinese.), a firm of certified public accountants registered in the PRC. No adjustments were considered as necessary to the statutory financial statements of Henan Multi-Resources in preparing our report for inclusion in the Circular.

No audited financial statements have been prepared for Golden Offer since its date of incorporation. The director of Golden Offer has adopted 30 June as its financial year end date.

For the purpose of this report, the director of Golden Offer has prepared the consolidated financial statements (the “Underlying Financial Statements”) of the Golden Offer Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The Financial Information also includes the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Hong Kong Companies Ordinance.

The Financial Information for the Relevant Periods as set out in this report has been prepared by the director of Golden Offer based on the Underlying Financial Statements of the Golden Offer Group.

– II-16 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND REPORTING ACCOUNTANTS

The director of Golden Offer is responsible for the preparation of the Underlying Financial Statements and the Financial Information which give a true and fair view. The directors of the Company are responsible for the contents of the Circular in which this report is included. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently.

For the comparative financial information (the “Comparative Financial Information”) for the three months ended 30 September 2008 (the “Comparative Period”), the director of Golden Offer is responsible for the preparation and the presentation of the comparative financial information in accordance with the accounting policies which are in conformity with HKFRSs.

For the comparative financial information for the three months ended 30 September 2008 our responsibility is to express a conclusion on the Comparative Financial Information based on our review and to report our conclusion to you. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2400, “Engagements to Review Financial Statements” issued by the HKICPA. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

OPINION AND REVIEW CONCLUSION

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of Golden Offer and of the Golden Offer Group as at 30 June 2008, 30 June 2009 and 30 September 2009 and of the results and cash flows of the Golden Offer Group for the respective periods/year then ended.

– II-17 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

I. FINANCIAL INFORMATION

Consolidated Statements of Comprehensive Income

Period from 5 June 2007 Year Three months ended to 30 June ended 30 30 September 2008 June 2009 2008 2009 Notes HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Revenue 5 –––6,091 Cost of sales –––(4,369)

Gross profit –––1,722 Other income 53 85 21 – Administrative expenses (37,346) (45,986) (3,576) (1,911)

Loss before income tax 7 (37,293) (45,901) (3,555) (189) Income tax expense 8 ––––

Loss for the period/year (37,293) (45,901) (3,555) (189) Other comprehensive income Exchange differences on translation of foreign operations 1,510 7 ––

Other comprehensive income for the period/year, net of tax 1,510 7 ––

Total comprehensive loss for the period/year (35,783) (45,894) (3,555) (189)

Loss for the period/year attributable to Equity holder of Golden Offer 9 (37,293) (45,901) (3,555) (189)

Total comprehensive loss for the period/year attributable to Equity holder of Golden Offer (35,783) (45,894) (3,555) (189)

– II-18 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Consolidated Statements of Financial Position

As at 30 As at 30 June September 2008 2009 2009 Notes HK$’000 HK$’000 HK$’000

ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 12 455 42,867 46,960 Mining rights 13 – 21,292 22,082 Prepaid lease payments 14 – 27,437 27,220 Deposits paid for acquisition of property, plant and equipment, mining rights and prepaid lease payments 82,670 ––

83,125 91,596 96,262

Current assets Inventories 16 – 641 418 Other receivables, deposits and prepayments – 2,733 1,752 Cash and cash equivalents 17 25,766 2,690 1,365

25,766 6,064 3,535

Current liabilities Trade payables 18 –– (783) Accruals and other payables (566) (29,244) (3,057) Amount due to a shareholder 19 (105,756) (117,366) (145,096) Amounts due to related parties 20 (38,352) (32,727) (32,727) Provision for taxation –– –

(144,674) (179,337) (181,663)

Net current liabilities (118,908) (173,273) (178,128)

Net liabilities (35,783) (81,677) (81,866)

EQUITY Equity attributable to equity holder of Golden Offer Share capital 21 –– – Reserves 22 (35,783) (81,677) (81,866)

Capital deficiency (35,783) (81,677) (81,866)

– II-19 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Statements of Financial Position

As at 30 As at 30 June September 2008 2009 2009 Notes HK$’000 HK$’000 HK$’000

ASSETS AND LIABILITIES Non-current asset Interests in a subsidiary 15 70,100 73,979 73,979

Current liabilities Accruals and other payables (169) (27,659) (106) Amount due to a shareholder 19 (105,756) (117,366) (145,096)

(105,925) (145,025) (145,202)

Net current liabilities (105,925) (145,025) (145,202)

Net liabilities (35,825) (71,046) (71,223)

EQUITY Share capital 21 –– – Reserves 22 (35,825) (71,046) (71,223)

Capital deficiency (35,825) (71,046) (71,223)

– II-20 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Consolidated Statements of Cash Flows

Period from 5 June Year 2007 to ended Three months ended 30 June 30 June 30 September 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Cash flows from operating activities Loss before income tax (37,293) (45,901) (3,555) (189) Adjustments for: Amortisation of prepaid lease payments –––217 Amortisation of mining rights –––197 Depreciation of property, plant and equipment –––699 Interest income (53) (85) (21) –

Operating (loss)/profit before working capital changes (37,346) (45,986) (3,576) 924 (Increase)/Decrease in inventories – (641) – 223 (Increase)/Decrease in other receivables, deposits and prepayments – (2,733) (1,580) 981 Increase in trade payables –––783 Increase/(Decrease) in accruals and other payables 566 28,678 4,704 (26,187)

Cash used in operations (36,780) (20,682) (452) (23,276) Interest received 53 85 21 –

Net cash used in operating activities (36,727) (20,597) (431) (23,276)

Cash flows from investing activities Acquisition of property, plant and equipment (455) (8,471) (1,717) (4,792) Acquisition of mining rights –––(987) Deposits paid for acquisition of property, plant and equipment, mining rights and prepaid lease payments (82,670) –––

Net cash used in investing activities (83,125) (8,471) (1,717) (5,779)

– II-21 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Period from 5 June Year 2007 to ended Three months ended 30 June 30 June 30 September 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Cash flows from financing activities Advances from a shareholder 105,756 11,610 375 27,730 Advances from/(Repayments to) related parties 38,352 (5,625) ––

Net cash generated from financing activities 144,108 5,985 375 27,730

Net increase/(decrease) in cash and cash equivalents 24,256 (23,083) (1,773) (1,325) Cash and cash equivalents at beginning of the period/year – 25,766 25,766 2,690 Effect of foreign exchange rate changes, net 1,510 7 ––

Cash and cash equivalents at end of the period/year 25,766 2,690 23,993 1,365

Analysis of balances of cash and cash equivalents Cash and bank balances 25,766 2,690 23,993 1,365

– II-22 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Consolidated Statements of Changes in Equity

Equity attributable to equity holder of Golden Offer Exchange Share fluctuation Accumulated Capital capital reserve losses deficiency HK$’000 HK$’000 HK$’000 HK$’000

At 5 June 2007 (date of incorporation) –––– Issue of shares ––––

Transactions with equity holder –––– Total comprehensive loss for the period – 1,510 (37,293) (35,783)

At 30 June 2008 and 1 July 2008 – 1,510 (37,293) (35,783) Total comprehensive loss for the year – 7 (45,901) (45,894)

At 30 June 2009 and 1 July 2009 – 1,517 (83,194) (81,677) Total comprehensive loss for the period ––(189) (189)

At 30 September 2009 – 1,517 (83,383) (81,866)

At 30 June 2008 and 1 July 2008 (audited) – 1,510 (37,293) (35,783) Total comprehensive loss for the period (unaudited) ––(3,555) (3,555)

At 30 September 2008 (unaudited) – 1,510 (40,848) (39,338)

– II-23 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

II. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

2. ADOPTION OF NEW OR AMENDED HKFRSS

The HKICPA issued a number of new or amended HKFRSs which are effective during the Relevant Periods and the Comparative Period and in preparing and presenting the Financial Information and the Comparative Financial Information, the Golden Offer Group has adopted these new or amended HKFRSs consistently throughout the Relevant Periods and the Comparative Period.

The Golden Offer Group has not early adopted the following new or amended HKFRSs which have been published but are not yet effective:

Notes:

1 Effective for annual periods beginning on or after 1 January 2010

2 Effective for annual periods beginning on or after 1 January 2011

3 Effective for annual periods beginning on or after 1 February 2010

4 Effective for annual periods beginning on or after 1 July 2010

5 Effective for annual periods beginning on or after 1 January 2013

6 Generally effective for annual periods beginning on or after 1 January 2010 unless otherwise stated in the specific HKFRSs

The director of Golden Offer anticipates that all of the pronouncements will be adopted in the Golden Offer Group’s accounting policy for the first period beginning after the effective date of the pronouncement.

The director of Golden Offer is currently assessing the impact of these new or amended HKFRSs upon initial application. So far, the director has preliminarily concluded that the initial application of these HKFRSs is unlikely to have a significant impact on the Golden Offer Group’s results and financial positions.

– II-24 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

In preparing the Financial Information, the director of Golden Offer has given consideration to the future liquidity of the Golden Offer Group in lights of its net current liabilities of HK$118,908,000, HK$173,273,000 and HK$178,128,000 as at 30 June 2008, 30 June 2009 and 30 September 2009 respectively, and capital deficiency of HK$35,783,000, HK$81,677,000 and HK$81,866,000 as at 30 June 2008, 30 June 2009 and 30 September 2009 respectively. Notwithstanding this, the Financial Information has been prepared on a going concern basis on the assumption that the Golden Offer Group will continue to operate as a going concern. In the opinion of the director, the Golden Offer Group will have sufficient cash resources to satisfy its future working capital and other financing requirements, after taking into consideration of the followings:

(i) undertakings from the shareholder and related companies that they do not intend to demand repayment of the debts due to them by the Golden Offer Group until such time when the repayment will not affect the ability of the Golden Offer Group to fully repay other creditors; and

(ii) an undertaking from Dr. Chan, being the ultimate beneficial owner and director of Golden Offer, that he intends to provide continuing financial support to the Golden Offer Group so as to enable the Golden Offer Group to continue in business as a going concern and to meet its liabilities and obligations as and when they fall due for the period at least up to 30 September 2010.

Should the Golden Offer Group be unable to continue in business as a going concern, adjustments might have to be made to reduce the value of assets to their recoverable amounts, to provide for any further liabilities which might arise, and to reclassify non-current assets as current assets. These adjustments have not yet been reflected in the Financial Information.

3.2 Basis of consolidation

The Financial Information and the Comparative Financial Information incorporate the financial statements of Golden Offer and its subsidiary made up to 30 June/30 September for each year/period.

3.3 Subsidiaries

Subsidiaries are entities (including special purpose entities) over which the Golden Offer Group has the power to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Golden Offer Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Golden Offer Group. They are excluded from consolidation from the date that control ceases.

– II-25 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated in preparing the Financial Information and the Comparative Financial Information. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

In Golden Offer’s statements of financial position, subsidiaries are carried at cost less any impairment loss. The results of the subsidiaries are accounted for by Golden Offer on the basis of dividends received and receivable at the year/period end date.

3.4 Foreign currency translation

The Financial Information and the Comparative Financial Information is presented in Hong Kong Dollars (“HK$”), which is also the functional currency of Golden Offer.

At year/period end date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the year/period end date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the year/period end date retranslation of monetary assets and liabilities are recognised in the profit or loss for the year/period.

In the Financial Information and the Comparative Financial Information, all individual financial statements of foreign operations, originally presented in a currency different from the Golden Offer Group’s presentation currency, have been converted into HK$. Assets and liabilities have been translated into HK$ at the closing rates at the year/period end date. Income and expenses have been converted into HK$ at the exchange rates ruling at the transaction dates, or at the average rates over the reporting period provided that the exchange rates do not fluctuate significantly. Any differences arising from this procedure have been dealt with separately in the exchange fluctuation reserve in equity.

Other exchange differences arising from the translation of the net investment in foreign entities are taken to shareholders’ equity. When a foreign operation is disposed of, such exchange differences are recognised in the profit or loss for the year/period as part of the gain or loss on disposal.

3.5 Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Golden Offer Group and when the revenue and costs, if applicable, can be measured reliably, on the following bases:

(i) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Golden Offer Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold. This is usually taken as the time when the goods are delivered and the customer has accepted the goods; and

(ii) interest income, on a time proportion basis using the effective interest method.

3.6 Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost, which comprise purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use, less accumulated depreciation and any impairment losses (note 3.8). Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is

– II-26 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

probable that future economic benefits associated with the item will flow to the Golden Offer Group and the cost of the item can be measured reliably. All other costs such as repairs and maintenance are charged to the profit or loss during the financial period in which they are incurred.

Depreciation is provided to write off the cost less their residual values over their estimated useful lives, using the straight-line method, at the following rates per annum.

Leasehold buildings 5% or over the remaining terms of the leases or useful lives, whichever is shorter Mining machinery and equipment 10% Furniture, fixtures and equipment 20% Motor vehicles 20%

Depreciation on mining structures is provided to write off the cost of the mining structures using units-of-production method utilising based on the proven and probable mineral reserves of the ore mines.

The assets’ depreciation methods, residual values and useful lives, are reviewed and adjusted, if appropriate, at each year/period end date. The gain or loss on retirement or disposal of an asset of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the profit or loss for the year/period.

Construction in progress represents asset in the course of construction for production or for its own use purpose. Construction in progress is stated at cost less any impairment loss and is not depreciated. Cost includes direct costs incurred during the periods of construction, installation and testing during the construction period. Construction in progress is reclassified to the appropriate category of property, plant and equipment and depreciation commences when the construction work is completed and the asset is ready for use.

3.7 Mining rights

Mining rights are stated at cost less accumulated amortisation and are amortised on the units-of-production method based on the total proven and probable reserves of the ore mines or contractual period from the date of commencement of commercial production which approximates the date from which they are available for use.

3.8 Impairment of non-financial assets

Property, plant and equipment, mining rights, prepaid lease payments and interests in a subsidiary are subject to impairment testing.

An impairment loss is recognised as an expense immediately for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. 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 assessment of time value of money and the risk specific to the asset.

An impairment loss is reversed in subsequent periods if there has been a favourable change in the estimates used to determine the asset’s recoverable amount and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

– II-27 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

3.9 Leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Golden Offer Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Golden Offer Group

Assets that are held by the Golden Offer Group under leases which transfer to the Golden Offer Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Golden Offer Group are classified as operating leases.

(ii) Operating lease charges as the lessee

Where the Golden Offer Group has the right to use the assets held under operating leases, payments made under the leases are charged to the profit or loss for the year/period on a straight-line basis over the lease terms except where an alternative basis is more representative of the time pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in the profit or loss for the year/period as an integral part of the aggregate net lease payments made. Contingent rental are charged to the profit or loss for the year/period in the accounting period in which they are incurred.

(iii) Prepaid lease payments

Prepaid lease payments represent up-front payments to acquire long term interests in the usage of the land. They are stated at cost less accumulated amortisation and accumulated impairment, if any. The up-front payments are amortised over the lease period on a straight-line basis and the amortisation is charged to the profit or loss for the year/period.

3.10 Financial assets

Financial assets of the Golden Offer Group include other receivables and cash and cash equivalents. These are classified into loans and receivables. Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate, re-evaluates this designation at every reporting date.

Loans and receivables are recognised when, and only when, the Golden Offer Group becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value, plus directly attributable transaction costs. Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.

At each year/period end date, financial assets are reviewed to determine whether there is any objective evidence of impairment. Objective evidence of impairment of individual financial assets includes observable date that come to the attention of the Golden Offer Group about one or more of the followings loss events:

– significant financial difficulty of the debtors;

– II-28 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

– a breach of contract, such as default or delinquency in interest or principal payments;

– it becoming probable that the debtors will enter bankruptcy or other financial reorganisation; and

– significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognised in the statements of comprehensive income in the period in which the impairment occurs.

If in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that it does not result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in the statements of comprehensive income in the period in which the reversal occurs.

3.11 Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined using the weighted average basis, and in the case of finished goods, comprise direct materials, director labour and an appropriate proportion of overheads. Net realisable value is the estimated selling prices in the ordinary course of business less any applicable selling expenses.

3.12 Accounting for income taxes

Income tax comprises current tax and deferred tax.

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the year/period end date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year/period. All changes to current tax assets or liabilities are recognised as a component of tax expense in the profit or loss for the year/period.

Deferred tax liabilities are recognised for taxable temporary differences arising on investment in subsidiaries except where the Golden Offer Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reserve in the foreseeable future.

– II-29 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Changes in deferred tax assets or liabilities are recognised in the profit or loss for the year/period, or in equity if they relate to items that are charged or credited directly to equity.

3.13 Cash and cash equivalents

Cash and cash equivalents include cash and bank balances.

3.14 Financial liabilities

The financial liabilities of the Golden Offer Group include trade payables, accruals and other payables, amount due to a shareholder and amounts due to related parties.

Financial liabilities are recognised when the Golden Offer Group becomes a party to the contractual provisions of the instrument. All interest related charges are recognised as an expense in finance costs in the profit or loss for the year/period.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Payables are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest method.

3.15 Share capital

Ordinary shares are classified as equity. Share capital is determined using the nominal value of share that have been issued.

3.16 Retirement benefit costs and short term employee benefits

Pension scheme

Retirement benefits to employees are provided through defined contribution plans. A defined contribution plan is a pension plan under which the Golden Offer Group pays fixed contributions into a separate entity.

The employees of the subsidiary which operates in the PRC are required to participate in a central pension scheme operated by the local municipal government. The subsidiary is required to contribute certain percentage of its payroll costs to the central pension scheme. The contributions are charged to the profit or loss for the year/period as they become payable in accordance with the rules of the central pension scheme.

Short-term employee benefits

Non-accumulating compensated absences are not recognised until the time of leave.

– II-30 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

3.17 Provisions, contingent liabilities and contingent assets

Provisions are recognised when the Golden Offer Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

All provisions are reviewed at each year/period end date and adjusted to reflect the current best estimate.

Where it is not probable that an outflow of economic benefits will be required, or the amounts cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

3.18 Operating segment

Operating segments are reported in a manner consistent with the internal management reports provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the director of Golden Offer.

3.19 Related parties

For the purpose of this report, a party is considered to be related to the Golden Offer Group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Golden Offer Group or exercise significant influence over the Golden Offer Group in making financial and operating policy decisions, or has joint control over the Golden Offer Group;

(ii) the Golden Offer Group and the party are subject to common control;

(iii) the party is an associate of the Golden Offer Group or a joint venture in which the Golden Offer Group is a venturer;

(iv) the party is a member of key management personnel of the Golden Offer Group or its parent or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;

(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or

(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Golden Offer Group, or of any entity that is a related party of the Golden Offer Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

– II-31 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

The Golden Offer Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below:

Impairment of non-financial assets

The Golden Offer Group assesses impairment at each year/period end date by evaluating conditions specific to the Golden Offer Group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates and assumptions about future events, which are subject to uncertainty and might materially differ from the actual results. In making these key estimates and judgements, the director of Golden Offer takes into consideration assumptions that are mainly based on market condition existing at each of the year/period end dates and appropriate market and discount rates. These estimates are regularly compared to actual market data and actual transactions entered into by the Golden Offer Group.

Amortisation of mining rights and mining structures

Mining rights and mining structures are amortised/depreciated on the units of production method based on the total proven and probable mineral reserves of the ore mines. The director of Golden Offer exercises his judgement in estimating the total proven and probable reserves of the ore mines.

Depreciation

Other than the mining structures and mining rights, property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. The Golden Offer Group reviews annually the useful life of an asset, the depreciation methods and its residual value, if any. The useful lives are estimated based on similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimation.

Income taxes

The Golden Offer Group is subject to income taxes in Hong Kong and the PRC. Significant judgement is required in determining the amount of the provision for income taxes and the timing of payment of related taxes. The Golden Offer Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

5. REVENUE

Revenue, which was also the Golden Offer Group’s turnover, represented the total invoiced value of goods supplied during the Relevant Periods and the Comparative Period.

6. SEGMENT INFORMATION

The Golden Offer Group has identified only one operating segment and prepared segment information based on the regular internal financial information reported to the chief operating decision-maker for decisions about resources allocation to its business and the business’s performance. The Golden Offer Group mainly operates in the PRC and the sole business is mining and exploration of mineral reserves during the Relevant Periods and the Comparative Period.

– II-32 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Information regarding the Golden Offer Group’s reportable segment as provided to the Golden Offer Group chief-operating decision-maker is set out below:

Gold laden carbon particles Period from Three months ended 5 June 2007 Year ended 30 September to 30 June 30 June 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Revenue to external customer located at the PRC –––6,091

All the non-current assets of the Golden Offer Group are located in the PRC at 30 June 2008, 30 June 2009 and 30 September 2009.

7. LOSS BEFORE INCOME TAX

Period from 5 June 2007 Year ended Three months ended to 30 June 30 June 30 September 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Loss before income tax is arrived at after charging/(crediting): Cost of inventories sold –––4,369 Auditors’ remuneration – 9 –– Amortisation of prepaid lease payments –––217 Amortisation of mining rights –––197 Consultancy fee (Note) 34,133 34,159 – 51 Depreciation of property, plant and equipment –––699 Exchange loss, net 1,181 122 –– Minimum lease payments under operating leases on land and buildings – 1187938 Interest income (53) (85) (21) –

Note: On 26 March 2008, the Golden Offer Group entered into a consultancy service agreement (the “First Agreement”) with a company in relation to the provision of consultancy services in respect of the operation and management of the Golden Offer Group’s mining business in the PRC. Pursuant to the First Agreement, the total consultancy fee was HK$68,266,000. The consultancy fee was charged to the profit or loss for the year/period when respective services had been rendered. Upon completion and expiry of the First Agreement in May 2009, the Golden Offer Group had entered into another consultancy agreement, which is valid from May 2009 to May 2011, with an employee of Henan Multi-Resources in relation to the management of the Golden Offer Group’s mining business in the PRC. The consultancy fee was charged on monthly basis of HK$17,000 per month.

Both parties with whom the Golden Offer Group entered into the consultancy agreements are independent third parties to the Golden Offer Group.

– II-33 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

8. INCOME TAX EXPENSE

No income tax has been provided as the Golden Offer Group did not derive any assessable profits in Hong Kong or the PRC during the Relevant Periods and the Comparative Period.

Reconciliation between income tax expense and accounting loss at applicable tax rates is as follows:

Period from 5 June 2007 Year ended Three months ended to 30 June 30 June 30 September 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Loss before income tax (37,293) (45,901) (3,555) (189)

Tax calculated at the rates applicable to the tax jurisdiction concerned (6,278) (8,482) (867) (32) Tax effect of non-deductible expenses 5,943 6,009 82 96 Tax effect of unused tax losses not recognised 335 2,473 785 – Tax effect of utilisation of prior years’ unrecognised tax losses –––(64)

Income tax expense ––––

At 30 June 2008, 30 June 2009 and 30 September 2009, the Golden Offer Group has unused tax losses of HK$1,340,000, HK$11,233,000 and HK$10,977,000 respectively available to offset future profit. No deferred tax asset has been recognised due to the uncertainty of future taxable profits. These unused tax losses will expire in various dates up to and including 30 September 2014.

No deferred tax liabilities have been provided for the Relevant Periods and the Comparative Period as there are no material temporary differences.

9. LOSS ATTRIBUTABLE TO EQUITY HOLDER OF GOLDEN OFFER

Of the consolidated loss for the period from 5 June 2007 to 30 June 2008, for the year ended 30 June 2009 and for the three months ended 30 September 2009, losses of HK$35,825,000, HK$35,221,000 and HK$177,000 respectively had been dealt with the financial statements of Golden Offer.

Of the unaudited consolidated loss for the three months ended 30 September 2008, unaudited loss of HK$262,000 had been dealt with in the unaudited financial statements of Golden Offer.

10. EMPLOYEE BENEFIT EXPENSE

Period from 5 June 2007 Year ended Three months ended to 30 June 30 June 30 September 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Wages, salaries, allowances and benefits in kind 144 3,038 382 1,172 Pension costs – defined contribution plans – 831 – 358

144 3,869 382 1,530

– II-34 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

11. DIRECTOR’S REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS

(b) Five highest paid individuals

The emoluments payable to the five highest paid individuals for the Relevant Periods and the Comparative Period, which fell within the salary band of HK$Nil – HK$1 million, are as follows:

Period from 5 June 2007 Year ended Three months ended to 30 June 30 June 30 September 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Wages, salaries, allowances and benefits in kind 48 726 105 220 Pension costs – defined contribution plans – 41 – 10

48 767 105 230

During the Relevant Periods and the Comparative Period, there were no emoluments paid to the director and the five highest paid individuals as an inducement to join or upon joining the Golden Offer Group or as compensation for loss of their offices.

– II-35 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

12. PROPERTY, PLANT AND EQUIPMENT

Mining Furniture, machinery fixtures Construction Leasehold Mining and and Motor in buildings structures equipment equipment vehicles progress Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Period from 5 June 2007 to 30 June 2008 Additions –––147 308 – 455

Closing net book amount –––147 308 – 455

At 30 June 2008 Cost –––147 308 – 455 Accumulated depreciation –––––––

Net book amount –––147 308 – 455

Year ended 30 June 2009 Opening net book amount –––147 308 – 455 Additions 7,184 28,861 3,058 635 598 2,076 42,412

Closing net book amount 7,184 28,861 3,058 782 906 2,076 42,867

At 30 June 2009 Cost 7,184 28,861 3,058 782 906 2,076 42,867 Accumulated depreciation –––––––

Net book amount 7,184 28,861 3,058 782 906 2,076 42,867

Three months ended 30 September 2009 Opening net book amount 7,184 28,861 3,058 782 906 2,076 42,867 Additions –––24 – 4,768 4,792 Depreciation (196) (336) (73) (51) (43) – (699)

Closing net book amount 6,988 28,525 2,985 755 863 6,844 46,960

At 30 September 2009 Cost 7,184 28,861 3,058 806 906 6,844 47,659 Accumulated depreciation (196) (336) (73) (51) (43) – (699)

Net book amount 6,988 28,525 2,985 755 863 6,844 46,960

– II-36 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

13. MINING RIGHTS

HK$’000

Year ended 30 June 2009 Additions 21,292

Closing net carrying amount 21,292

At 30 June 2009 Cost 21,292 Accumulated amortisation –

Net carrying amount 21,292

Three months ended 30 September 2009 Opening net carrying amount 21,292 Additions 987 Amortisation (197)

Closing net carrying amount 22,082

At 30 September 2009 Cost 22,279 Accumulated amortisation (197)

Net carrying amount 22,082

14. PREPAID LEASE PAYMENTS

Prepaid lease payments represent the Golden Offer Group’s interests in leasehold land in the PRC held under medium-term leases and their net carrying amounts are analysed as follows:

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Opening net carrying amount ––27,437 Additions – 27,437 – Amortisation ––(217)

Closing net carrying amount – 27,437 27,220

15. INTERESTS IN A SUBSIDIARY

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Unlisted equity interests, at costs 70,100 73,979 73,979

– II-37 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Particulars of the subsidiary at the year/period end dates are as follows:

Proportion of nominal value Place of of paid-up establishment capital held Nature of Registered and kind of directly by business/place Name of subsidiary capital Paid-up capital legal entity Golden Offer of operations

Henan Multi-Resources US$20,000,000 At 30 September 2009: The PRC, 100% Mining and US$9,499,600 limited liability exploration of company mineral reserves/ At 30 June 2009: the PRC US$9,499,600 At 30 June 2008: US$8,999,600

16. INVENTORIES

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Finished goods – 641 418

17. CASH AND CASH EQUIVALENTS

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Cash and bank balances 25,766 2,690 1,365

Cash and bank balances earn interest at the floating rates based on the daily bank deposit rates.

Included in cash and cash equivalents of the Golden Offer Group were bank balances of HK$25,739,000, HK$1,024,000 and HK$1,161,000 as at 30 June 2008, 30 June 2009 and 30 September 2009 respectively denominated in Renminbi (“RMB”) placed with banks in the PRC. RMB is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement and Sales and Payment of Foreign Exchange Regulations, the Golden Offer Group is permitted to exchange RMB into foreign currencies through the banks that are authorised to conduct foreign exchange business.

18. TRADE PAYABLES

An ageing analysis of the trade payables at the year/period end dates are as follows:

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

0 – 90 days –– 783

19. AMOUNT DUE TO A SHAREHOLDER

The amount due was unsecured, interest-free and repayable on demand.

– II-38 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

20. AMOUNTS DUE TO RELATED PARTIES

The amounts due were unsecured, interest-free and repayable on demand. The Golden Offer Group and the related parties are under common control of Dr. Chan.

21. SHARE CAPITAL

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Authorised: 10,000 ordinary shares of HK$1 each 10 10 10

Issued and fully paid: 1 ordinary share of HK$1 –– –

Golden Offer was incorporated with an authorised share capital of HK$10,000 divided into 10,000 ordinary shares of HK$1 each.

On 5 June, 2007, 1 share of HK$1 was issued at par to the subscriber to provide the initial capital to Golden Offer.

22. RESERVES

(a) The Golden Offer Group

The movements of the Golden Offer Group’s reserves for the Relevant Periods and the Comparative Period are presented in the consolidated statements of changes in equity.

(b) Golden Offer

Accumulated losses HK$’000

Balance at 5 June 2007 (date of incorporation) – Loss for the period and total comprehensive loss for the period (35,825)

Balance at 30 June 2008 and 1 July 2008 (35,825) Loss for the year and total comprehensive loss for the year (35,221)

Balance at 30 June 2009 and 1 July 2009 (71,046) Loss for the period and total comprehensive loss for the period (177)

Balance at 30 September 2009 (71,223)

– II-39 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

23. OPERATING LEASE COMMITMENTS

The Golden Offer Group had future minimum lease payments under non-cancellable operating leases as follows:

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Within one year 56 56 38

The Golden Offer Group leases office properties under operating lease arrangements which run for an initial period of one year. None of the leases include contingent rentals.

24. CAPITAL COMMITMENTS

The Golden Offer Group had outstanding capital commitments as follows:

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Contracted but not provided for: Plant and equipment 4,261 2,173 826 Mining rights − 1,160 902

4,261 3,333 1,728

25. NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

During the year ended 30 June 2009, there was a non-cash transaction by reclassifying the non-current deposits of HK$82,670,000 as additions to property, plant and equipment of HK$33,941,000, additions to mining rights of HK$21,292,000 (note 13) and additions to prepaid lease payments of HK$27,437,000 (note 14).

26. RELATED PARTY TRANSACTIONS

Save as those related party transactions disclosed elsewhere in the Financial Information and the Comparative Financial Information, during the Relevant Periods and the Comparative Period, the Golden Offer Group had the following related party transactions:

Period from 5 June 2007 Year ended Three months ended to 30 June 30 June 30 September 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Management fee paid to a shareholder 90 360 90 90

The terms are mutually negotiated between the Golden Offer Group and the shareholder.

– II-40 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

27. CONTINGENT LIABILITIES

The Golden Offer Group did not have any material contingent liabilities at each of the year/period end dates.

28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Golden Offer Group’s major financial instruments include other receivables, cash and cash equivalents, trade payables, accruals and other payables, amount due to a shareholder and amounts due to related parties. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Foreign currency risk

Foreign currency risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Golden Offer Group mainly operates in the PRC with most of the transactions denominated and settled in RMB. No foreign currency risk has been identified for the financial assets and financial liabilities denominated in RMB, which is the functional currency of the subsidiary in the PRC to which these transactions relate. The Golden Offer Group’s exposure to foreign currency risk primarily arises from cash and cash equivalents which are denominated in United States dollars (“US$”) as held by the Henan Multi-Resources. During the Relevant Periods and the Comparative Period, the Golden Offer Group did not have foreign currency hedging policy but the management continuously monitor the foreign exchange exposure.

The following table summarises the Golden Offer Group’s major financial assets denominated in currencies other than functional currency of the respective group companies as at 30 June 2008, 30 June 2009 and 30 September 2009.

Expressed in HK$’000 As at As at 30 June 30 September 2008 2009 2009

Cash and cash equivalents in US$ – 1,361 –

No sensitivity analysis in respect of the Golden Offer Group’s financial assets denominated in US$ is disclosed as in the opinion of the director, such sensitivity analysis does not give additional value in view of insignificant movement in the US$/HK$ exchange rates as at each of the year/period end dates.

The policies to manage foreign currency risk have been followed by the Golden Offer Group during the Relevant Periods and the Comparative Period and are considered to be effective.

(ii) Interest rate risk

Interest rate risk relates to the risk that the fair value or cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Golden Offer Group is exposed to interest rate risk primarily through the impact of interest rate changes on cash at banks carrying interests at variable rates.

During the Relevant Periods and the Comparative Period, the Golden Offer Group did not have interest rate hedging policy but the management continuously monitors the interest rate exposure.

– II-41 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

The following table illustrates the sensitivity of the loss for the period/year and accumulated losses to increase/decrease in interest rate of 100 basis point with effect from the beginning of the period/year. The calculations are based on the Golden Offer Group’s cash and cash equivalents at each of the year/period end dates. All other variables are held constant.

Period from 5 June 2007 Year ended Three months ended to 30 June 30 June 30 September 2008 2009 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

If interest rates were 100 basis point higher Loss for the year/period decrease by 258 27 239 14

If interest rates were 100 basis point lower Loss for the year/period increase by (258) (27) (239) (14)

The policies to manage interest rate risk have been followed by the Golden Offer Group during the Relevant Periods and the Comparative Period are considered to be effective.

(iii) Credit risk

Credit risk refers to the risk that the counterparty to a financial instrument would fail to discharge its obligation under the terms of the financial instruments and cause as a financial loss to the Golden Offer Group. The Golden Offer Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated statements of financial position.

The Golden Offer Group reviews the recoverable amount for each individual receivables at each year/ period end dates to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the director of Golden Offer considers that the Golden Offer Group’s credit risk is effectively controlled and significantly reduced.

Credit risk on cash at banks is mitigated as cash is deposited in banks of high credit rating.

None of the Golden Offer Group’s financial assets are secured by collateral or other credit enhancements.

The credit policies have been followed by the Golden Offer Group during the Relevant Periods and the Comparative Period and are considered to have been effective in limiting the Golden Offer Group’s exposure to credit risk to a desirable level.

(iv) Fair value

All financial instruments are carried at amount not materially different from their fair values as at 30 June 2008, 30 June 2009 and 30 September 2009.

(v) Liquidity risk

The Golden Offer Group’s policy is to regularly monitor its liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.

– II-42 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

The Golden Offer Group had net current liabilities of HK$118,908,000, HK$173,273,000 and HK$178,128,000 as at 30 June 2008, 30 June 2009 and 30 September 2009 respectively, and capital deficiency of HK$35,783,000, HK$81,677,000 and HK$81,866,000 as at 30 June 2008, 30 June 2009 and 30 September 2009 respectively. The liquidity of the Golden Offer Group is primarily dependent on its ability to generate adequate cash inflow from operations to meet its debt obligations and the undertakings as follows:

(a) undertakings from the shareholder and related companies that they do not intend to demand repayment of the amount due to them by the Golden Offer Group until such time when the repayment will not affect the ability of the Golden Offer Group to fully repay other creditors; and

(b) an undertaking from Dr. Chan, being the ultimate beneficial owner and director of Golden Offer, that he intends to provide continuing financial support to the Golden Offer Group so as to enable the Golden Offer Group to continue in business as a going concern and to meet its liabilities and obligations as and when they fall due for the period at least up to 30 September 2010.

In the opinion of the director of Golden Offer, the Golden Offer Group’s exposure to liquidity risk is limited.

The liquidity policies have been followed by the Golden Offer Group/Golden Offer during the Relevant Periods and the Comparative Period and are considered to have been effective in managing liquidity risks.

The maturity profile of the Golden Offer Group and Golden Offer’s financial liabilities as at each of the year/period end dates, based on the contracted undiscounted payments, was as follows:

The Golden Offer Group

Total contractual Within one Carrying undiscounted year or on amount cash flow demand HK$’000 HK$’000 HK$’000

As at 30 June 2008 Accruals and other payables 566 566 566 Amount due to a shareholder 105,756 105,756 105,756 Amounts due to related parties 38,352 38,352 38,352

144,674 144,674 144,674

As at 30 June 2009 Accruals and other payables 29,244 29,244 29,244 Amount due to a shareholder 117,366 117,366 117,366 Amounts due to related parties 32,727 32,727 32,727

179,337 179,337 179,337

As at 30 September 2009 Trade payables 783 783 783 Accruals and other payables 3,057 3,057 3,057 Amount due to a shareholder 145,096 145,096 145,096 Amounts due to related parties 32,727 32,727 32,727

181,663 181,663 181,663

– II-43 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

Golden Offer

Total contractual Within one Carrying undiscounted year or on amount cash flow demand HK$’000 HK$’000 HK$’000

As at 30 June 2008 Accruals and other payables 169 169 169 Amount due to a shareholder 105,756 105,756 105,756

105,925 105,925 105,925

As at 30 June 2009 Accruals and other payables 27,659 27,659 27,659 Amount due to a shareholder 117,366 117,366 117,366

145,025 145,025 145,025

As at 30 September 2009 Accruals and other payables 106 106 106 Amount due to a shareholder 145,096 145,096 145,096

145,202 145,202 145,202

29. SUMMARY OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORY

The carrying amounts of the Golden Offer Group’s and Golden Offer financial assets and liabilities recognised at each of the year/period end dates may also be categorised as follows. See notes 3.10 and 3.14 for explanations about how the category of financial instruments affects their subsequent measurement.

– II-44 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

The Golden Offer Group

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Current assets Loans and receivables: – Other receivables – 626 585 – Cash and cash equivalents 25,766 2,690 1,365

25,766 3,316 1,950

Current liabilities Financial liabilities measured at amortised cost: – Trade payables ––(783) – Accruals and other payables (566) (29,244) (3,057) – Amount due to a shareholder (105,756) (117,366) (145,096) – Amounts due to related parties (38,352) (32,727) (32,727)

(144,674) (179,337) (181,663)

Golden Offer

As at As at 30 June 30 September 2008 2009 2009 HK$’000 HK$’000 HK$’000

Current liabilities Financial liabilities measured at amortised cost: – Accruals and other payables (169) (27,659) (106) – Amount due to a shareholder (105,756) (117,366) (145,096)

(105,925) (145,025) (145,202)

30 CAPITAL MANAGEMENT POLICIES AND PROCEDURES

The Golden Offer Group’s objectives when managing capital are:

(i) To safeguard the Golden Offer Group’s ability to continue as a going concern, so that it continues to provide returns and benefits for shareholder;

(ii) To support the Golden Offer Group’s stability and growth; and

(iii) To provide capital for the purpose of strengthening the Golden Offer Group’s risk management capability.

The Golden Offer Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of the Golden Offer Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Golden Offer Group currently does not adopt any formal dividend policy. Management regards total equity and the continuing financial support from Dr. Chan as set out in note 3.1 as capital, for capital management purpose.

– II-45 – APPENDIX II FINANCIAL INFORMATION ON THE TARGET GROUP

31. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Golden Offer, the Golden Offer Group or its subsidiary were prepared in respect of any period subsequent to 30 September 2009.

Yours faithfully,

Grant Thornton Certified Public Accountants 6th Floor, Nexxus Building 41 Connaught Road Central Hong Kong

– II-46 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

A. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE GROUP

The following is the text of the accountants’ report from the Company’s reporting accountants, Grant Thornton, Certified Public Accountants, Hong Kong in respect of the unaudited pro forma financial information on the Group prepared for the purpose of inclusion in this circular.

Member of Grant Thornton International Ltd

25 January 2010

The Directors Continental Holdings Limited FlatsM&N,1stFloor Kaiser Estate, Phase III 11 Hok Yuen Street Hunghom Kowloon Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Continental Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) and Big Bonus Limited and its subsidiaries (collectively referred to as the “Target Group”), including Golden Offer Holdings Limited and (the “Golden Offer Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the acquisition of the entire equity interests and the shareholder’s loan of the Target Group (collectively referred to as the “Acquisition”) by the Company might have affected the financial information presented, for the inclusion in Appendix III of the Company’s circular dated 25 January 2010 (the “Circular”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out in the section headed “Unaudited Pro Forma Financial Information of the Group” in Appendix III to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the

– III-1 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

“Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29 of Chapter 4 of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we did not express any such assurance on the Unaudited Pro Forma Financial Information.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, does not give any assurance or indication that any event will take place in the future and may not be indicative of:

– the financial position of the Group as at 30 June 2009 or any future date; or

– the results and cash flows of the Group for the year ended 30 June 2009 or any future periods.

– III-2 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully, Grant Thornton Certified Public Accountants 6th Floor, Nexxus Building 41 Connaught Road Central Hong Kong

– III-3 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

B. UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE GROUP

The accompanying unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of the Group has been prepared by the Directors in accordance with rule 4.29 of The Listing Rules for the purpose of illustrating the effect of the Acquisition on the financial position of the Group as if the Acquisition had been completed on 30 June 2009 and the results and cash flows of the Group as if the Acquisition had been completed on 1 July 2008. As the Unaudited Pro Forma Financial Information is prepared for illustrative purpose only, and because of its nature, it may not give a true picture of the financial position, results and cash flows of the Group following the completion of the Acquisition.

The unaudited pro forma consolidated balance sheet of the Group is prepared based on the audited consolidated balance sheet of the Group as at 30 June 2009 extracted from the published audited annual report of the Group as of 30 June 2009 set out in Appendix I to the Circular, the audited statement of financial position of the Target Company as at 30 September 2009 as extracted from the accountants’ report of the Target Company set out in Appendix II, and the audited consolidated statement of financial position of the Golden Offer Group as at 30 September 2009 as extracted from the accountants’ report of the Golden Offer Group set out in Appendix II to the Circular, after making pro forma adjustments relating to the Acquisition that are (i) directly attributable to the Acquisition; and (ii) factually supportable.

The unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement of the Group are prepared based on the audited consolidated income statement and audited consolidated cash flow statement of the Group for the year ended 30 June 2009 extracted from the published annual report of the Group as of 30 June 2009 set out in Appendix I to the Circular, the audited statement of comprehensive income and audited statement of cash flows of the Target Company for the year ended 30 June 2009 as extracted from the accountants’ report of the Target Company set out in Appendix II, and the audited consolidated statement of comprehensive income and audited consolidated statement cash flows of the Golden Offer Group for the year ended 30 June 2009 as extracted from the accountants’ report of the Golden Offer Group set out in Appendix II to the Circular, after making pro forma adjustments relating to the Acquisition that are (i) directly attributable to the Acquisition; and (ii) factually supportable.

The Unaudited Pro Forma Financial Information is based on a number of assumptions, estimates, uncertainties and currently available information. Accordingly, the Unaudited Pro Forma Financial Information does not purport to describe the actual financial position, results and cash flows of the Group that would have been attained had the Acquisition been completed on 30 June 2009 and on 1 July 2008 respectively. The Unaudited Pro Forma Financial Information does not purport to predict the future financial position, results or cash flows of the Group.

– III-4 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

1. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE GROUP

The Golden The Target Offer The Group Company Group Pro forma as at 30 as at 30 as at 30 the Group as June September September Pro forma at 30 June 2009 2009 2009 Notes adjustments 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 435,836 – 46,960 482,796 Mining rights ––22,082 4.2.4 877,918 900,000 Leasehold land/Land use rights 8,883 – 27,220 36,103 Interests in associates 3,051 –– 3,051 Interests in jointly controlled entities 216,382 –– 216,382 Available-for-sale financial assets 12,974 –– 12,974 Deferred tax assets 9,217 –– 9,217 686,343 – 96,262 1,660,523

Current assets Inventories 295,492 – 418 295,910 Trade receivables 106,942 –– 106,942 Prepayments, deposits and other receivables 29,177 – 1,752 30,929 Current portion of long-term receivables 1,305 –– 1,305 Financial assets at fair value through profit or loss 10,324 –– 10,324 Due from associates 330 –– 330 Cash and cash equivalents 45,759 – 1,365 4.1.3 (113,000) (66,603) 4.5 37,000 4.7 81,378 4.8 (81,378) 4.9 (32,727) 4.11 (5,000) 4.13 489,329 – 3,535 379,137 Assets classified as held for sale 838,000 –– 838,000

1,327,329 – 3,535 1,217,137

– III-5 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

Current liabilities Trade payables (157,142) – (783) (157,925) Other payables and accruals (62,883) (12) (3,057) (65,952) Derivative financial instruments (170) –– (170) Provision for tax (11,623) –– (11,623) Due to associates (288) –– (288) Amount due to a shareholder ––(145,096) 4.2.2 145,096 – Additional Shareholder’s Advance –––4.7 (81,378) – 4.8 81,378 Amounts due to related parties ––(32,727) 4.9 32,727 – Bank loans, secured (141,633) –– (141,633)

(373,739) (12) (181,663) (377,591) Liabilities associated with assets classified as held for sale (9,628) –– (9,628)

(383,367) (12) (181,663) (387,219)

Net current assets/(liabilities) 943,962 (12) (178,128) 829,918

Total assets less current liabilities 1,630,305 (12) (81,866) 2,490,441

Non-current liabilities Loans from minority shareholders (1,125) –– (1,125) Bank loans, secured (541,263) –– (541,263) Promissory note (42,000) –– (42,000) Convertible note –––4.3 (11,922) (11,922) Deferred tax liabilities (16) ––4.2.5 (219,480) (219,496)

(584,404) –– (815,806)

Net assets/(liabilities) 1,045,901 (12) (81,866) 1,674,635

EQUITY Equity attributable to equity holders of the Company Issued capital 31,283 ––4.4 17,647 51,106 4.5 2,176 Reserves 916,367 (12) (81,866) 4.6 690,789 1,525,278 Proposed dividend 96,977 –– 96,977

1,044,627 (12) – 1,673,361 Minority interests 1,274 –– 1,274

Total equity/(Capital deficiency) 1,045,901 (12) (81,866) 1,674,635

– III-6 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

2. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE GROUP

The Target The Golden Pro forma The Group Company Offer the Group for the year for the year Group for for the year ended ended 30 the year ended 30 30 June June 30 June Pro forma June 2009 2009 2009 Notes adjustments 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Revenue 1,189,622 –– 1,189,622 Cost of sales (1,061,343) –– (1,061,343)

Gross profit 128,279 –– 128,279

Other income ––85 85 Selling and distribution costs (21,465) –– (21,465) Administrative expenses (111,890) (5) (45,986) (157,881) Other operating expenses (17,446) –– (17,446) Changes in fair value of investment properties 101,080 –– 101,080 Excess of interest in the net fair value of the net identifiable assets over the fair value of the total cost of the Acquisition –––4.2 65,804 65,804

Profit/(Loss) from operations 78,558 (5) (45,901) 98,456

Finance costs (12,187) ––4.3.1 (482) (12,669) Share of results of associates (701) –– (701) Share of results of jointly controlled entities 5,472 –– 5,472

Profit/(Loss) before income tax 71,142 (5) (45,901) 90,558

Income tax credit/(expense) 64,807 –– 64,807

Profit/(Loss) for the year 135,949 (5) (45,901) 155,365

Profit/(Loss) for the year attributable to: Equity holders of the Company 135,939 (5) (45,901) 4.2 65,804 155,355 4.3.1 (482) Minority interests 10 –– 10

135,949 (5) (45,901) 155,365

Earnings per share for profit attributable to the equity holders of the Company during the year 4.12 – Basic HK44.5 cents HK30.9 cents

– Diluted N/A HK23.1 cents

– III-7 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

3. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE GROUP

The Golden The Target Offer Pro forma The Group Company Group the Group for the year for the year for the for the year ended ended 30 year ended ended 30 30 June June 30 June Pro forma June 2009 2009 2009 Notes adjustments 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Cash flows from operating activities Profit/(Loss) before income tax 71,142 (5) (45,901) 4.2 65,804 90,558 4.3.1 (482) Adjustments for: Finance costs 12,187 ––4.3.1 482 12,669 Share of results of associates 701 –– 701 Share of results of jointly controlled entities (5,472) –– (5,472) Depreciation of property, plant and equipment 8,349 –– 8,349 Amortisation of leasehold land/land use rights 236 –– 236 Write back against inventories (4,991) –– (4,991) Provision for long term receivables 8,449 –– 8,449 Provision for trade receivables 3,205 –– 3,205 Impairment loss on property, plant and equipment 2,261 –– 2,261 Loss on disposal of property, plant and equipment 65 –– 65 Loss on disposal of subsidiaries 23 –– 23 Changes in fair value in investment properties (101,080) –– (101,080) Fair value loss on derivative financial instruments 1,485 –– 1,485 Excess of interest in the net fair value of the net identifiable assets over the fair value of the total cost of the Acquisition –––4.2 (65,804) (65,804) Interest income ––(85) (85)

Operating loss before working capital changes (3,440) (5) (45,986) (49,431) Decrease/(Increase) in inventories 48,072 – (641) 47,431 Decrease in trade receivables 58,598 –– 58,598 Decrease/(Increase) in prepayments, deposits and other receivables 13,891 – (2,733) 11,158 Decrease in financial assets at fair value through profit or loss 2,439 –– 2,439 Increase in balances with associates (87) –– (87) Decrease in balances with jointly controlled entities 117 –– 117

– III-8 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

(Decrease)/Increase in trade and other payables and accruals (16,453) 5 28,678 12,230 Increase in derivative financial instruments (1,315) –– (1,315) Cash generated from/(used in) operations 101,822 – (20,682) 81,140 Interest received ––85 85 Interest paid (16,923) –– (16,923) Dividend paid (8,220) –– (8,220) Hong Kong profits tax paid (7,071) –– (7,071)

Net cash generated from/(used in) operating activities 69,608 – (20,597) 49,011

Cash flows from investing activities Additions to property, plant and equipment (5,966) – (8,471) (14,437) Proceeds from disposal of property, plant and equipment 3 –– 3 Proceeds from disposal of an investment property 15,480 –– 15,480 Disposal of subsidiaries (net of cash and cash equivalents disposed of) (2,000) –– (2,000) Acquisition of subsidiaries (net of cash and cash equivalents acquired) (130,053) ––4.2.1 (35,257) (165,310) Receipt of long term receivables 1,307 –– 1,307 Increase in loans to a jointly controlled entity (76,000) –– (76,000)

Net cash used in investing activities (197,229) – (8,471) (240,957)

Cash flows from financing activities Shares subscription –––4.5 37,000 37,000 New bank loans 65,000 –– 65,000 Repayment of bank loans (12,883) –– (12,883) Repayment of promissory note (8,000) –– (8,000) Repayment of convertible note – liability component –––4.3.2 (4,875) (4,875) Advance from/(Repayment to) a shareholder ––11,610 4.8 (81,378) (69,768) Repayment to related parties ––(5,625) 4.9 (32,727) (38,352)

Net cash generated from/ (used in) financing activities 44,117 – 5,985 (31,878)

– III-9 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

Net decrease in cash and cash equivalents (83,504) – (23,083) (223,824)

Cash and cash equivalents at beginning of year 128,868 – 25,766 154,634

Effect of foreign exchange rate changes, net 395 – 7 402

Cash and cash equivalents at end of year 45,759 – 2,690 4.13 (68,788)

Analysis of balances of cash and cash equivalents Cash and bank balances 45,759 – 2,690 4.2.1 (35,257) (68,788) 4.3.2 (4,875) 4.5 37,000 4.8 (81,378) 4.9 (32,727)

– III-10 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

4. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

4.1 On 20 November 2009, the Company entered into the Sale and Purchase Agreement with the Vendor to acquire 100% of the issued share capital of the Target Company and 100% interest of the shareholder loan (the “Acquisition”). Pursuant to the Sale and Purchase Agreement and the supplemental agreement dated 30 November 2009, the total consideration for the Acquisition (the “Consideration”) is HK$738,000,000 which is to be satisfied in the following manners:

HK$’000

Issue of Consideration Shares 300,000 Issue of Convertible Note 325,000 Cash 113,000

Total cost of the Acquisition 738,000

The fair value of the total cost of the Acquisition as if the Acquisition had been completed on 30 June 2009 is as follows:

HK$’000 Notes

Issue of Consideration Shares 300,000 4.1.1 Issue of Convertible Note 237,852 4.1.2 Cash 113,000 4.1.3

Fair value of the total cost of the Acquisition 650,852

4.1.1 Pursuant to the Sale and Purchase Agreement, a sum of HK$300,000,000 of the Consideration will be satisfied by way of issue of a total of 176,470,588 Consideration Shares to the Vendor at HK$1.7 per Consideration Share. For the purpose of the preparation of the Unaudited Pro Forma Financial Information, the fair value of the Consideration Shares is assumed to be HK$300,000,000, in which the Directors assume the market price of the Consideration Share equals to the issue price of HK$1.7. As there is no reasonable basis to predict the future share price upon completion of the Acquisition, for the sake of prudence, the Directors assume the market price of the Consideration Share to be the same as its issue price of HK$1.7 per share. As a result, the fair value of the Consideration Shares is assumed to be HK$300,000,000. On completion, the fair value of the Consideration Shares will have to be reassessed. The issue of the Consideration Shares is a non-cash transaction. The effect of issue of Consideration Shares is stated in note 4.4.

– III-11 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

4.1.2 Pursuant to the Sale and Purchase Agreement, a sum of HK$325,000,000 of the Consideration will be satisfied by way of issue of the Convertible Note to the Vendor. For the purpose of the preparation of the Unaudited Pro Forma Financial Information, the Group has engaged BMI Appraisals Limited, an independent firm of valuers, to perform a valuation on the fair value of the Convertible Note. Pursuant to the valuation performed by BMI Appraisals Limited, the fair value of the Convertible Note is approximately amounted to HK$237,852,000. The basis of the valuation of the Convertible Note is detailed in note 4.3. The issue of the Convertible Note is a non-cash transaction. On Completion, the fair value of the Convertible Note will have to be reassessed.

4.1.3 Pursuant to the Sale and Purchase Agreement, a sum of HK$113,000,000 of the Consideration will be settled in cash to the Vendor.

Upon completion of the Acquisition, the Target Company is considered by the Directors as subsidiary of the Company as the Target Company will be controlled by the Group after Completion. The statement of financial position of the Target Company and the consolidated statement of financial position of the Golden Offer Group will be consolidated with that of the Group from the date on which control is transferred to the Group.

4.2 The principal activity of the Target Group is to hold primarily mining rights involving in mining and exploration of mineral reserves. The underlying set of assets acquired was integrated in forming a business to generate revenue. As such, the Directors are of the opinion that the acquisition of the Target Group is a business combination for accounting purposes.

The pro forma adjustment is to reflect the effect of the Acquisition on the unaudited pro forma consolidated balance sheet of the Group as if the Acquisition had taken place on 30 June 2009.

Details of net identifiable assets and liabilities to be acquired are as follows:

HK$’000

Fair value of cost of business combination at Completion (note 4.1) 650,852 Add: Transaction costs directly attributable to the Acquisition (note 4.11) 5,000 Less: Fair value of net identifiable assets of the Target Group to be acquired (note 4.2.1) (576,560) Target Shareholder’s Loan (note 4.2.2) (145,096)

Excess of interest in the net fair value of the net identifiable assets over the fair value of the total cost of the Acquisition (note 4.2.6) (65,804)

– III-12 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

4.2.1 The identifiable assets and liabilities of the Target Group arising from the Acquisition as if the Acquisition had taken place on 30 June 2009 are as follows:

Additional Golden Offer Shareholder’s Group Target Company Advance (note 4.8) Total Acquiree’s Acquiree’s Acquiree’s Acquiree’s Fair carrying Fair carrying Fair carrying Fair carrying value amount value amount value amount value amount HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Property, plant and equipment (note 4.2.3) 46,960 46,960 ––––46,960 46,960 Mining rights (note 4.2.4) 900,000 22,082 ––––900,000 22,082 Prepaid lease payments (note 4.2.3) 27,220 27,220 ––––27,220 27,220 Inventories 418 418 ––––418 418 Other receivables, deposits and prepayments 1,752 1,752 ––––1,752 1,752 Cash and cash equivalents 1,365 1,365 ––81,378 81,378 82,743 82,743 Trade payables (783) (783) ––––(783) (783) Accruals and other payables (3,057) (3,057) (12) (12) ––(3,069) (3,069) Amount due to a shareholder (note 4.2.2) (145,096) (145,096) ––––(145,096) (145,096) Additional Shareholder’s Advance (note 4.8) ––––(81,378) (81,378) (81,378) (81,378) Amounts due to related parties (32,727) (32,727) ––––(32,727) (32,727) Deferred tax liabilities (note 4.2.5) (219,480) –––––(219,480) –

Net assets/(liabilities) acquired 576,572 (81,866) (12) (12) ––576,560 (81,878)

Net cash outflow arising from the Acquisition: Cash consideration paid (note 4.1.3) 113,000 Transaction costs directly attributable to the Acquisition (note 4.11) 5,000 Cash and bank balances in subsidiaries acquired (82,743)

35,257

– III-13 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

For the purpose of preparation of the unaudited pro forma consolidated cash flow statement of the Group, the Directors assume that the net cash outflow arising from the Acquisition as if the Acquisition had been completed on 1 July 2008 was the same as the net cash outflow arising from the Acquisition of HK$35,257,000 as presented in the above table as if the Acquisition had been completed on 30 June 2009.

4.2.2 Pursuant to the Sale and Purchase Agreement, save as the entire issued share capital of the Target Company, the Target Shareholder’s Loan in the books of the Target Group will also be sold to the Group. At 30 September 2009, the amount of the Target Shareholder’s Loan was approximately HK$145,096,000.

4.2.3 The fair values of the property, plant and equipment and the prepaid lease payments of the Target Group are determined based on the valuations carried out by BMI Appraisals Limited. Pursuant to the valuations performed by BMI Appraisals Limited, there were no significant change in fair values of the property, plant and equipment and the prepaid lease payments to their respective carrying amounts. Thus, there were no adjustments in relation to the surplus/deficits in the fair values of the property, plant and equipment and the prepaid lease payments of the Target Group.

4.2.4 The fair value on the mining rights of the Target Group is determined based on the valuation carried out by BMI Appraisals Limited, an independent firm of valuers at HK$900,000,000. The surplus of the fair value of the mining rights over the carrying amounts of the Target Group amounted to HK$877,918,000.

4.2.5 As mentioned in note 4.2.4, the fair value on the mining rights of the Target Group as at 30 September 2009 has been revalued to HK$900,000,000 and there was a surplus in the fair value of the mining rights over the carrying amounts amounted to HK$877,918,000. In this regard, a temporary difference arises as the fair value of the mining rights increased to HK$900,000,000 but the tax base remains at its original carrying amount of HK$22,082,000 as at 30 September 2009. Thus, a deferred tax liability of HK$219,480,000 had been recognised in respect of the temporary difference of HK$877,918,000 at a statutory rate of 25% for the PRC enterprise income tax.

4.2.6 Save as the valuations of the property, plant and equipment, the prepaid lease payments and the mining rights and the deferred tax liabilities arising from the revaluation of the mining rights, the Directors have assessed the fair values of other identifiable assets and liabilities of the Target Group as at 30 September 2009. Given the other identifiable assets and liabilities of the Target Group are current in nature, the Directors are of the opinion that their fair values are the same as their carrying amounts as at 30 September

– III-14 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

2009 as recorded in the books of the Target Company and the Golden Offer Group as extracted from the accountants’ reports of the Target Company and the Golden Offer Group set out in Appendix II to the Circular.

For the purpose of preparation of the unaudited pro forma consolidated income statement, in view of the Target Group has not commenced any mining activities during the year ended 30 June 2009, the mining rights were not amortised. Thus, no adjustment was proposed on the amortisation charge as a result of the change in fair value of the mining rights.

On completion of the Acquisition, the fair value of the Consideration and the net identifiable assets and liabilities of the Target Group will have to be reassessed. The Directors are of the opinion that there will be no significant change in the fair value of the net identifiable assets and liabilities as at the Completion Date, but there is no reasonable basis to predict the future fair values of the Consideration Shares and the Convertible Note at the Completion Date. As a result of the reassessment, the amount of goodwill or the excess of interest in the net fair value of the net identifiable assets over the fair value of the total cost of the Acquisition will be different from the estimation based on the assumptions stated above. Accordingly, the actual deficit/excess of interest in the net fair value of the identifiable assets and liabilities of the Target Group over the fair value of the total cost of acquisition at the date of Completion may be different from that presented above.

For the purpose of the preparation of the Unaudited Pro Forma Financial Information, in accordance with HKFRS 3, the excess of interest in the net fair value of the net identifiable assets over the fair value of the total cost of Acquisition was recognised in the pro forma consolidated income statement for the year ended 30 June 2009.

4.3 As mentioned in note 4.1.2, part of the Consideration will be satisfied by way of issue of the Convertible Note to the Vendor. In accordance with HKAS 32 “Financial Instruments: Presentation”, the Convertible Note is a compound financial instrument which comprises of two elements including liability component and equity component. The valuation of the Convertible Note was carried out by BMI Appraisals Limited, an independent firm of valuers, by using Binomial Model and on the assumption that there will be dilution impact upon the conversion of the Convertible Note. Pursuant to the valuation performed by BMI Appraisals Limited, the fair value of the Convertible Note is approximately amounted to HK$237,852,000. The fair value of the liability component, which represents the present value of the interest payment of the Convertiable Note, is estimated by using the discounted cash flow approach and the fair value is approximately amounted to HK$11,922,000. The residual value of the Convertible Note, which is the equity component, was approximately amounted to HK$225,930,000 (being the fair value of the Convertible Note of HK$237,852,000 minus the fair value of the liability component of

– III-15 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

HK$11,922,000) (see note 4.6 regarding the adjustment to the reserves of the pro forma Group as at 30 June 2009). Accordingly, the Directors assume the fair value of the Convertible Note is HK$237,852,000 for the purpose of the preparation of the Unaudited Pro Forma Financial Information. On Completion, the fair value of the Convertible Note and the fair value of the liability component of the Convertible Note will have to be reassessed.

4.3.1 The adjustment represents the interest expense of HK$482,000 on unwinding the liability component of the Convertible Note (being the actual payment of the 1.5% Convertible Note coupon interest of HK$4,875,000 minus the unwinding of the liability component of the Convertible Note of HK$4,393,000) as if the Convertible Note had been issued on 1 July 2008. For the purpose of the preparation of the Unaudited Pro Forma Financial Information, Directors assume there was no significant change in the effective interest rate between 1 July 2008 and 30 June 2009. The interest expense on unwinding is a non-cash transaction. This unaudited pro forma adjustment will have continuing effect to the consolidated income statement, and the actual amount will vary according to the timing when the Convertible Note is converted and the applicable effective interest rates.

4.3.2 The adjustment represents the actual payment of the 1.5% Convertible Note coupon interest of HK$4,875,000 as if the Convertible Note had been issued on 1 July 2008.

4.4 The adjustment is to reflect the effect of the issue of 176,470,588 Consideration Shares by the Company at HK$1.7 per share as follows:

HK$’000

Issued capital Issue of Consideration Shares (being 176,470,588 shares of HK$0.1 each) 17,647

Share premium (note 4.6) Issue of Consideration Shares (being 176,470,588 shares x (HK$1.7– HK$0.1)) 282,353

4.5 On 23 November 2009, the Company entered into the Subscription Agreement with the Subscriber. Pursuant to the Subscription Agreement, the Subscriber agreed to subscribe for an aggregate of 21,764,705 new ordinary shares of the Company (“Subscription Shares”) at a subscription price of HK$1.7 per Subscription Share. The issuance of the Subscription Shares is inter-conditional to the Acquisition because the Group requires to have a secured funding to finance part of the Consideration. The gross proceeds from the issue of Subscription Shares will be HK$37,000,000.

– III-16 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

The adjustment is to reflect the effect of the issue of 21,764,705 Subscription Shares by the Company at HK$1.7 per share is as follows.

HK$’000

Issued capital Issue of Subscription Shares (being 21,764,705 shares of HK$0.1 each) 2,176

Share premium (note 4.6) Issue of Subscription Shares (being 21,764,705 shares x (HK$1.7– HK$0.1)) 34,824

4.6 The adjustments are to reflect the effect on reserves from the following transactions arising upon completion of the Acquisition.

HK$’000

Excess in the net fair value of the net identifiable assets over the fair value of the total cost of the Acquisition (note 4.2) 65,804 Premium on the issue of Consideration Shares (note 4.4) 282,353 Premium on the issue of Subscription Shares (note 4.5) 34,824 Elimination of the pre-acquisition reserves of the Target Group – the Target Company 12 – the Golden Offer Group 81,866 Equity component of the Convertible Note (note 4.3) 225,930

690,789

4.7 Pursuant to the Sale and Purchase Agreement, prior to the Completion Date, the Vendor shall advance or procure the advance to the Target Company the Additional Shareholder’s Advance of US$10,500,400 (equivalent to approximately HK$81,378,000) to pay up in full the outstanding registered capital of Henan Multi-Resources. For the purpose of the preparation of the Unaudited Pro Forma Financial Information, the Additional Shareholder’s Advance will increase the balance of cash and cash equivalents and the Additional Shareholder’s Advance of the Golden Offer Group.

4.8 Pursuant to the Sale and Purchase Agreement, upon Completion of the Acquisition, the Company shall reimburse the Vendor the full amount of the Additional Shareholder’s Advance of US$10,500,400 (equivalent to approximately HK$81,378,000) made to the Target Group.

4.9 Save as mentioned in note 4.7, pursuant to the Sale and Purchase Agreement, upon payment of the outstanding registered capital of Henan Multi-Resources, the Target Group will repay the amounts due to certain related companies controlled

– III-17 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

by Dr. Chan. The adjustment reflects the effect of repayment of the amounts due to certain related companies controlled by Dr. Chan of HK$32,727,000, which represents the carrying amounts of the amounts due to related parities as at 30 September 2009 as extracted from the consolidated statement of financial position of the Golden Offer Group as set out in Appendix II.

For the purpose of preparation of the unaudited pro forma consolidated cash flow statement, the Directors assume the repayment of the amounts due to certain companies controlled by Dr. Chan was HK$32,727,000, which was the same as the amount outstanding as at 30 September 2009.

4.10 The Unaudited Pro Forma Financial Information has been prepared in accordance with the accounting policies of the Group, as set out in the audited financial statements of the Group as at 30 June 2009 and reproduced in Appendix I to this circular, prepared under Hong Kong Financial Reporting Standards.

4.11 For the purpose of the preparation of the Unaudited Pro Forma Financial Information, transaction costs in connection with the Acquisition are assumed to be approximately HK$5,000,000, with reference to the estimated professional fees and other direct costs in relation to the Acquisition. The Directors consider the estimation of the transaction costs to be fair and reasonable.

4.12 The calculation of the pro forma basic earnings per share is based on the pro forma profit of the Group for the year attributable to equity holders of the Company of HK$155,355,000 and on the weighted average number of 503,554,627 (being the weighted average of 305,319,334 ordinary shares as extracted from the audited consolidated financial statements of the Group as set out in Appendix I, 176,470,588 Consideration Shares (note 4.4) and 21,764,705 Subscription Shares (note 4.5)) ordinary shares of the Company in issue during the year.

The calculation of the pro forma diluted earnings per share is based on the adjusted pro forma profit of the Group for the year attributable to equity holders of the Company of HK$155,837,000 (being the pro forma net profit for the year attributable to equity holders of the Company of HK$155,355,000 plus the saving on interest expenses of unwinding the liability component of the Convertible Note of HK$482,000) and on the weighted average number of 674,607,258 (being the weighted average number of 503,554,627 ordinary shares as detailed above and 171,052,631 ordinary shares resulting from the conversion of the Convertible Note) ordinary shares outstanding during the year, adjusted for the effects of all dilutive potential shares.

4.13 For the purpose of the preparation of the Unaudited Pro Forma Financial Information, upon completion of the Acquisition, the Group will have a deficit of cash and cash equivalents of HK$66,603,000 and HK$68,788,000 as if the Acquisition had been completed on 30 June 2009 and 1 July 2008 respectively. In the opinion of the Directors, the Group will have sufficient financial resources to

– III-18 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

finance the Acquisition because the Group had completed a very substantial disposal of an investment property on 16 October 2009 and received net proceeds of approximately HK$399 million (being gross sale proceeds of HK$838 million less repayment of certain bank borrowings of HK$439 million). For particulars of the abovementioned disposal of the investment property, please refer to a circular of the Company dated 10 July 2009.

C. WORKING CAPITAL

Taking into account the banking facilities and the internal financial resources available to the Group, the Directors, after due and careful consideration, are of the opinion that the Enlarged Group will have sufficient working capital for its present requirements, that is for at least the next 12 months from the date of publication of this circular.

D. STATEMENT OF INDEBTEDNESS

As at the close of business on 30 November 2009, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had total outstanding borrowings of approximately HK$362,584,000, comprising secured interest-bearing bank loans of approximately HK$178,864,000, unsecured interest-free loans from minority shareholders of approximately HK$1,125,000, unsecured interest-free amounts due to associates of approximately HK$756,000, unsecured interest-free amounts due to related parties of HK$32,727,000 and unsecured interest-free amount due to Benefit Well of HK$149,112,000. The aforesaid interest-bearing bank loans were secured by the Enlarged Group’s of properties under development, certain of its leasehold land and buildings and corporate guarantees executed by the Company. As at the close of business on 30 November 2009, the Enlarged Group did not have any contingent liabilities.

Save as aforesaid and apart from intra-group liabilities, the Enlarged Group did not, at the close of the business on 30 November 2009, have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, charges or debentures, mortgages, loans or other similar indebtedness, finance leases of hire purchase commitment, liabilities under acceptance (other than normal trade bills and payables), acceptance credits, or any guarantees or other material contingent liabilities.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the applicable rates of exchange prevailing at the close of business on 30 November 2009.

– III-19 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

E. RECONCILIATION STATEMENT

1. The Group

The statement below shows the reconciliation of the valuation of the property interests of the Group as at 30 June 2009 (the “Group Properties”) as set out in Appendix IV and the book value of the Group Properties in the audited consolidated balance sheet as at 30 June 2009 as set out in Appendix I to this circular:

HK$’000

Net book value of the Group Properties as at 30 June 2009 (Note 1) 635,821

Movements from 30 June 2009 to 31 October 2009 Additions 5,941 Disposals (1,946) Depreciation and amortisation (621)

Net book value of the Group Properties as at 31 October 2009 639,195

Valuation surplus 141,141

Valuation of the Group Properties as at 31 October 2009 per Appendix IV (Note 2) 780,336

Notes:

1. The net book value of the Group Properties attributable to the Group as at 30 June 2009 of approximately HK$635,821,000 comprise (i) buildings of approximately HK$17,897,000; (ii) property under development of approximately HK$391,389,000; (iii) leasehold land/land use rights of approximately HK$8,883,000; and (iv) property held for development held by jointly controlled entities of approximately HK$217,652,000.

2. The Group has 50% interest in its property located in Shanghai, the PRC (being property number 8 in the valuation report set out in appendix IV to this circular). The amount of valuation of the Group Properties as at 31 October 2009 per Appendix IV above, therefore, only reflects such 50% interest.

– III-20 – APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

2. The Target Group

The statement below shows the reconciliation of the valuation of the property interests of the Target Group as at 30 September 2009 (the “Target Group Properties”) as set out in Appendix V and the book value of the Target Group Properties in the audited consolidated balance sheet as at 30 September 2009 as set out in Appendix II to this circular:

HK$’000

Net book value of the Target Group Properties as at 30 September 2009 (Note 1) 31,105

Movements from 30 September 2009 to 31 October 2009 Depreciation and amortisation (119)

Net book value of the Target Group Properties as at 31 October 2009 30,986

Valuation surplus 1,844

Valuation of the Target Group Properties as at 31 October 2009 per Appendix V 32,830

Notes:

1. The net book value of the Target Group Properties attributable to the Target Group as at 30 September 2009 of approximately HK$31,105,000 comprise (i) leasehold building of approximately HK$3,885,000; and (ii) leasehold land of approximately HK$27,220,000.

2. For the purpose of this reconciliation statement only, the exchange rate used is RMB1 = HK$1.136.

– III-21 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

The following is the text of a property valuation report, prepared for the purpose of inclusion in this circular, received from Chung, Chan and Associates, the independent property valuer, in connection with its valuation as at 31 October 2009 on the properties of the Group:

25 January 2010

The Directors, Continental Holdings Limited, UnitsM&N,1stFloor, Kaiser Estate, Phase III, 11 Hok Yuen Street, Hunghom, Kowloon, Hong Kong

Dear Sirs,

Re: VALUATION OF PROPERTY INTERESTS OF CONTINENTAL HOLDINGS LIMITED AND ITS SUBSIDIARIES IN HONG KONG AND THE PEOPLE’S REPUBLIC OF CHINA.

In accordance with your instructions to value the above property interests which are held by Continental Holdings Limited (the “Company”) and its subsidiaries (hereinafter together referred to as the “Group”) in Hong Kong and the People’s Republic of China (the “PRC” or “China”), we have carried out inspections of the properties, made relevant enquiries and have obtained such further information as we consider necessary for the purpose of providing you with our opinion of the capital values or market values of the above property interests as at 31 October, 2009, (the “date of valuation”) for inclusion in the circular of the Company dated 25 January, 2010. Our valuations undertaken herein are in compliance with the requirements as set out in Chapter 5 and Practice Note 12 of the Rules governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

Our valuation of each of the above property interests is our opinion of its market value which, in accordance with the Valuation Standards on Properties (First Edition, 2005) as laid down by the Hong Kong Institute of Surveyors (HKIS) and the RICS Valuation Standards (6th Edition, 2008) as published by the Royal Institution of Chartered Surveyors (RICS), is defined as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

– IV-1 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

Our valuations have been made on the assumption that the owners sell the property interests on the market in their existing state without the benefit of a deferred terms contract, sale and leaseback, joint venture, unusual financing, management agreement, concessionary engagement or any similar arrangement which would serve to enhance, affect or diminish the values of the properties. In addition, no account is taken of any option or pre-emptive right relating to or affecting the sale of the properties and no forced sale in any form in respect of the properties has been assumed in our valuations.

We are advised that, as at the date of valuation, six of the subject properties are owner-occupied, four properties including two development sites are vacant while the remaining three properties are tenanted. All of the three tenanted properties are rented to Group companies. Accordingly all of the properties have been valued on the basis of their market values by the comparison approach with those properties which are owner-occupied or vacant valued on the assumption that vacant possession will be available in the event of a sale or transfer whilst the tenanted properties have been valued subject to the tenancies, the valuation of all of the properties having regard to market comparables wherever possible.

We would advise that, as at the date of valuation, no Certificate of Real Estate Ownership was issued to Property No. 13 and according to the legal opinion provided by the PRC lawyer, the property is not capable of being transferred. Based on this legal opinion, our valuation of the property is on the basis that it has no market value or commercial value attributable to the Group as at the date of valuation.

We have relied to a considerable extent on information given by the Group and have accepted advice given to us in relation to planning approvals or statutory notices, easements, tenure, completion dates of construction of the buildings, agreements or contracts, State-owned Land Use Right Certificates, Construction Land Use Planning Permit, Construction Project Works Permits, Certificates of Real Estate Ownership, Completion of Construction Project Works Inspection Certificate, particulars of occupancy, land areas, floor areas and other relevant matters.

With regard to the properties in Hong Kong (Properties Nos. 1 to 7), we have not been provided with copies of title documents relating to these properties but we have caused searches to be made at the Land Registry.

As regards the properties in the PRC (Properties Nos. 8 to 13), we have been provided with copies of documents relating to the properties. Whilst some of the copies of documents show the ownership of the properties, we however, have not inspected the original documents to verify ownership or to ascertain the existence of any lease amendments which do not appear on the copies provided to us.

All copies of documents relating to the property interests have been used as reference only. All dimensions, measurements and areas, including floor areas and land areas or site areas, as stated in our valuation certificate are approximate and are based on information provided to us by the Group. Such information, which are either in the form of copies of contract, certificates, permits or other documents, are assumed to be correct. No on-site measurements have been taken or carried out to determine the land areas or floor areas of the properties or to verify their correctness.

– IV-2 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

In preparing our valuations of the properties in the PRC (Properties Nos. 8 to 13), we have relied on advice given by the Group and the legal advice from its PRC lawyers, Xin Yang Law Firm, that the land use rights of the properties, with the exception of Property No. 13, are transferable and that unless otherwise stated any premium payable has already been fully paid or will be fully paid. As mentioned above, Property No. 13 is not capable of being transferred and as such no commercial value is attributable to this property for the Group. We also understand that all approvals, consents, permits, certificates and licences from the relevant government authorities for the property have been or will be granted without any onerous conditions or undue delay which might affect the values of the properties. We have relied on advice given by the Group and the legal advice from its PRC legal advisers on the law of the PRC regarding the legality and validity of the various documents relating to the acquisition, development and use of the properties and the interest of the Group in the properties. We have relied on legal advice given by the Group’s PRC lawyers that the titles in respect of the properties, other than Property No. 13, are good and legally enforceable.

In addition, we have relied on legal advice given by the Group’s PRC lawyers that the Group has free and uninterrupted rights to use, assign, transfer, lease or mortgage the properties in the PRC, with the exception of Property No. 13, for the unexpired term of the granted leases and that all costs relating to the acquisition of the properties have been paid in full.

All the information provided to us by the Group, which are pertinent to our valuations, are believed to be true and accurate and it is assumed that no material facts have been omitted from the information given to us.

We are instructed to express our opinion on the market values of the properties and in the capacity of an external valuer, we have not undertaken any building survey to report on the condition or state of repair of the properties although in the course of our inspections, we did not note any serious defects. However, we must advise that we cannot express an opinion about or give advice on the condition of the uninspected parts of the properties or report on whether or not those parts of the properties, which are concealed, unexposed or inaccessible are free of rot, infestation or other structural defects, whether latent or otherwise. For the purpose of our valuations, the aforesaid parts of the properties are assumed to be in a good state of repair and condition and this report should not be construed as making any implied representation or statement about the condition of such parts. None of the services in respect of the properties has been tested.

We have not arranged for any investigation to be conducted or tests to be carried out to determine whether or not any deleterious or hazardous materials have been used in the construction of the buildings accommodating the properties or forming parts of the properties, or whether such materials have since been incorporated, and we are therefore unable to report that the properties are free from such risk. However, for the purpose of our valuations, we have assumed that should such an investigation be carried out it would not reveal the presence of any such materials to any significant extent.

– IV-3 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

We would advise that we have not conducted any site investigations or carried out any tests to determine the suitability of any of the parcels of land that have been developed or will be developed in the future, and our valuations of these properties have been prepared on the basis that there are no adverse ground or soil conditions that would affect construction or building costs. Our valuations of these properties are also on the basis that services such as electricity, water and gas as well as drainage, sewage disposal, internal roads, telecommunication services and other facilities have been provided to the completed projects or will be provided to any proposed scheme. Our valuations of the properties do not allow for contamination, if any, of the parcels of land which have been developed or will be developed and this report does not make allowance for such a factor in respect of any of the properties due to possible past usage of the lands.

No allowances have been made in our valuations for any charges, mortgages or amounts owing on the properties and neither has any allowance been made for any liability to taxation on sale or any expenses which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values. The aforementioned assumption is a standard statement or limiting condition which we, as professional valuers, would need to include in this valuation report. We cannot be in the position to verify all of the information in respect of encumbrances or restrictions, etc. relating to each and every property as these are legal matters which are outside the scope of our work. With regard to those properties in Hong Kong, we have conducted title searches on the properties, which are relevant to the preparation of a valuation report but there could be encumbrances which we do not know about or have not been registered as at the date of valuation. We would also need to rely on information and advice from the Company that no encumbrance or restriction, etc. of an onerous nature exists. An encumbrance such as a mortgage would not affect the value of a property but certain encumbrances may but as at the date of valuation we are not aware of any such encumbrances. As regards those properties in the PRC, the legality and validity of the various documents relating to the properties have been checked and verified by the Group’s PRC lawyers and we can only assume that what its PRC lawyers had stated in their legal opinion on the properties are correct.

In accordance with advice and information provided to us by the Group, the potential tax liability which would arise from the disposal of the properties in the PRC are, where applicable, those relating to business tax, PRC land capital gains tax, PRC corporate tax, stamp duty and urban construction maintenance fee. In preparing our valuation of the properties, we are advised by the Group that the aforementioned tax liability is unlikely to crystallize as the properties are, as at the date of valuation, used by the Group and will continue to be used by the Group.

In accordance with your instructions, we are required to express our opinion on the market values of all of the property interests in Hong Kong Dollars. The exchange rate used for converting the values of those properties in the PRC from Renminbi to Hong Kong Dollars at the relevant date is equivalent to about RMB1.00 = HK$1.14 which is the average exchange rate prevailing at the date of valuation. We understand that there has been no significant fluctuation in the exchange rate of the Renminbi and the Hong Kong Dollar between the date such exchange rate was adopted and the date of this letter.

– IV-4 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

We enclose herewith a summary of the market values of the properties and our valuation certificate in respect of the properties.

Yours faithfully, CHUNG, CHAN & ASSOCIATES Peter C. K. Chung FRICS FHKIS MIS(M) PDABV Note: Mr. Peter Chung is a Chartered Surveyor, a Fellow of the Royal Institution of Chartered Surveyors and a Fellow of the Hong Kong Institute of Surveyors, and has been conducting professional valuations of property and other assets as well as providing professional advisory work in Hong Kong, mainland China, the Asia Pacific region, Europe and America for over 25 years. He has more than 15 years experience in the valuation of properties in the PRC.

– IV-5 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

SUMMARY OF VALUES

Market value in Classification of existing state as at Property Property 31 October, 2009 (HK$)

1. Unit M on 1st Floor, Kaiser Estate 3rd Phase, Property held for 17,800,000 No. 11 Hok Yuen Street, and investment Private Car Parking Space No. C16 on Lower Ground Floor, Kaiser Estate 3rd Phase, No. 18 Man Lok Street, Kowloon, Hong Kong

2. Unit N on 1st Floor, Kaiser Estate 3rd Phase, Property held for 11,950,000 No. 11 Hok Yuen Street, and investment Private Car Parking Spaces Nos. C25 and C26 on Lower Ground Floor, Kaiser Estate 3rd Phase, No. 18 Man Lok Street, Kowloon, Hong Kong

3. Unit P on 1st Floor, Kaiser Estate 3rd Phase, Property held for 12,800,000 No. 11 Hok Yuen Street, owner-occupation Kowloon, Hong Kong

4. Unit P on 2nd Floor, Kaiser Estate 3rd Phase, Property held for 12,300,000 No. 11 Hok Yuen Street, owner-occupation Kowloon, Hong Kong

5. Private Car Parking Space No. C10 Property held for 405,000 on Lower Ground Floor, investment Kaiser Estate 3rd Phase, No. 18 Man Lok Street, Kowloon, Hong Kong

6. Car Parking Space No. 30 on Ground Floor, Property held for 410,000 Kaiser Estate, owner-occupation Nos. 37-45 Man Yue Street, Kowloon, Hong Kong

– IV-6 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

Market value in Classification of existing state as at Property Property 31 October, 2009 (HK$)

7. Nos. 236-242 Des Voeux Road Central, Property under 390,000,000 Hong Kong development

8. Two parcels of land situated at Metro Line M8, Property held for 592,800,000 Jiangpu Road Station, development Jiangpu Road, Yangpu District, Shanghai, People’s Republic of China

9. Industrial premises situated at Land No. 3, Property held for 4,389,000 Ling Xing Industrial District, owner-occupation Lian Hua Shan Free Trade Processed Works Zone, Shi Lou Town, Panyu District, Guangzhou, Guangdong Province, People’s Republic of China

10. Units 501 and 502, Tower 1, Block 12, Property held for 707,000 Phase I, owner-occupation Jin Hai An Hua Yuan, Section of Xicun Road adjacent to Qinghe East Road, Shiji Town, Panyu District, Guangzhou, Guangdong Province, People’s Republic of China

11. Industrial premises situated at Property held for 28,045,000 No. 62 Chao Lian Huan Dao East Road, owner-occupation Heng Tan Sha Industrial Area, Chao Lian Zhen, Feng Jiang District, Jiangmen, Guangdong Province, People’s Republic of China

12. 3rd Level, Wu Zi Building, Property held for 5,130,000 No. 195 Guangbao Da Dao, owner-occupation Guangzhou Free Trade Zone, Guangzhou, Guangdong Province, People’s Republic of China

– IV-7 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

Market value in Classification of existing state as at Property Property 31 October, 2009 (HK$)

13. Shop No. B107, Property held for No commercial Baonan Section 2, owner-occupation value Commodities Trading Exhibition Street, Guangzhou Free Trade Zone, Guangzhou, Guangdong Province, People’s Republic of China

Total 1,076,736,000

– IV-8 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

1. Unit M on 1st Floor, The property comprises a As at the date of HK$17,800,000 Kaiser Estate 3rd Phase, workshop unit on the first valuation, the property No. 11 Hok Yuen Street, floor and a car parking space is rented out to Group and Private Car Parking on the lower ground floor of a company at a monthly Space No. C16 on Lower 15-storey industrial rent of HK$84,000 Ground Floor, development which is located inclusive of rates, Kaiser Estate 3rd Phase, in the established industrial subject to a two-year No. 18 Man Lok Street, area of Hung Hom. The tenancy which Kowloon, building is believed to have commenced on 1July, Hong Kong been built in 1981 or 2009. thereabouts. 116/5,000 parts or shares The landlord is of and in Section 1 of We are advised that the responsible for repairs Kowloon Marine Lot No. saleable area of the industrial and maintenance. 40 and Sub-section 1 of unit is 780.38 sq.m. (8,400 Section H of Kowloon sq.ft.) approximately. Marine Lot No. 40 The unit is suitable for use as workshop or industrial and ancillary office purposes.

The property is held under two Government leases each for a term of 75 years from 15 September, 1897 renewable for a further term of 75 years.

New ground rents in respect of the property from 1 December, 1981 are part $8,460 per annum and $72 per annum respectively.

Notes:–

1. The registered owner of the property interest is Patford Company Limited, a wholly-owned subsidiary of the Company.

2. Our valuation of the property is based on a 100 per cent attributable interest.

– IV-9 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

2. Unit N on 1st Floor, The property comprises a As at the date of HK$11,950,000 Kaiser Estate 3rd Phase, workshop unit on the first valuation, the property No. 11 Hok Yuen Street, floor and 2 car parking spaces is rented out to Group and Private Car Parking on the lower ground floor of a company at a monthly Spaces Nos. C25 15-storey industrial rent of HK$54,000 and C26 on Lower development which is located inclusive of rates, Ground Floor, in the established industrial subject to a two-year Kaiser Estate 3rd Phase, area of Hung Hom. The tenancy which No. 18 Man Lok Street, building is believed to have commenced on 1 July, Kowloon, been built in 1981 or 2009. Hong Kong thereabouts. The landlord is 78/5,000 parts or shares We are advised that the responsible for repairs of and in Section 1 of saleable area of the industrial and maintenance. Kowloon Marine Lot No. unit is 503.44 sq.m. (5,419 40 and Sub-section 1 of sq.ft.) approximately. Section H of Kowloon Marine Lot No. 40 The unit is suitable for use as workshop or industrial and ancillary office purposes.

The property is held under two Government leases each for a term of 75 years from 15 September, 1897 renewable for a further term of 75 years.

New ground rents in respect of the property from 1 December, 1981 are part $8,460 per annum, $72 per annum and $72 per annum respectively.

Notes:–

1. The registered owner of the property interest is Realford Company Limited, a wholly-owned subsidiary of the Company.

2. Our valuation of the property is based on a 100 per cent attributable interest.

– IV-10 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

3. Unit P on 1st Floor, The property comprises a As at the date of HK$12,800,000 Kaiser Estate 3rd Phase, workshop unit on the first valuation, the property No. 11 Hok Yuen Street, floor of a 15-storey industrial is owner-occupied. Kowloon, development which is located Hong Kong in the established industrial area of Hung Hom. The 79/5,000 parts or shares building is believed to have of and in Section 1 of been built in 1981 or Kowloon Marine Lot No. thereabouts. 40 and Sub-section 1 of Section H of Kowloon We are advised that the Marine Lot No. 40 saleable area of the property is 552.77 sq.m. (5,950 sq.ft.) approximately.

The property is suitable for use as workshop or industrial and ancillary office purposes.

The property is held under two Government leases each for a term of 75 years from 15 September, 1897 renewable for a further term of 75 years.

New ground rent in respect of the property from 1 December, 1981 is $3,744 per annum.

Notes:–

1. The registered owner of the property interest is Continental Jewellery (Mfg.) Limited, a wholly-owned subsidiary of the Company.

2. Our valuation of the property is based on a 100 per cent attributable interest.

– IV-11 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

4. Unit P on 2nd Floor, The property comprises a As at the date of HK$12,300,000 Kaiser Estate 3rd Phase, workshop unit on the second valuation, the property No. 11 Hok Yuen Street, floor of a 15-storey industrial is owner-occupied. Kowloon, development which is located Hong Kong in the established industrial area of Hung Hom. The 80/5,000 parts or shares building is believed to have of and in Section 1 of been built in 1981 or Kowloon Marine Lot No. thereabouts. 40 and Sub-section 1 of Section H of Kowloon We are advised that the Marine Lot No. 40 saleable area of the property is 552.77 sq.m. (5,950 sq.ft.) approximately.

The property is suitable for use as workshop or industrial and ancillary office purposes.

The property is held under two Government leases each for a term of 75 years from 15 September, 1897 renewable for a further term of 75 years.

New ground rent in respect of the property from 1 December, 1981 is $3,564 per annum.

Notes:–

1. The registered owner of the property interest is Continental Jewellery (Mfg.) Limited, a wholly-owned subsidiary of the Company.

2. Our valuation of the property is based on a 100 per cent attributable interest.

– IV-12 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

5. Private Car Parking The property comprises a car As at the date of HK$405,000 Space No. C10 on Lower parking space on the lower valuation, the property Ground Floor, ground floor of a 15– storey is rented out to Group Kaiser Estate 3rd Phase, industrial development which company at a monthly No. 18 Man Lok Street, is located in the established rent of HK$2,200 Kowloon, industrial area of Hung Hom. inclusive of rates, Hong Kong The building is believed to subject to a two-year have been built in 1981 or tenancy which 2/5,000 parts or shares of thereabouts. commenced on 1July, and in Section 1 of 2008. Kowloon Marine Lot No. The property is held under 40 and Sub-section 1 of two Government leases each The landlord is Section H of Kowloon for a term of 75 years from 15 responsible for repairs Marine Lot No. 40 September, 1897 renewable and maintenance. for a further term of 75 years.

New ground rent in respect of the property from 1 August, 1981 is $72 per annum.

Notes:–

1. The registered owner of the property interest is Continental Property Holdings Limited, a wholly-owned subsidiary of the Company.

2. Our valuation of the property is based on a 100 per cent attributable interest.

– IV-13 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

6. Car Parking Space The property comprises a car As at the date of HK$410,000 No. 30 on Ground Floor, parking space on the ground valuation, the property Kaiser Estate, floor of a 15-storey industrial is owner-occupied. Nos. 37-45 Man Yue development which is located Street, in the established industrial Kowloon, area of Hung Hom. The Hong Kong building is believed to have been built in 1981 or 2/5,000 parts or shares of thereabouts. and in Section D of Kowloon Marine Lot No. The property is restricted for 40 and Sub-section 2 of use as a private car parking Section H of Kowloon space. Marine Lot No. 40 The property is held under two Government leases each for a term of 75 years from 15 September, 1897 renewable for a further term of 75 years.

New ground rent in respect of the property from 1 June, 1976 is $44 per annum.

Notes:–

1. The registered owner of the property interest is Continental Jewellery (Mfg.) Limited, a wholly-owned subsidiary of the Company.

2. Our valuation of the property is based on a 100 per cent attributable interest.

– IV-14 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

7. Nos. 236-242 Des The property comprises a piece of As at the date of HK$390,000,000 Voeux Road Central, land situated in Sheung Wan District valuation, the Hong Kong close to Central and having a main property comprises a frontage to Des Voeux Road Central vacant site upon Inland Lots Nos. 1867 and a return frontage to Man Wa which some and 1869 and the Lane. Des Voeux Road Central is the foundations works Remaining Portions of main bus and tram route connecting have been Inland Lots Nos. 1871 Sheung Wan with Central and undertaken. and 1872 and the Wanchai. It is also one of the main Extensions thereto shopping streets in this part of Hong Kong where shops, banks, restaurants and other commercial as well as retailing outlets are within easy reach. Man Wa Lane is a side street which can accommodate only pedestrian traffic. The nearest MTR station is that of Sheung Wan which is within 2 minutes walking distance of the property.

The property comprises a somewhat rectangular shape site at road level and based on the Land Registry information in respect of the four original lots which form the present site, has a total site area of 302.40 sq. m. (3,255.00 sq. m.) which is made up as follows:–

Lot No. Site area Site area (sq. m.) (sq. ft.)

I.L 1867 75.07 808.00 I.L 1869 75.16 809.00 I.L 1871 RP 73.67 793.00 I.L 1872 RP 78.50 845.00 Total 302.40 3,255.00

However, we are advised by the Group that the total site area of the property is 301.84 sq. m. (3,249.00 sq. ft.) instead of the above stated site area. As we are unable to verify the discrepancy in the area of 0.56.00 sq. m. (6.00 sq. ft.), we have based our valuation on the above stated site area of 302.40 sq. m. (3,255.00 sq. ft.) which is believed to be correct.

– IV-15 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

In accordance with the Building (Planning) Regulations, the property is classified as a ’Class B’ site. According to the Sai Ying Pun and Sheung Wan Outline Zoning Plan, the property falls within a “Commercial/ Residential” zone. This Outline Zoning Plan (Plan No. S/H3/22) was approved by the Chief Executive in Council under Section 9(1)(a) of the Town Planning Ordinance on 15 July, 2008. Some of the relevant uses which are always permitted in the aforementioned “Commercial/ Residential” zone comprise commercial building, office, hotel, house, residential institution, eating place, shop, place of entertainment, etc. We are advised by the Group that a hotel is planned to be redeveloped on the site and in view of the present zoning such use is permitted. We are advised that the maximum permitted plot ratio for hotel use is 15: 1 and on this basis a total proposed gross floor area in respect of the proposed hotel development is 4,526.309 sq. m. (48,721.19 sq. ft.). As we understand that building plans have been approved by the Building Authority, we believe that the aforementioned total gross floor area is permitted to be developed on the site. In view of the present zoning and the fact that building plans have been approved for the aforementioned proposed development, there is no material restriction on development of the property. The estimated completion date, the estimated cost of carrying out the development and the estimated capital value after completion are not available at the time of preparing this report. The property is held under four Government leases each for a term of 999 years from 26 December, 1866. The total ground rent payable in respect of Inland Lots Nos. 1867 and 1868 and the Remaining Portion of Inland Lot No. 1871 is $46 per annum whilst the determined ground rent payable in respect of the Remaining Portion of Inland Lot No. 1872 is $16 per annum.

Notes:– 1. The registered owner of the property interest is Well Friendship Investment Limited, a wholly-owned subsidiary of the Company. 2. Our valuation of the property is based on a 100 per cent attributable interest. 3. We are advised by the Company that foundation and other related costs in the sum of about HK$2,500,000 have been expended up till the date of valuation.

– IV-16 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

8. Two parcels of land The property comprises two As at the date of HK$592,800,000 situated at Metro Line parcels of development land valuation, the property M8, adjoining each other and which comprises two Jiangpu Road Station, forming a larger development pieces of adjoining Jiangpu Road, site which is situated in development land and Yangpu District, Yangpu District in Puxi in the forming a larger Shanghai, city of Shanghai. The development site is People’s Republic of combined site has a main vacant. China frontage to Kongjiang Road and a return frontage to Jiangpu Road. Both of the roads carry busy vehicular traffic with Jiangpu Road running in a north-south direction whilst Kongjiang Road runs in an east-west direction and connects Yangpu District with Hongkou District to the southwest. The property is located close to Metro Line M8 (Jiangpu Road Station) with entrances and exits within walking distance.

Developments in the vicinity of the property comprise a mixture of older style medium-rise residential and commercial properties as well as a couple of hospitals intermixed with some newer multi-storey developments.

According to copies of two Shanghai Certificates of Real Estate Ownership in respect of the two parcels of land, the area of the larger parcel is 17,552.30 sq. m. whilst the area of the smaller piece of land is 548.60 sq. m. thereby making up a total land area of the combined site of 18,101 sq. m. The combined site is roughly oblong in shape with the longer front boundary fronting Kongjiang Road and the shorter front boundary fronting Jiangpu Road.

– IV-17 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

As at the date of valuation, the site has been improved but vacant.

At the time of preparing this report, no proposed development plan or architectural plan was available to us.

The two parcels of land which comprise the subject property have each been granted a land use term commencing on 28 January, 2006 and expiring on 27 January, 2056 and use of the property is for commercial and office purposes. The land use terms for commercial and office are 40 years and 50 years respectively.

Notes:–

1. One of the salient conditions in respect of the Shanghai Municipal State-owned Land Use Right Sales Contract – Hu Fang Di Yang (2006) Sales Contract No. 004 ( − (2006) 004 ) (the “Contract”) dated 28 January, 2006 and entered into between the Housing and Land Administration Bureau of Yangpu District of Shanghai Municipality ( )(“Party A”) and Shanghai Haijin Real Estate Co., Ltd. ( )(“Party B”), states that the property which comprises two parcels of land with a total land area of 18,101 sq. m. (which will eventually be based on actual site measurements) was purchased at the consideration of RMB83,736,000 (the consideration will be adjusted in accordance with the actual land area) for a land use right term of 50 years.

Party B has to pay RMB1 per sq. m. of the Land Use Fee to the Municipal Land Fee Administrative Centre annually within the land use period.

Party B has to sign a relocation and facilities consignment contract with the relocation company after signing of the Contract and shall abide by the terms and conditions as stated in the Contract otherwise Party A has the right to rescind the aforesaid Contract.

After paying the total consideration in respect of the property, Party B can process the land use right initial registration procedure with the Yangpu District Real Estate Registration Office.

The appendix of this Contract, the Regulations of State-owned Land Use of Shanghai Municipal Yangpu District Metro Line M8 Jiangpu Road Station, form part of this Contract.

2. The salient conditions in respect of the Regulations of State-owned Land Use of Shanghai Municipal Yangpu District Metro Line M8 Jiangpu Road Station which form part of the Contract are as follows:–

i) The use of the land is for commercial and office purposes for a land use term of 50 years and with a plot ratio not greater than 36,000 sq. m. based on 1 hectare, i.e. the total gross floor area of any proposed development to be built on the land shall not be more than 65,164 sq. m.

The car park for the proposed development shall be constructed in accordance with the Shanghai City Car Park Construction Standards, (DBJ08-7-90).

ii) The landscape ratio shall not be less than 30% and especially the landscape ratio for the public area shall not be less than 5% in accordance with the Planning Department’s related documents.

– IV-18 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

iii) Party B shall commence construction of the proposed project on or before March 2008 and shall complete it on or before March 2010. However, Party B is permitted to extend the commencement date of construction of the project for not more than one year. In the event that construction works on the site have not commenced after one year from March, 2008, the related State-owned Land Administration Department shall have the right to charge a sum equivalent to not more than 20% of the consideration as abandon fee. However, if the construction of the proposed project is not completed within 2 years, the related State-owned Land Administration Department shall have the right to forfeit the land and all the buildings as well as any other attachments to the land without payment of any compensation to Party B. However, the aforementioned two points shall only apply if the related State-owned Land Administration Department exercises its right on these issues.

iv) Taking the western side of the Station tunnel as the boundary, the western side of the land was scheduled to be handed over to Party B on March 2006 whilst the eastern side of the land was scheduled to be handed over to Party B on June 2006.

v) The land use right in respect of the property can be transferred, leased or mortgaged in accordance with the relevant laws and regulations provided that Party B has abided by and fulfilled the terms and conditions of the aforementioned Contract and the Requirements of the State-owned Land Use of Shanghai Municipal Yangpu District Metro Line M8 Jiangpu Road Station. The mortgaged amount in respect of the property can be used but only for the construction and development of the land before completion of construction of the entire development.

3. According to the Land Transfer Agreement ( ) dated 10th December, 2007, entered into between Shanghai Railway Transportation Yangpu Line Development Co. Ltd. ( ) and Shanghai Yangpu City Construction Investment Co. Ltd. ( )(“Party A”) and Shanghai Haijin Real Estate Co., Ltd. ( )(“Party B”), the Land was handed over by Party A to Party B on 10th December, 2007.

4. According to the Construction Land Use Permit No. Yangpu Qu Shi 2008 Yang Fu Tu Shu Zi Di No. 026 ( (2008) 026 ) dated 22 July, 2008, issued by the People’s Government of Yangpu District, the land has a total area of 18,101 sq. m. with a valid period from July 2008 to July 2009. The property is situated at Land Lot No. P3 and P4 (Jie Fang) Village 0169 Si Ping Jie Dao Yangpu District.

5. According to the Memorandum of the Land 169 Jie Fang 9/5 17/4 Qiu Yangpu District dated 5th August 2008, the area of the public road and that of the electricity supply transformer are 486.8 sq. m. and 962.5 sq. m. respectively.

6. According to the Shanghai Certificates of Real Estate Ownership Nos. Hu Fang Di Yang Zi (2008) Di 016832 and 016833 both dated 30 July 2008 and issued by the Shanghai Housing and Land Resources Administration Bureau, each of the two parcels of land comprising the property has a land area of 548.60 sq. m. and 17,552 sq. m. respectively amounting to a total land area of 18,101 sq. m. for the two parcels. The total land area has included areas of the public road and the electricity supply transformer. Use of the land is for commercial and office purposes. Each of the two pieces of land has a land use term of 50 years commencing on 28 January, 2006 and expiring on 27 January, 2056. The titles in respect of the two parcels of land are vested in Shanghai Haijin Real Estate Ltd. ( ) which is a 100% owned subsidiary of Wealth Plus Developments Limited ( ) which in turn is a 50% Jointly Controlled Entity of the Company.

7. According to the Memorandum for Expediting and Co-operation of Construction Project of Zijing Plaza (Hainanhai) Phase 1 No. 2009-201 (the “Memorandum”)( ( ) ) dated 30th December, 2009, as laid down by the Office of the Construction Department for Significant Construction Projects of Yangpu District of Shanghai Municipality (the “Office”)( ), the Office requested the District and City

– IV-19 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

State-owned Land Planning Bureaus to provide assistance and support to complete the planning proposal on or before 28th February, 2010 after the Company has appointed the City and Town Design and Planning Institute on the progress of planning for the construction project.

The Office requested the District State-owned Planning Bureau to complete the application procedure for the Planning of Construction Project Permit within 3 days after obtaining approval from the City State-owned Land Planning Bureau, and then issue the Commencement of Works of Construction Project Permit to the Company in March in order that construction works of the project can commence legally in April. Although not stated in the abovementioned Memorandum, we are advised by the Group that the year in April is 2010.

8. We have relied on all the information as provided to us by the Group and the legal opinion of the Group’s PRC lawyers and we have prepared our valuation on the following bases:–

i) Shanghai Haijin Real Estate Co., Ltd. ( ) has a legal title to the property and is entitled to transfer the property with the residual term of the land use right at no additional premium or other costs payable to the government, or lease or mortgage the property after having fulfilled all the terms and conditions which are stated in the Contract and the Land Use Requirements the requirements which are stated in the Contract.

ii) All land and other premium as well as other costs relating to the provision of utilities and ancillary services will be completely settled.

iii) The design and construction of any proposed building to be erected on the land shall be in compliance with local planning regulations and the eventual completion of the building shall be approved by the relevant government authorities in due course.

iv) Our valuation of the property is on the basis that the two parcels of land which form a combined site have development potential and shall be developed in accordance with the terms and conditions as stated in the aforementioned Contract, and in particular up to a maximum plot ratio of 65,164 sq. m. which is stated in the aforementioned Regulations of State-owned Land Use of Shanghai Municipal Yangpu District Metro Line M8 Jiangpu Road Station which form part of the Contract.

v) Our valuation of the property is based on the understanding from the Group that Party B has obtained in-principle approval from the relevant PRC authority to postpone commencement of construction works and on the assumption that no penalty will be imposed on Party B should Party B be unable to commence construction of the proposed project or complete the proposed project within the specified time frame as specified in the aforementioned Contract. Our valuation of the property is also based on the assumption that Party B shall be permitted to complete the project within a reasonable time without having to pay any penalty or compensation whatsoever and neither will the property be subjected to forfeiture by the relevant government department or authority.

vi) Our valuation of the property is based on a 100 per cent attributable interest.

vii) The property may be disposed of freely to purchasers within and outside the PRC.

– IV-20 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

6. The status of title of the property interest, as well as requisite approvals, consents, certificates, permits and licences relating to the development, use and sale of the property interest in accordance with information provided to us by the Group and the legal opinion of the Group’s PRC lawyers are as follows:–

Shanghai Municipal State-owned Land Use Right Sales Contract – signed – No. Hu Fang Di Yang (2006) Sales Contract No. 004 Construction Land Use Permit – obtained – No. Yangpu Qu Shi 2008 Yang Fu Tu Shu Zi Di No. 026 Shanghai Certificates of Real Estate Ownership – obtained – Nos. Hu Fang Di Yang Zi (2008) Di 016832 and 016833

– IV-21 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

9. Industrial premises The property comprises a As at the date of HK$4,389,000 situated at Land No. 3, parcel of land which is valuation, the property Ling Xing Industrial occupied by a 3-storey factory is owner-occupied. District, and office building in Ling Lian Hua Shan Free Xing Industrial District of Trade Processed Works Lian Hua Shan Free Trade and Zone, Processed Works Zone. This Shi Lou Town, Panyu industrial district is located to District, Guangzhou, the north-east of the Guangdong Province, commercial centre of Panyu People’s Republic of District near the common China. border of Panyu and Dongguan.

The construction of the aforesaid building was completed in 1989.

According to the copies of the State-owned Land Use Certificate and the Completion of Construction Project Works Inspection Certificate, which was provided to us, the area of the land is 5,087 sq. m. (54,757 sq. ft. approximately) while the gross floor area of the building is 4,173 sq. m. (44,918 sq. ft. approximately).

The property has been granted a land use term of 30 years commencing on 24 September, 1993 and expiring on 24 September, 2023 and the use of the land is for industrial purposes.

Notes:–

1. According to the Land Use Right Sales Contract ( ) dated 27 October, 1988 entered into between Lian Hua Shan Free Trade Processed Works Zone Panyu County Ling Xing Industrial Co. Ltd. ( )(“Party A”) and Ming Xiu Trading Co., Ltd. ( )(“Party B’), the land (Land Lot No. 24-B3) has an area of 5,084 sq. m. (54,724 sq. ft. approximately). Party B acted as Trustee for Ming Xiu Diamond Cutting Factory (Panyu) Limited, and entered into an agreement with Panyu County Ling Xing Industrial Co. Ltd. whereby the trustee acquired the land use right in respect of the property. The land use term in respect of the property is 30 years commencing on 1 November, 1988 and expiring on 31 October, 2018 for industrial purposes. Party B has the priority to renew the Land Use Right Sales Contract on the same conditions as those with other parties after the land use term has expired.

– IV-22 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

2. According to the State-owned Land Use Certificate, Pan Fu Guo Yong (1993) Zi Di No. 24-000006 – (1993) 24-000006 ) dated 5 October, 1993, issued by the People’s Government of Guangdong Province, the land (Land Lot No. 24-B3) has an area of 5,087 sq. m. (54,757 sq. ft. approximately) with a lease term of 30 years commencing on 24 September, 1993 and expiring on 24 September, 2023 and is for industrial purposes. The site coverage in respect of the building is 1,440 sq. m. (15,500 sq. ft. approximately). The title in respect of the land is vested in Ming Xiu Diamond Cutting Factory (Panyu) Limited ( ), a wholly-owned subsidiary of the Company.

3. According to the Completion of Construction Project Works Inspection Certificate ( ) dated 16 November, 1989, issued by the Panyu County Construction Committee, the gross floor area of the building is 4,173 sq. m. (44,918 sq. ft. approximately).

4. We have relied on all the information as provided to us by the Group and the legal opinion of the Group’s PRC lawyers and we have prepared our valuation on the following bases:–

i) The Group is in possession of a legal title to the land and is entitled to transfer, lease or mortgage the land with the residual term of the land use right. However, after obtaining the Real Estate Ownership Certificate in respect of the building, the Group shall then be in possession of a legal title to the property (i.e. land and building) and shall be entitled to transfer, lease or mortgage the property with the residual term of the land use right at no additional premium or other costs payable to the government.

ii) All land and other premium as well as other costs relating to the provision of utilities and ancillary services have been completely settled.

iii) Our valuation of the property is based on the land area of 5,087 sq. m. (54,757 sq. ft. approximately) and the gross floor area of the building of 4,173 sq. m. (44,918 sq. ft. approximately) as stated in the Completion of Construction Project Works Inspection Certificate dated 11 November, 1989.

iv) The design, construction and completion of the building are in compliance with local planning regulations and have been approved by the relevant government authorities.

v) As the Certificate of Real Estate Ownership in respect of the building which occupies the land has been applied for, we have included the value of the building in our valuation. According to the legal opinion of the Group’s PRC lawyers, the owner of the property, Ming Xiu Diamond Cutting Factory (Panyu) Limited (“Ming Xiu”) (a subsidiary of the Group), is in possession of the State-owned Land Use Certificate in respect of the property and therefore has vested legal interest in the property. As the building on the land was constructed and now used by the owner, the owner has all legal rights to it. We understand that Ming Xiu has already applied for the Certificate of Real Estate Ownership but the local government did not provide a concrete time table for the issuance of the aforesaid Certificate to Ming Xiu. However, according to the PRC legal opinion, the owner of the property is Ming Xiu which has vested legal interest in the property.

vi) Our valuation of the property is based on a 100 per cent attributable interest.

vii) The property may be disposed of freely to purchasers within and outside the PRC.

– IV-23 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

5. The status of title of the property interest, as well as requisite approvals, consents, certificates, permits and licences relating to the development and use of the property interest in accordance with information provided to us by the Group and the legal opinion of the Group’s PRC lawyers are as follows:–

Land Use Right Sales Contract – signed (dated 27 October, 1988)

State-owned Land Use Certificate – obtained (Pan Fu Guo Yong (1993) Zi Di No. 24-000006)

Completion of Construction Project Works Inspection Certificate – obtained (dated 11 November, 1989)

– IV-24 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

10. Units 501 and 502, Tower The property comprises two As at the date of HK$707,000 1, Block 12, Phase I, Jin residential units on the 5th valuation, the property Hai An Hua Yuan, level of a 6-storey residential is used as staff Section of Xicun Road development situated off quarters. adjacent to Qinghe East Qinghe East Road in the town Road, of Shiji in Panyu District in Shiji Town, Guangdong Province. Panyu District, Guangzhou, The building in which the Guangdong Province, property is located is believed People’s Republic of to have been built in 2003 or China thereabouts.

According to 2 copies of the Certificates of Real Estate Ownership, which were provided to us, the respective gross floor areas of the two units are 91.90 sq.m. (989 sq.ft. approximately) and 76.80 sq.m. (827 sq.ft. approximately) whilst the respective saleable areas are 76.70 sq.m. (826 sq.ft. approximately) and 64.10 sq.m. (690 sq.ft. approximately).

Each of the two units has been granted a land use term with both terms expiring on 6 July, 2063 for residential purposes.

Notes:–

1. According to the Certificates of Real Estate Ownership Right, Yue Fang Di Zheng Zi Di Nos. C5906110 and No. C5906111 ( – C5906110 C5906111 ) both dated 26 March, 2008 issued by the People’s Government of Guangdong Province, the two units comprising the subject property have respective gross floor areas of 91.90 sq.m. (989 sq ft. approximately) and 76.80 sq.m. (827 sq.ft. approximately) whilst the respective saleable areas are 76.70 sq.m. (826 sq.ft. approximately) and 64.10 sq.m. (690 sq.ft. approximately). The land use terms in respect of the two units expire on 6 July, 2063 and the use of the land is for residential purposes.

The title in respect of the property is vested in Ming Xiu Diamond Limited ( ), a wholly-owned subsidiary of the Company.

2. We have relied on all the information as provided to us by the Group and the legal opinion of the Group’s PRC lawyers and we have prepared our valuation on the following bases:–

i) The Group is in possession of a legal title to the property and is entitled to transfer, lease or mortgage the property with the residual term of the land use right at no additional premium or other costs payable to the government.

– IV-25 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

ii) All land and other premium as well as other costs relating to the provision of utilities and ancillary services have been completely settled.

iii) The design, construction and completion of the building are in compliance with local planning regulations and have been approved by the relevant government authorities.

iv) Our valuation of the property is based on a 100 per cent attributable interest.

v) The property may be disposed of freely to purchasers within and outside the PRC.

3. The status of title of the property interest, as well as requisite approvals, consents, certificates, permits and licences relating to the development and use of the property interest in accordance with information provided to us by the Group and the legal opinion of the Group’s PRC lawyers are as follows:–

Certificates of Real Estate Ownership Right – obtained (Yue Fang Di Zheng Zi Di No. C5906110 and No. C5906111)

– IV-26 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

11. Industrial premises The property comprises As at the date of HK$28,045,000 situated at No. 62 Chao industrial premises consisting valuation, the property Lian Huan Dao East of a parcel of land occupied is owner-occupied. Road, by a factory building, two Heng Tan Sha Industrial dormitory buildings and a Area, canteen at Heng Tan Sha Chao Lian Zhen, Industrial Area in Feng Jiang Feng Jiang District, District in the city of Jiangmen, Jiangmen. The Industrial Area Guangdong Province, is situated on an island People’s Republic of bounded by two tributaries of China the Xijiang River and is located to the north– east of Jiangmen.

The buildings are believed to have been built in 2003.

According to a copy of the State-owned Land Use Certificate, which was provided to us, the area of the land is 35,983.57 sq.m. (387,327 sq. ft. approximately).

The property has been granted a land use term of 50 years expiring on 18 August, 2054 and the use of the land is for industrial purposes.

Notes:–

1. According to the Land Use Right Transfer Contract ( ) entered into between Jiangmen City Chao Lian Economic Industrial Investment Company ( ) (“Party A”) and Continental Jewellery (Jiangmen) Co. Ltd. ( )(“Party B”) dated 5 September, 2002, the area of the land (No. 070177) is 39,045.22 sq. m. (58.5678 mu) (420,283 sq. ft. approximately) and is for industrial purposes with related facilities.

2. According to the Construction Land Use Planning Permit, Jiang Gui Di Zi No. 2002-121 ( – 2002-121 ) dated 4 November, 2002, issued by the Planning Bureau of Jiangmen Municipality, the area in respect of the land is 38,034 sq. m. (409,398 sq. ft. approximately) and is for industrial factory (M1) purposes.

3. According to the State-owned Land Use Certificate, Jiang Guo Yong (2004) Di No. 202161 ( – (2004) 202161 ) dated 24 August, 2004 issued by the People’s Government of Jiangmen Municipality, the area of the land is 35,983.57 sq. m. (387,327 sq. ft. approximately) while the lease term in respect of the property will expire on 18 August, 2054. The use of the land is for industrial purposes. The title in respect of the property is vested in Continental Jewellery (Jiangmen) Co. Ltd. ( ), a wholly-owned subsidiary of the Company.

– IV-27 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

4. According to the Construction Project Works Permits Nos. 440703200409030701, 440703200409030801, 440703200409030901 and 440703200409031101 ( 440703200409030701, 440703200409030801, 440703200409030901 440703200409031101) all dated 3 September, 2004, issued by the Jiangmen Municipal Feng Jiang District Construction Bureau, the completion dates of the above-mentioned construction project works are 30 June, 2003, 31 August, 2003 and 30 September, 2004 respectively.

5. According to the Construction Land Use Permit, Jiang Men Shi (2004) Jiang Guo Shu Zi Di No. 131 ( – (2004) 131 ) dated 17 August,2004, the area in respect of the land is 35,984 sq. m. (387,332 sq. ft approximately).

6. According to the Certificates of Real Estate Ownership, Yue Fang Di Zheng Zi Di Nos. C4008980, C4008583, C4008584 and C4008585 ( – C4008980, C4008583, C4008584 C4008585 ) all dated 1 November, 2005 and 26 December, 2005, issued by the People’s Government of Guangdong Province, the property has a total gross floor area of 23,079.93 sq. m. (248,432 sq. ft. approximately) and a land area of 35,983.57 sq. m. (387,327 sq. ft. approximately). The land use term in respect of the property will expire on 18 August, 2054 and the use of the land is for industrial purposes. The aforementioned titles are vested in Continental Jewellery (Jiangmen) Co. Ltd. ( ), a wholly-owned subsidiary of the Company.

7. According to the Certificate of Real Estate Ownership, Yue Fang Di Zheng Zi Di No. C6954813 ( – C6954813 ) relating to Dormitory C and erected on the same piece of land, dated 7 January, 2009 and issued by the People’s Government of Guangdong Province, the property has a total gross floor area of 2,492.85 sq. m. (26,833.00 sq. ft. approximately) which comprises 2,041.35 sq. m. in area for residential purposes and 451.50 sq. m. in area for non-residential uses. The land use term in respect of the property will expire on 18 August, 2054 and the use of the land is for industrial purposes. The aforementioned title is vested in Continental Jewellery (Jiangmen) Co. Ltd. ( ), a wholly-owned subsidiary of the Company.

A breakdown in the total gross floor area of the aforementioned buildings and their brief descriptions are as follows:–

No. of Gross floor Site Building Block No. storey area coverage (sq. m.) (sq. m.)

Factory 1 3 10,781.65 4,650.67 Canteen 2 1 1,865.74 1,865.74 Dormitory A 5 6 8,032.94 1,323.45 Dormitory B 4 5 2,399.60 464.55 Dormitory C 3 5 2,492.85 451.50

Total 25,572.78 8,755.91

8. We have relied on all the information as provided to us by the Group and the legal opinion of the Group’s PRC lawyers and we have prepared our valuation on the following bases:–

ii) All land and other premium as well as other costs relating to the provision of utilities and ancillary services have been completely settled.

iii) Our valuation of the property is based on the land area of 35,983.57 sq. m. (387,327 sq. ft. approximately) and gross floor area of the buildings of 25,572.78 sq. m. as stated in the above-mentioned Certificates of Real Estate Ownership. Although the land area as stated in the aforementioned Land Use Right Transfer Contract is 39,045.22 sq. m. (58.5678 mu) (420,283

– IV-28 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

sq. ft. approximately) and therefore larger than 35,983.57 sq. m. (387,327 sq. ft. approximately), we are advised by the Group that the difference in the land area of 3,061.65 sq. m. has been allocated for internal road and landscaping as well as setback from a nearby river. As such, this difference in land area, which is not in the aforementioned State-owned Land Use Certificate but for the owner’s own use, has been excluded in our valuation of the property.

iv) The design, construction and completion of the buildings are in compliance with local planning regulations and have been approved by the relevant government authorities.

v) Our valuation of the property is based on a 100 per cent attributable interest.

vi) The property may be disposed of freely to purchasers within and outside the PRC.

9. The status of title of the property interest, as well as requisite approvals, consents, certificates, permits and licences relating to the development and use of the property interest in accordance with information provided to us by the Group and the legal opinion of the Group’s PRC lawyers are as follows:–

Land Use Rights Transfer Contract – signed (dated 5th September, 2002)

Construction Land Use Planning Permit – obtained (Jiang Gui Di Zi No. 2002-12)

Construction Project Works Permits – obtained (Nos. 440703200409030701, 440703200409030801, 440703200409030901 and 440703200409031101)

Construction Land Use Permit – obtained (Jiang Men Shi (2004) Jiang Guo Shu Zi Di No. 131)

State-owned Land Use Right Certificate – obtained (Jiang Guo Yong (2004) Di No. 202161)

Certificates of Real Estate Ownership – obtained (Yue Fang Di Zheng Zi Di Nos. C4008980, C4008583, C4008584 and C4008585)

Certificate of Real Estate Ownership – obtained (Yue Fang Di Zheng Zi Di No. C6954813)

– IV-29 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 October, 2009

12. 3rd Level, Wu Zi The property comprises a As at the date of HK$5,130,000 Building, No. 195 workshop unit occupying the valuation, the property Guangbao Da Dao, entire 3rd level of a five- is vacant. Guangzhou Free Trade storey composite development Zone, situated at Guangbao Da Dao Guangzhou, Guangzhou Free Trade Zone Guangdong Province, within Huang Pu District in People’s Republic of the city of Guangzhou. The China. property is located close to the Guangzhou Economic and Technological Development Zone.

The building is believed to have been built in the late 1990s.

According to a copy of the Certificate of Real Estate Ownership, which was provided to us, the gross floor area of the property is 1,635.3919 sq. m. (17,603 sq. ft. approximately) whilst the saleable area is 1,408.9564 sq. m. (15,166 sq. ft. approximately).

The property has been granted a land use term expiring on 26 November, 2043 for industrial and warehouse purposes.

Notes:–

1. According to the Certificate of Real Estate Ownership Right, Yue Fang Di Zheng Zi Di No. C4059515 ( – C4059515 ) dated 1 September, 2006, issued by the State-owned Land Resources and Housing Administrative Bureau of Guangdong Province, the property has a gross floor area of 1,635.3919 sq. m. (17,603 sq. ft. approximately) and a saleable area of 1,408.9564 sq. m. (15,166 sq. ft. approximately). The land use term in respect of the property is 50 years commencing on 27 November, 1993 and expiring on 26 November, 2043 and the use of the land is for non-residential purposes.

The title in respect of the property is vested in Continental Jewellery (Mfg) Co. Ltd. ( ), a wholly-owned subsidiary of the Company.

2. We have relied on all the information as provided to us by the Group and the legal opinion of the Group’s PRC lawyers and we have prepared our valuation on the following bases:–

– IV-30 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

ii) All land and other premium as well as other costs relating to the provision of utilities and ancillary services have been completely settled.

iii) The design, construction and completion of the building are in compliance with local planning regulations and have been approved by the relevant government authorities.

iv) Our valuation of the property is based on a 100 per cent attributable interest.

v) The property may be disposed of freely to purchasers within and outside the PRC.

Certificate of Real Estate Ownership Right – obtained – Yue Fang Di Zheng Zi Di No. C4059515

– IV-31 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

VALUATION CERTIFICATE

Market value in Particulars of existing state as at 31 Property Description and tenure occupancy October, 2009

13. Shop No. B107, Baonan The property comprises a As at the date of No commercial value Section 2, commercial or retail unit valuation, the property Commodities Trading which is situated at is vacant. Exhibition Street, Commodities Trading Guangzhou Free Trade Exhibition Street of the Zone, Guangzhou Free Trade Zone Guangzhou, in the city of Guangzhou. The Guangdong Province, building in which the property People’s Republic of is located is believed to have China been built in the mid-1990s.

The gross floor area of the property is 88 sq.m. (947 sq.ft. approximately).

According to the Trade Shop Space Sale and Purchase Contract, the property has been granted a land use term commencing from the date of handover of the property and expiring on 2 December, 2044. The use of the property is for commercial purposes.

Notes:–

1. According to the Guangzhou Free Trade Zone Commodities Trading Exhibition Street Shop Space Sales and Purchase Contract, Guang Bao Si Fang He Zi (1995) No. 90 ( – (1995) 90 ) and the Supplementary Contract, both dated 23 August, 1995, entered into between Conbo International Group Co., Ltd. ( )(“Party A”) and Continental Jewellery (Mfg.) Ltd. ( ) (“Party B”), the gross floor area of the property is 88 sq. m. (947 sq.ft. approximately). (The gross floor area is in accordance with the on-site measurement carried out by the Land and Real Estate Bureau of Guangzhou Free Trade Zone.) The property has been granted a land use term commencing on the date of handover of the property and expiring on 2 December, 2044 and is for commercial uses.

The land use right in respect of the land in which the property occupies cannot be separated. From the date of handover of the property, all the rights, obligations and responsibilities as stated in the Land Use Right Sales Contract which was entered into between Party A and Guangzhou Economic and Technological Development Zone Administrative Committee, had been transferred to Party B.

2. We have relied on all the information as provided to us by the Group and the legal opinion of the Group’s PRC lawyers and we have prepared our valuation on the following bases:–

i) As no Certificate of Real Estate Ownership was issued to the Group, the Group is not in possession of a legal title to the property and is not entitled to transfer the property with the residual term of the land use right. However, the Group can use the property for its own purposes.

ii) All land and other premium as well as other costs relating to the provision of utilities and ancillary services have been completely settled.

– IV-32 – APPENDIX IV PROPERTY VALUATION ON THE GROUP

iii) Our valuation of the property is based on a 100 per cent attributable interest.

iv) In view of Note 2 (i) above, no commercial value is attributable to the property for the Group.

Guangzhou Free Trade Zone Commodities Trading – signed Exhibition Street Shop Space Sales and Purchase Contract (Guang Bao Si Fang He Zi (1995) No. 90) and Supplementary Contract (dated 23 August, 1995)

– IV-33 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuations as at 31 October 2009 of the properties to be acquired by the Company located in the People’s Republic of China.

25 January 2010

The Directors Continental Holdings Limited Unit M, 1st Floor Kaiser Estate Phase III 11 Hok Yuen Street Hunghom, Kowloon Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from Continental Holdings Limited (the “Company”) for us to value the properties held by Henan Multi-Resources Mining Company Limited ( )(“Henan Multi-Resources”) located in the People’s Republic of China (the “PRC”). We confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties and value breakdowns of the properties as at 31 October 2009 (the “date of valuation”).

BASIS OF VALUATION

Our valuations of the properties have been based on the Market Value, which is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

– V-1 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

PROPERTY CATEGORISATIONS

In the course of our valuations, the properties are categorised into the following Groups:

Group I – Properties held by Henan Multi-Resources for owner-occupation in the PRC

Group II – Property rented by Henan Multi-Resources in the PRC

VALUATION METHODOLOGIES

In valuing Property Nos. 1 – 3, due to the inherent nature of usage and lack of market sales comparables, the properties have been valued by the Depreciated Replacement Cost Approach. Depreciated replacement cost is defined as “the aggregate amount of the value of the land for the existing use or a notional replacement site in the same locality, and the new replacement cost of the buildings and other site works, from which appropriate deductions may then be made to allow for the age, condition, economic and functional obsolescence and environmental factors etc,; all of these might result in the existing property being worth less to the undertaking in occupation than would a new replacement.” This basis has been used due to the lack of an established market upon which to base comparable transactions. However this approach generally furnishes the most reliable indication of value for assets without a known used market.

The building value of the relevant property is estimated from the relevant replacement cost as at the assessment date (i.e. the date of valuation). The land value of the same is estimated by comparison method with reference to the standard land price for industrial use from the relevant government departments in the PRC together with the market comparables. Appropriate adjustments have then been made to account for the differences between the relevant property and the comparables in terms of age, time, location, floor level and other relevant factors.

For Property No. 4, we are of the opinion that the property rented by Henan Multi-Resources has no commercial value either because of its non-assignability in the open market or there are prohibitions against subletting and / or assignment contained in the tenancy agreement or the lack of marketable and substantial profit rent.

TITLE INVESTIGATION

For the properties in Group I, we have been provided with copies of title documents and have been advised by the Company that no further relevant documents have been produced. However, we have not examined the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the copies handed to us. In the course of our valuations, we have relied upon the advice and information given by the Company and its PRC legal adviser, Hills & Co. ( ), regarding the titles of the properties. All documents have been used for reference only.

– V-2 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

In valuing the properties in the PRC, we have relied on the advice given by the Company and its PRC legal adviser that Henan Multi-Resources has valid and enforceable titles to the properties which are freely transferable, and has free and uninterrupted rights to use the same, for the whole of the unexpired terms granted subject to the payment of annual government rent / land use fees and all requisite land premium / purchase consideration payable have been fully settled.

In valuing the interests in the property rented by Henan Multi-Resources, we have been provided with a copy of the tenancy agreement relating to the property located in the PRC. However, we have not searched the title of the property and have not scrutinized the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the copy handed to us. All documents have been used for reference only.

VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the properties are sold in the market without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the values of the properties.

In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the properties and no forced sale situation in any manner is assumed in our valuations.

VALUATION CONSIDERATIONS

We have inspected the properties externally and where possible, the interior of the properties. In the course of our inspections, we did not note any serious defects. However, no structural surveys have been made. We are, therefore, unable to report whether the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

In the course of our valuations, we have relied to a considerable extent on the information given by the Company and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenures, particulars of occupancy, site/ floor areas, completion dates of the buildings, identification of the properties and other relevant information.

Except otherwise stated, dimensions, measurements and areas included in the valuation certificates are based on information contained in the leases and other documents provided to us and are therefore only approximations.

We have not carried out detailed on-site measurements to verify the correctness of the site/floor areas in respect of the properties but have assumed that the site/floor areas shown on the documents handed to us are correct.

– V-3 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

We have no reason to doubt the truth and accuracy of the information provided to us by the Company and we have relied on your advice that no material facts have been omitted from the information so supplied. We consider that we have been provided with sufficient information for us to reach an informed view.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties or for any expenses or taxation, which may be incurred in effecting a sale or purchase.

Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

Our valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Our valuations have been prepared under the generally accepted valuation procedures and are in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

REMARKS

We hereby certify that we neither have any present nor any prospective interest in the Company or Henan Multi-Resources or the appraised properties or the values reported.

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB) and no allowances have been made for any exchange transfer.

Our summary of values and the valuation certificates are attached herewith.

Yours faithfully, For and on behalf of BMI APPRAISALS LIMITED

Dr. Tony C.H. Cheng Joannau W.F. Chan BSc, MUD, MBA (Finance), MSc (Eng), PhD (Econ), BSc. MSc. MRICS MHKIS RPS(GP) MHKIS, MCIArb, AFA, SIFM, FCIM, Senior Director MASCE, MIET, MIEEE, MASME, MIIE Managing Director Notes:

Dr. Tony C.H. Cheng is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 17 years’ experience in valuations of properties in Hong Kong and the People’s Republic of China.

Ms. Joannau W.F. Chan is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 17 years’ experience in valuations of properties in Hong Kong and over 11 years’ experience in valuations of properties in the People’s Republic of China.

– V-4 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

SUMMARY OF VALUES

Market Value in existing state No. Property as at 31 October 2009 RMB

Group I – Properties held by Henan Multi-Resources for owner-occupation in the PRC

1. An industrial development in 12,300,000 Luo Village, Shizimiao Town, Luanchuan County, Luoyang City, Henan Province, The PRC

2. Land and various structures located at 2,500,000 Hongzhuang Village, Shizimiao Town, Luanchuan County, Luoyang City, Henan Province, The PRC

3. Land and various structures located at 14,100,000 Shizimiao Village, Shizimiao Town, Luanchuan County, Luoyang City, Henan Province, The PRC

Sub-total: 28,900,000

– V-5 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

Market Value in existing state No. Property as at 31 October 2009 RMB

Group II – Property rented by Henan Multi-Resources in the PRC

4. Room 2611, No Commercial Jincheng International Trade Center, Value No. 60 Zijingshan Road, Zhengzhou City, Henan Province, The PRC

60 2611

Sub-total: Nil

Grand Total: 28,900,000

– V-6 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

VALUATION CERTIFICATE

Group I – Properties held by Henan Multi-Resources for owner-occupation in the PRC

Market Value in Particulars of existing state as at Property Description and tenure occupancy 31 October 2009 RMB

1. An industrial The property comprises an As advised by the 12,300,000 development in industrial complex having a Company, the property Luo Village, parcel of land with a site area was occupied by (Please see Shizimiao Town, of approximately 56,426.667 Henan Multi-Resources Note 3 below) Luanchuan County, sq.m. (or about 607,376.64 for gold mining Luoyang City, sq.ft.) upon which various operation as at the Henan Province, buildings and structures, date of valuation. The PRC mainly completed in about 1989, were erected.

The total gross floor area (“GFA”) of the property with relevant title documents is approximately 5,848.71 sq.m. (or about 62,955.51 sq.ft.).

The land use rights of the property have been granted for a term expiring on 26 January 2055 for industrial use.

Notes:

1. Pursuant to a State-owned Land Use Rights Certificate, Luan Guo Yong (2009) Di No. 032 ( (2009) 032 ) issued by Luanchuan County People’s Government ( ) dated 13 April 2009, the land use rights of the property with a site area of 56,426.667 sq.m. have been granted to Henan Multi-Resources for a term expiring on 26 January 2055 for industrial use.

2. Pursuant to 5 Building Ownership Certificates issued by Luanchuan County People’s Government, the buildings of the property with a total GFA of 5,848.71 sq.m. were legally owned by Henan Multi-Resources for composite use. The details of which are summarized as follows:

Building No. of No. Certificate No. Storey(s) GFA (sq.m.)

1 Luan Fang Quan Zheng 2008 Zi Di No. 00003672 3 1,487.90 2 Luan Fang Quan Zheng 2008 Zi Di No. 00003672 1 105.60 3 Luan Fang Quan Zheng 2008 Zi Di No. 00003672 1 106.68 4 Luan Fang Quan Zheng 2008 Zi Di No. 00003672 1 265.98 5 Luan Fang Quan Zheng 2008 Zi Di No. 00003672 1 92.82 6 Luan Fang Quan Zheng 2008 Zi Di No. 00003673 1 116.44 7 Luan Fang Quan Zheng 2008 Zi Di No. 00003673 1 116.44 8 Luan Fang Quan Zheng 2008 Zi Di No. 00003673 1 140.18 9 Luan Fang Quan Zheng 2008 Zi Di No. 00003673 2 333.89 10 Luan Fang Quan Zheng 2008 Zi Di No. 00003673 2 272.00 11 Luan Fang Quan Zheng 2008 Zi Di No. 00003674 2 308.86 12 Luan Fang Quan Zheng 2008 Zi Di No. 00003674 2 231.08 13 Luan Fang Quan Zheng 2008 Zi Di No. 00003674 1 32.29

– V-7 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

Building No. of No. Certificate No. Storey(s) GFA (sq.m.)

14 Luan Fang Quan Zheng 2008 Zi Di No. 00003674 2 180.05 17 Luan Fang Quan Zheng 2008 Zi Di No. 00003675 1 40.43 18 Luan Fang Quan Zheng 2008 Zi Di No. 00003675 1 347.00 19 Luan Fang Quan Zheng 2008 Zi Di No. 00003675 1 291.00 20 Luan Fang Quan Zheng 2008 Zi Di No. 00003675 1 214.37 21 Luan Fang Quan Zheng 2008 Zi Di No. 00003676 1 139.21 22 Luan Fang Quan Zheng 2008 Zi Di No. 00003676 2 427.85 23 Luan Fang Quan Zheng 2008 Zi Di No. 00003676 2 445.62 24 Luan Fang Quan Zheng 2008 Zi Di No. 00003676 1 153.02

Total: 5,848.71

3. As the structure is for temporary use only, the owner of the property will not apply relevant title certificates for them. In arriving at our valuation, we cannot attribute any commercial value to the structures other than those mentioned in Note 2 of the property without relevant title documents as at the date of valuation.

4. The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:

State-owned Land Use Rights Certificate Yes Building Ownership Certificates Yes

5. The opinion of the PRC legal adviser to the Company contains, inter alia, the following:

a. Henan Multi-Resources is in possession of a proper legal title to the property;

b. The property is not subject to mortgage, attachment or any other material encumbrances;

c. The existing use of the property is legal and in compliance with relevant PRC laws and regulations; and

d. The property can be freely disposed of, leased or mortgaged in the open market.

6. As advised by the Company, Henan Multi-Resources is an indirect wholly-owned subsidiary of Big Bonus Limited (the “Target Company”).

7. The value breakdowns of the building and land components of the property as at the date of valuation are as follows:–

Building Component: RMB3,400,000 Land Component: RMB8,900,000

Market Value: RMB12,300,000

– V-8 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

VALUATION CERTIFICATE

Market Value in Particulars of existing state as at Property Description and tenure occupancy 31 October 2009 RMB

2. Land and various The property comprises a As advised by the 2,500,000 structures located at parcel of land with a site area Company, the property Hongzhuang Village, of approximately 16,026.667 was occupied by (Please see Shizimiao Town, sq.m. (or about 172,511.04 Henan Multi-Resources Note 2 below) Luanchuan County, sq.ft.) upon which various for gold mining Luoyang City, structures for gold mining operation as at the Henan Province, operation, completed in about date of valuation. The PRC 1990’s, were erected.

The land use rights of the property have been granted for a term expiring on 26 January 2055 for industrial use.

Notes:

1. Pursuant to a State-owned Land Use Rights Certificate, Luan Guo Yong (2009) Di No. 033 ( (2009) 033 ) issued by Luanchuan County People’s Government dated 13 April 2009, the land use rights of the property with a site area of 16,026.667 sq.m. have been granted to Henan Multi-Resources for a term expiring on 26 January 2055 for industrial use.

2. As the structure is for temporary use only, the owner of the property will not apply relevant title certificates for them. In arriving at our valuation, we cannot attribute any commercial value to the structures of the property without relevant title documents as at the date of valuation.

3. The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:

State-owned Land Use Rights Certificate Yes

4. The opinion of the PRC legal adviser to the Company contains, inter alia, the following:

a. Henan Multi-Resources is in possession of a proper legal title to the property;

b. The property is not subject to mortgage, attachment or any other material encumbrances;

c. The existing use of the property is legal and in compliance with relevant PRC laws and regulations; and

d. The property can be freely disposed of, leased or mortgaged in the open market.

5. As advised by the Company, Henan Multi-Resources is an indirect wholly-owned subsidiary of the Target Company.

6. The value breakdowns of the building and land components of the property as at the date of valuation are as follows:–

Building Component: Nil Land Component: RMB2,500,000

Market Value: RMB2,500,000

– V-9 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

VALUATION CERTIFICATE

Market Value in Particulars of existing state as at Property Description and tenure occupancy 31 October 2009 RMB

3. Land and various The property comprises a As advised by Henan 14,100,000 structures located at parcel of land with a site area Multi-Resources, Shizimiao Village, of approximately 89,866.667 the property was (Please see Shizimiao Town,, sq.m. (or about 967,324.80 occupied by Henan Note 2 below) Luanchuan County, sq.ft.) upon which various Multi-Resources Luoyang City, structures for gold mining for gold mining Henan Province, operation, completed in about operation as at the The PRC 1990’s, were erected. date of valuation.

The land use rights of the property have been granted for a term expiring on 26 January 2055 for industrial use.

Notes:

1. Pursuant to a State-owned Land Use Rights Certificate, Luan Guo Yong (2009) Di No. 034 ( (2009) (034) ) issued by Luanchuan County People’s Government dated 13 April 2009, the land use rights of the property with a site area of 89,866.667 sq.m. have been granted to Henan Multi-Resources for a term expiring on 26 January 2055 for industrial use.

3. The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:

State-owned Land Use Rights Certificate Yes

4. The opinion of the PRC legal adviser to the Company contains, inter alia, the following:

a. Henan Multi-Resources is in possession of a proper legal title to the property;

b. The property is not subject to mortgage, attachment or any other material encumbrances;

c. The existing use of the property is legal and in compliance with relevant PRC laws and regulations; and

d. The property can be freely disposed of, leased or mortgaged in the open market.

5. As advised by the Company, Henan Multi-Resources is an indirect wholly-owned subsidiary of the Target Company.

6. The value breakdowns of the building and land components of the property as at the date of valuation are as follows:–

Building Component: Nil Land Component: RMB14,100,000

Market Value: RMB14,100,000

– V-10 – APPENDIX V PROPERTY VALUATION ON THE TARGET GROUP

VALUATION CERTIFICATE

Group II – Property rented by Henan Multi-Resources in the PRC

Market Value in Particulars of existing state as at Property Description and tenure occupancy 31 October 2009 RMB

4. Room 2611, The property comprises an As advised by Henan No Commercial Value Jincheng International office unit on 26th Floor of a Multi-Resources, Trade Centre, high-rise office/commercial the property was No. 60 Zijingshan Road, building which was completed occupied by Henan Zhengzhou City, in about 2004. Multi-Resources Henan Province, for office use as at the The PRC The gross floor area of the date of valuation. property is approximately 155.43 sq.m. (or about 60 1,673.05 sq.ft.). 2611 Pursuant to a tenancy agreement entered into between Henan Multi-Resources and an independent third party on 10 April 2009, the property is leased to the former for office use for a term of one year commencing on 10 April 2009 and expiring on 9 April 2010 at a monthly rent of RMB5,775 exclusive of management fees.

Notes:

1. Pursuant to the abovementioned tenancy agreement, the tenant of the property is Henan Multi-Resources.

2. The opinion of the PRC legal adviser to the Company contains, inter alia, the following:

a. The terms stipulated in the above-mentioned tenancy agreement do not violate the laws and regulations of the PRC; and

b. The above-mentioned tenancy agreement is legally binding and enforceable on the contracting parties.

3. As advised by the Company, Henan Multi-Resources is an indirect wholly-owned subsidiary of the Target Company.

– V-11 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

The following is the text of a letter prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuation as at 31 October 2009 of the market value of a 100% interest in Hongzhuang gold mine and Yuanling gold mine to be acquired by Continental Holdings Limited.

25 January 2010

The Directors Continental Holdings Limited FlatsM&N,1stFloor Kaiser Estate Phase III 11 Hok Yuen Street Hung Hom, Kowloon Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from Continental Holdings Limited (referred to as the “Company”) for us to provide our opinion on the market value of a 100% interest in Hongzhuang gold mine and Yuanling gold mine (referred to as the “Mines”) located in Luanchuang County, Henan Province, the People’s Republic of China (the “PRC”)asat31 October 2009.

This report describes the background of the Mines, the basis of valuation and assumptions, explains the valuation methodology utilized and presents our conclusion of value.

BASIS OF VALUATION

We have conducted our valuation in accordance with the Business Valuation Standards published by the Hong Kong Business Valuation Forum in 2005. Our valuation has been carried out on the basis of market value. Market value is defined as “the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

– VI-1 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

DATE OF VALUATION

We have been instructed by the Company to value the 100% interest in the Mines as at the date of valuation on 31 October 2009. The date of valuation is the specific point of time as of which our opinion of value applies. As markets and market conditions may change, the estimated value may be inaccurate or inappropriate at another time. The valuation amount will reflect the actual market status and circumstances as at the date of valuation, not as at either a past or future date.

BACKGROUND OF THE MINES

The Mines are located at Shizimiao Town, Luanchuan County, Henan Province of the PRC. The Yuanling gold mine is situated on the northwest of the Hongzhuang gold mine, with minimum distance of approximately 1,500 meters.

According to “Technical Review on Hongzhuang and Yuanling Gold Properties, Luanchuan, Henan Province, China” prepared by SRK Consulting (“SRK”), the gold resources of Hongzhuang gold mine and Yuanling gold mine were 40.85 tonnes and 0.08 tonnes respectively. The details of the Mines are listed below:

The Hongzhuang Gold Mine

122b 332 333 Ore Average Average Average Average Average Average Body Grade Thickness Ore Metal Grade Thickness Ore Metal Grade Thickness Ore Metal (g/t) (m) (1000t) (t) (g/t) (m) (1000t) (t) (g/t) (m) (1000t) (t)

1 5.06 5.56 1,077 5.45 1.72 1.98 407 0.7 5.58 3.39 1,770 9.87 2 6.23 7.74 847 5.28 1.9 4 1,441 2.74 4.17 3.43 1,818 7.58 3 2.09 3.31 564 1.18 3.66 3.47 1,838 6.72 4 1.78 2.42 472 0.84 4.9 1.59 100 0.49

Sub-total: 5.58 1,924 10.73 1.89 2,884 5.46 4.46 5,526 24.66

Total: Ore (1000t) 10,334, Au (t) 40.85, Average grade (g/t) 3.95

The Yuanling Gold Mine (Updated to January 2010)

Average Category Ore Grade Au Remark (1000t) (t) 333 10.06 3.87 0.04 Within Boundary 3.89 10.28 0.04 Out of Boundary

– VI-2 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

BRIEF INDUSTRY OVERVIEW

General Economy

The gross domestic product (GDP) of the PRC in 2008 was RMB30,067.0 billion, up by 9.0% over the previous year. Analyzed by different industries, the added value of the primary industry was RMB3,400.0 billion, up by 5.5%, that of the secondary industry was RMB14,618.3 billion, up by 9.3% and the tertiary industry was RMB12,048.7 billion, up by 9.5%. The added value of the primary industry accounted for 11.3% of the GDP, up by 0.2% over that in the previous year, that of the secondary industry accounted for 48.6%, up by 0.1%, and that of the tertiary industry accounted for 40.1%, down by 0.3%.

Gross Domestic Product of the PRC, 2004-2008

100 million yuan %

350,000 GDP 16.0 Growth rate over previous year 300,670 300,000 15.0 257,306 14.0 250,000 211,924 13.0 200,000 183,217 159,878 13.0 12.0 150,000 11.6 11.0 100,000 10.4 9.0 10.0 10.1 50,000 9.0

0 8.0 2004 2005 2006 2007 2008

Source: National Bureau of Statistics of the PRC

The general level of consumer prices in the PRC in 2008 was up by 5.9% over the previous year. Of this total, the prices for food went up by 14.3%. The prices for investment in fixed assets were up by 8.9%. The producer prices for manufactured goods increased by 6.9%, of which, the prices for means of production increased by 7.7%, and for means of subsistence grew by 4.1%. The purchasing prices for raw materials, fuels and power went up by 10.5%. The producer prices for farm products were up by 14.1%. The prices for means of agricultural production were up by 20.3%. The prices for housing in 70 large and medium-sized cities were up by 6.5%, of which, that for new residential buildings went up by 7.1%, for second hand housing grew by 6.2%, and the prices for rental and leasing were up by 1.4%.

– VI-3 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

Changes in Consumer Prices in the PRC, 2004-2008

% 7.0 5.9 6.0 4.8 5.0 3.9 4.0

3.0 1.8 2.0 1.5

1.0

0.0 2004 2005 2006 2007 2008

Source: National Bureau of Statistics of the PRC

Global Gold Industry

Total identifiable demand during the first six months in 2009 was up around 14.6% on the year-on-year basis, amounting to 1,743.4 tonnes.

The two most common uses of gold are in the fabrication of jewellery and monetary exchange and its demand is divided into two categories: fabrication and investment.

Fabrication demand comprises demand from jewellery, production of electronics, dental products and gold used for other industrial and decorative applications. According to GFMS Limited (a precious metals consultancy, specializing in research into the global gold, silver, platinum and palladium markets), approximately 70% of the global identifiable gold demand in 2008 was fabrication demand.

Investment demand comprises demand for coins and bullion. Demand for physical gold has largely been driven by net incremental gold stocks held in support of derivative transactions and exchange traded funds (“ETFs”). Investment demand is a function of the current and anticipated value of gold relative to other investments, such as cash, fixed interest securities, equities and properties, resulting largely from monetary policy considerations and expectations regarding future gold prices. According to GFMS Limited, approximately 30% of the global identifiable gold demand for gold in 2008 was from identifiable investment in gold (excluding “inferred investment”).

– VI-4 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

The annual supply of gold comes from mine production, net producer hedging, recycled gold scraps and net sales of gold by central banks, which amounts to 3,508 tonnes, of which around 2,415 tonnes of the total supply came from mine production.

Details of gold demand and supply are shown below:

% change 2008 2008 2009 2009 Q3 08 vs 2008 Q2 Q3 Q2 Q3 Q3 09

Demand Jewellery Consumption 2,186 532 695 407 475 -32 Industrial & Dental 435 118 112 94 100 -11 Bar & Coin Retail Investment 649 143 212 122 143 -33 Other Retail Investment 213 5 58 46 43 -26 ETF & Similar Products 321 4 149 57 41 -72

Total Demand: 3,805 802 1,227 726 802 -35

Supply Mine Production 2,415 589 633 632 670 6 Net Producer Hedging -351 -122 -53 -31 -105 -98 Total Mine Supply 2,064 467 580 601 565 -3 Official Sector Sales 236 69 77 -5 -15 -119 Recycled Gold 1,209 275 216 314 283 31

Total Supply: 3,508 811 874 910 833 -5

Source: World Gold Council

– VI-5 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

The closing gold prices in U.S. dollars between 3 January 2005 and 19 November 2009 are shown in the graph below:

Source: Bloomberg

The price of gold reached a new high of US$1,145 per ounce on 18 November 2009 following continued strength in the early of 2009. In 2009, the gold price averaged US$952.71, up 9% from US$872.25 in 2008.

The PRC Gold Industry

The PRC’s annual increase in consumer demand of gold was around 68.9 tonnes, which exceeded that of any other countries, reaching 395.6 tonnes in 2008. Investment demand was the main contributor to the strong growth, although jewellery demand showed considerable resilience to the worsening in economic conditions. Details of consumer demand of gold in the PRC are shown below:

2007 2008 % change 2008 vs 2007 Net Net Net Retail Retail Retail Jewellery Invest. Total Jewellery Invest. Total Jewellery Invest. Total

302.2 25.6 327.8 326.7 68.9 395.6 8 169 21

Source: World Gold Council

– VI-6 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

The spot gold prices on the Shanghai Gold Exchange (SGE) between 4 January 2005 and 19 November 2009 are shown in the graph below:

Source: Bloomberg

In 2007, 2008 and 2009, the average SGE gold price was RMB170 per gram, RMB195 per gram and RMB209 per gram respectively.

The PRC’s gold production in 2008 and 2009 is shown below:

Gold Production in Tonnes Jan Feb Mar Apr May Jun Jul Aug Total

2008 20.376 17.902 22.367 23.395 21.581 23.468 23.417 20.812 173.318 2009 20.169 20.964 26.068 26.599 26.442 26.263 26.363 27.358 220.226 Percentage Change -1.02% 17.10% 16.55% 13.70% 22.52% 11.91% 12.58% 31.45% 27.06%

Source: China Gold Association

In 2007, the PRC overtook South Africa to become the world’s largest gold producer. In 2009, the PRC produced 200.23 tonnes of gold bullion in the first eight months, up 27.06% year-on-year, the China Gold Association (CGA) announced on 28 September 2009 that 58.89% of the total gold output were produced from Shandong, Henan and Fujian Provinces.

– VI-7 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

SOURCE OF INFORMATION

For the purpose of our valuation, we have been furnished with the financial and operational data related to the Mines, which were given by the senior management of the Company.

The valuation of the Mines required consideration of all pertinent factors affecting the economic benefits of the Mines and its abilities to generate future investment returns. The factors considered in our valuation included, but were not limited to, the following:

¼ The business nature of the Mines;

¼ The financial and operational information of the Mines; and

¼ The specific economic environment and competition for the market in which the Mines are exposed to.

SCOPE OF WORKS

In the course of our valuation work for the Mines, we have conducted the following steps to evaluate the reasonableness of the adopted bases and assumptions provided by the senior management of the Company:

¼ Obtained all relevant financial and operational information of the Mines;

¼ Performed market research and obtained statistical figures from public sources;

¼ Examined all relevant bases and assumptions of the financial and operational information of the Mines, which were provided by the senior management of the Company;

¼ Prepared a business financial model to derive the indicated value of the Mines; and

¼ Presented all relevant information on the background of the Mines, industry overview, valuation methodology, source of information, scope of works, major assumptions, comments and our conclusion of value in this report.

VALUATION ASSUMPTIONS

Given the changing environment in which the Mines are currently or will be exposed to, a number of assumptions have had to be established in order to sufficiently support our concluded value of the Mines. The major assumptions adopted in our valuation were:

¼ There will be no major changes in the existing political, legal and economic conditions in the jurisdiction where the Mines are currently or will be exposed to;

– VI-8 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

¼ There will be no major changes in the current taxation law in the jurisdiction where the Mines are currently or will be exposed to, that the rates of tax payable remain unchanged and that all applicable laws and regulations will be complied with;

¼ The financial and operational information in respect of the Mines has been prepared on a reasonable basis, reflecting estimates that have been arrived at after due and careful considerations by the senior management of the Company;

¼ Exchange rates and interest rates will not differ materially from those presently prevailing; and

¼ Economic conditions will not deviate significantly from economic forecasts.

VALUATION METHODOLOGY

Three generally accepted valuation methodologies have been considered in valuing the Mines. They are the market approach, the cost approach and the income approach.

The market approach provides indications of value by comparing the subject asset to similar businesses, business ownership interests and securities that have been sold in the market.

The cost approach provides indications of value by studying the amounts required to recreate the subject asset for which a value conclusion is desired. This approach seeks to measure the economic benefits of ownership by quantifying the amount of fund that would be required to replace the future service capability of the subject asset.

The income approach is the conversion of expected periodic benefits of ownership into an indication of value. It is based on the principle that an informed buyer would pay no more for the project than an amount equal to the present worth of anticipated future benefits from the same or a substantially similar business with a similar risk profile.

We have considered that the income approach is not appropriate to value the Mines, as there are insufficient historical and forecasted financial and operational data of the Mines. Moreover, the income approach may involve adoption of much more assumptions than the other two approaches, not all of which can be easily quantified or ascertained. In the event of any such assumptions are founded to be incorrect or unfounded, the valuation result would be significantly affected. The cost approach is also regarded inadequate in this valuation, as this approach does not take future growth potential of the Mines into consideration. Thus, we have determined that the market approach is the most appropriate valuation approach for this valuation.

We used the market approach by referring to recent sale and purchase transactions of gold mines. We selected 12 recent sale and purchase transactions (referred to as the “Transactions”) as the comparable transactions (the “Comparable Transactions”), related to gold mines in the PRC up to the date of valuation. To the best of our knowledge, we considered the Comparable Transactions were exhaustive. Among all the transactions

– VI-9 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE examined, we selected only those transactions, of which the gold contents of the mines were classified as resources instead of reserves, which were similar to that of the Mines to be acquired by the Company, and we excluded those transactions with insufficient information available for valuation, e.g. lack of disclosure of acquisition consideration.

In the valuation, we used the average adjusted consideration price to gold metal resource (referred to as the “Adjusted P/Resource”) multiple of the Comparable Transactions to determine the market value of the Mines.

To determine the average Adjusted P/Resource multiple, the adjusted consideration prices of the Comparable Transactions were firstly determined by subtracting the net asset values of the target companies. Secondly, the amounts of ores were multiplied by the corresponding grades (usually in terms of grams (of gold) per tonne (of gold ore)) to arrive at the amounts of gold metal. Finally, the adjusted considerations were divided by their corresponding gold metal resources to derive the Adjusted P/Resource.

Details of the Comparable Transactions are as follows:

Location Adjusted Gold Announcement of the Consideration Metal Adjusted No. Date Acquirer Target Price Resource P/Resource (in mil (tonnes) (mil RMB) RMB/tonne)

1. 18/9/2009 GobiMin Inc. The PRC 50.000 7.000 7.143 2. 21/7/2009 Zhongjin Gold Company The PRC 786.184 48.142 16.331 Limited 3. 27/5/2009 Zhongjin Gold Company The PRC 116.597 5.165 22.574 Limited 4. 27/5/2009 Zhongjin Gold Company The PRC 77.798 8.555 9.094 Limited 5. 13/5/2009 ChenZhou Mining Group The PRC 99.072 10.932 9.063 Company Limited 6. 28/10/2009 Zhongjin Gold Company The PRC 233.371 15.703 14.861 Limited 7. 28/10/2009 Zhongjin Gold Company The PRC 110.434 4.571 24.162 Limited 8. 28/10/2009 Zhongjin Gold Company The PRC 49.083 2.897 16.945 Limited 9. 16/9/2009 Best Commerce Limited The PRC 5,544.789 132.332 41.900 10. 16/9/2009 Best Commerce Limited The PRC 910.415 27.252 33.407 11. 26/6/2009 Shandong Gold Mining The PRC 669.182 33.163 20.179 Company Limited 12. 28/6/2009 China Precious Metal The PRC 252.369 15.531 16.249 Resources Company Limited

Average Adjusted P/Resource Multiple: 19.326

Source: www.gobimin.com, www.hkexnews.hk, www.szse.cn, www.sse.com.cn

– VI-10 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

The average Adjusted P/Resource multiple of 19.326 were applied to the total gold metal resource of the Mines to determine the market value of the Mines.

VALUATION COMMENTS

For the purpose of our valuation and in arriving at our opinion of value, we have referred to the information provided by the senior management of the Company to estimate the value of the Mines. We have also sought and received confirmation from the Company that no material facts have been omitted from the information supplied.

To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others, which have been used in formulating this analysis.

REMARKS

Unless otherwise specified, all money amounts stated herein are in Hong Kong Dollars (HK$) and no allowances have been made for any exchange transfers. The exchange rate adopted as at the date of valuation is RMB1 = HK$1.1351.

CONCLUSION OF VALUE

Our conclusion of value is based on accepted valuation procedures and practices that rely substantially on the use of numerous assumptions and the consideration of a lot of uncertainties, not all of which can be easily ascertained or quantified.

Further, whilst the assumptions and consideration of such matters are considered by us to be reasonable, they are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company or us.

Based on our investigation and analysis outlined in this report, it is our opinion that the market value of the 100% interest in the Mines as at 31 October 2009 is HK$900,000,000 (HONG KONG DOLLARS NINE HUNDRED MILLION ONLY).

– VI-11 – APPENDIX VI VALUATION ON HONGZHUANG GOLD MINE

We hereby certify that we have neither present nor prospective interest in the Company, the Mines or the value reported.

Yours faithfully, For and on behalf of BMI APPRAISALS LIMITED

Dr. Tony C. H. Cheng Marco T. C. Sze BSc, MUD, MBA(Finance), MSc(Eng), PhD(Econ), B.Eng(Hon), PGD(Eng), MBA(Acct), FCIM, FRSM, SICME, SIFM, MHKIS, MCIArb, CFA, AICPA/ABV, RBV AFA, MASCE, MIET, MIEEE, MASME, MIIE, Director MASHRAE, MAIC Managing Director Notes:

1. Dr. Tony C. H. Cheng serves as the Chairman of Institute of Mechanical Engineers, China and is a member of the Hong Kong Institute of Surveyors (General Practice), a member of the American Society of Civil Engineers, a member of the American Society of Mechanical Engineers and a member of Institute of Industrial Engineers (U.K.). He has over 5 years’ experience in valuing similar assets or companies engaged in similar business activities as those of the Mines worldwide.

2. Mr. Marco T. C. Sze is a holder of Chartered Financial Analyst, a member of the American Institute of Certified Public Accountants (AICPA) and is accredited in Business Valuation by the AICPA. In addition, he is a Registered Business Valuer under the Hong Kong Business Valuation Forum. He has over 3 years’ experience in valuing similar assets or companies engaged in similar business activities as those of the Mines worldwide.

– VI-12 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

The following is the text of the report from the independent technical consultant, SRK Consulting China Limited, on Hongzhuang Gold Mine, prepared for incorporation in this circular:

Technical Review on Hongzhuang and Yuanling Gold Properties, Luanchuan, Henan Province, China

Report prepared for

Continental Holdings Limited

Prepared by

January 2010

– VII-1 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Technical Review on Hongzhuang and Yuanling Gold Properties, Luanchuan, Henan Province, China

Continental Holdings Limited Unit M, 1st Floor, Kaiser Estate, Phase 3, Hok Yuen Street, Hunghom, Kowloon, Hong Kong

SRK Project Number SCN172 SRK Consulting China Limited B1205, COFCO Plaza, 8 Jianguomennei Dajie Dongcheng District, Beijing 100005

Contact: Richard Kosacz [email protected]

January 2010

Compiled by: Peer Review by:

Richard Kosacz, MSc. Eng. P.Geo Dr Anson Xu, MAusIMM Principal Consultant Principal Consultant (Geology) (Geology)

Authors: Richard Kosacz, Jinhui Liu, Pengfei Xiao

– VII-2 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

EXECUTIVE SUMMARY

Summary of principal objectives

The objective of SRK Consulting (“SRK”) was to perform an independent expert technical review on available relevant aspects of the Hongzhuang Gold Mine owned by Henan Multi Resources Mining Company Limited (“Multi Resources”). The Hongzhuang Gold Mine consists of two mining permit areas namely Hongzhuang and Yuanling, both located in the Luanchuan County, Henan province of Centre China. SRK was commissioned by Continental Holdings Limited (“Continental” or “Client”) to conduct a due diligence review in order to provide an independent technical assessment report for future possible transaction or IPO in Stock Exchange of Hong Kong (SEHK).

Outline of work program

The work program involved three phases:

¼ Phase 1: conduct a desktop review of available information provided by Henan Multi Resources Mining Company Limited;

¼ Phase 2: travel to Hongzhuang Gold Mine (including Hongzhuang and Yuanling properties), inspection of the two mining permit areas, interview with related staff of the Hongzhuang Gold Mine, collection and review of documents provided to SRK, collecting check samples from adits, remainders of core and pulps; and

¼ Phase 3: analysis of the provided data, completion of a draft report, copy to the client and finalise the report.

Results

Overall

The Hongzhuang Gold Mine, located in Luanchuan County of Henan Province, central of P.R.C China is managed by Henan Multi Resources Mining Company Limited. The mine involved two properties with total 5.6645 square kilometres, namely Hongzhuang (1.09 sq. km) and Yuanling (4.5745 sq. km) mining area, which are both gold deposits being processed for decades of years.

There are several gold and molybdenum mines located in the region, and facilities for mining operation are good enough such as water and power supply, traffic and transport.

Historically the Gold Brigade of Chinese Armed Police has done some exploration work in the license area, and Henan Jinqu Gold Inc. has explored and mined in the two properties before Multi Resources took over the mine.

– VII-3 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Geology

Regionally the mining area is located at low mountainous and valley area, south slope of Xiong’er Mountain, which is the transitional conjunction zone between the south rim of North China Platform and the Fold Belt of Qinling Mountains. It was formed by the uplift movement of sedimentary terrace deposit during the neotectonic (post-Miocene) period.

Locally the deposit is located at Maochaoying Fractured Zone, which is marked by a series of faults forming a belt striking over the whole project area, with the total length reaching 48 kilometres.

The outcropped strata in the two deposit areas are mainly Zhanghemiao Formation, Jiaoyuan Formation, Poqianjie Formation, and Yanyaozhai Formation of Meso-Proterozoic Xiong’er Group, and secondly are Longjiayuan Formation of meso-Proterozoic Guandaokou Group, Cretaceous Gaoyugou Formation, and the residual Quaternary talus (slope wash or slide rocks).

The major strata outcropping at project area can be listed as follow (from the lower to upper):

¼ Zhanghemiao Formation (CHz) of Meso-Proterozoic Xiong’er Group – spotted basaltic andesite;

¼ Jiaoyuan Formation (Chj) of Meso-Proterozoic Xiong’er Group – dacitic porphyry, rhyolite and andesite;

¼ Poqianjie Formation (Chp) of Meso-Proterozoic Xiong’er Group – andesite, alkaline basalt, basaltic trachyandesite and trachyte;

¼ Yanyaozhai Formation (Chy) – of Meso-Proterozoic Xiong’er Group – rhyolite porphyry and local quartz porphyry;

¼ Longjiayuan Formation of Meso-Proterozoic Guandaokou Group (Jxl1) – series of shallow sea deposits, rich in carbonate rocks mostly thick layered dolomite.

¼ Cretaceous Gaoyugou Formation (K2E1g1) – siltstone with lenses of gravel.

The gold ore body is mainly hosted in the Xiong’er Group, which is characterized by continental– marine facies volcanic rocks (lava) i.e. andesite, rhyolite and basalt.

Resources/Reserves Estimation

The No.96234 vein resources estimation was submitted by the No.9 Detachment of Gold Brigade, Chinese Armed Police in October 2001, and the total three ore bodies were defined as Resources category D+E in Chinese Standard.

– VII-4 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

The report pointed out that total of 4.16 tonnes gold metal was mined out from mining start to October 2001, and the total resources and recoverable gold resources are shown as following tables.

Resources Estimation Result of No. 96234 Vein of Hongzhuang Mine in 2001 (by the No. 9 Detachment of Gold Brigade)

Resources Ore Vein Class Category Average Average body Ore (t) Au (t) Thickens (m) Grade (g/t) D 1.22 227,000 16.99 3.86 No.1 E 1.99 1,607,000 6.99 11.24 D+E 1.85 1,834,000 8.23 15.09 96234 Economic D 0.54 25,000 17.84 0.45 No.2 E 1.23 952,000 7.59 7.23 D+E 1.19 977,000 7.85 7.67 No.3 E 1.54 360,000 7.33 2.64 D 1.08 253,000 17.00 4.30 Total E 1.61 2,920,000 6.32 21.10 D+E 1.55 3,173,000 8.01 25.40

Recoverable Resources of No. 96234 Vein (submitted by the No. 9 Detachment of Gold Brigade in October 2001)

Resources Vein Class Category Average Average Grade Ore (t) Au (t) Remark Thickness (m) (g/t) D 1.08 253,000 17.00 4.30 E 1.61 2,920,000 6.32 21.10 Total D+E 1.55 3,173,000 8.01 25.41 D 0.94 142,000 15.74 2.24 96234 Economic E 1.52 296,000 6.49 1.92 Mined-out D+E 1.27 438,000 9.49 4.16 D 1.33 111,000 18.60 2.06 E 1.62 2,624,000 7.31 19.18 Recoverable D+E 1.60 2735,000 7.77 21.24

The Henan Jinqu Gold Corporation Limited updated the resources/reserves report in July 2007 after conducting the geological exploration including drillings and adits in Hongzhuang Gold mine by Jinqu, and No. 4 ore body was discovered in the exploration, but the resource has not been properly reported and certified by government agents.

– VII-5 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE elevation, 50-100 m of cross vein and 40 m of adit level was defined as 122b category, and below 600 m elevation, and 200-240 m x 200-240 m grid was classified as category 333+332 resources.

Resources Result of Hongzhuang Gold Mine provided by Henan Jinqu Inc. in July 2007

122b 332 333 Average Average Average Average Average Average Ore Body Ore Metal Ore Metal Ore Metal Grade Thickness Grade Thickness Grade Thickness (1000t) (t) (1000t) (t) (1000t) (t) (g/t) (m) (g/t) (m) (g/t) (m) 1 5.06 5.56 1,077 5.45 1.72 1.98 407 0.7 5.58 3.39 1,770 9.87 2 6.23 7.74 847 5.28 1.9 4 1,441 2.74 4.17 3.43 1,818 7.58 3 2.09 3.31 564 1.18 3.66 3.47 1,838 6.72 4 1.78 2.42 472 0.84 4.9 1.59 100 0.49 Sub-total 5.58 1,924 10.73 1.89 2,884 5.46 4.46 5,526 24.66 Total Ore (1000 t) 10,334, Au (t) 40.85, Average grade (g/t) 3.95

Since there is no feasibility study to be conducted in the Hongzhuang mine, SRK used the category 332 resources instead of category 2S22 and 2M22 resources, and SRK should points out that more than half of the resources of Hongzhuang Gold Mine are out of the mining license vertical limited boundary as shown in the resources maps of four ore bodies.

It should note that the Multi Resource is applying a new expansion mining license, and this application has been approved by the Land and Resource Bureau of Henan Province in 30 November 2009 as shown in Appendix No.3, so all the resource in the Hongzhuang mine will be included in the new mining license. It should remind that the recoverable resource tonnage is 3.9238 million tonnes and the gold metal amount is 17.86 tonnes with the Au grade of 4.55g/t in the approval, which is much less than the result estimated by Jinqu in July 2007.

As HGM of Multi Resources started mining in Yuanling area since May 2009, the resources/reserves dated by this report time should be re-considered. SRK has reviewed the processing production data of recent five months (from May 2009 to September 2009) provided by Multi Resources. SRK re-travelled to the mine site in January 2010 and was told that the processing plant stopped from September 2009 due to adding one flotation production line. SRK has been told that the production tonnage was about equal to the amount of transport tonnage. SRK should points out that the gold grade in production (average 2.68g/t) is much less than the grade of the original geological body (6.73g/t).

The total mined-out ore tonnage in the five months is 12,127. Reportedly the mining recovery is 90%, so the total depleted ores are around 13,470 tonnes. This amount of ores should be deducted to the 122b-Reserve in Yuanling area when considering the recoverable resources/reserves. However SRK find the total depleted ore tonnage at 13,470 (13.47kt) exceeds the amount of 122b estimated by Henan Industry and Tradition school in March 2008, thus some of the resources should be deducted as well, which may suggest that the 122b in March 2008 are all depleted and the recoverable ores of 333 remain at about 10,060 tonnes within the mining permit area as shown in the table below

– VII-6 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Recoverable Resources in Yuanling Gold Mine estimated Updated to January 2010

Ore Au Average Category Au (t) Remark (1000t) Grade (g/t) Yuanling 10.06 3.87 0.04 Within Boundary 333 3.89 10.28 0.04 Out of Boundary

Conclusions and Recommendations

The Hongzhuang Gold Mine operated by Henan Multi Resources Mining Company Limited has two mining areas with total 5.6645 square kilometers, which are Hongzhuang area with about 1.09 sq. km and Yuanling area with about 4.5745 sq. km. Both the two mining areas are located in Shizimiao Town of Luanchuan County, and they shared similar geological setting.

Regionally the project area is located in the conjunction between the south rim of North China Platform and the Fold Belt of Qinling Mountains, where is a transition zone and a lot of mineral deposits discovered in the area. In Shizimiao town area gold and molybdenum resources are found abundant.

The gold deposit of Hongzhuang Gold Mine is mainly seated in the Meso-Proterozoic Xiong’er Group, which is composed by andesite, basalt, dacite, rhyolite and porphyry. In Hongzhuang area the gold is discovered in fractured-alteration zones, while in the Yuanling area distinguished quartz veining is observed.

SRK reviewed all the information about the exploration and resource estimate provided by the Company. SRK should point out that the resource statement should be used with cautions, and that the resource statement is not NI43-101 or JORC Code complaint. The comparison of the Chinese and JORC systems is provided in Section 8.3 of this report. In general, Category 332 is similar to Indicated Resource, and Category 333 is similar to Inferred Resource, whereas Category 122b is similar to Indicated Resource or Probable Reserve (designed mining losses are not accounted). Please note that is just a comparison. SRK can not convert it to JORC system directly; due to the Chinese Standard and JORC Code are strictly different systems. They are not equivalent.

At both of two mines, the resources and reserves estimates were reviewed by SRK; SRK has audited or verified some samples and data used for resources estimation.

SRK is satisfied that Hongzhuang Gold mine and Yuanling Gold mine meet the requirements for sample handling and data management Quality Assurance/Quality Control (“QA/QC”) as prescribed by the relevant Chinese standards. However those standards are not necessarily comparable with internationally regarded QA/QC procedures especially with those recommended by CIMVal guidance.

Therefore SRK recommends that if Hongzhuang Gold Mine intends to meet QA/QC international standards in the purpose to further develop its mineral assets, all procedures regarding sampling, sample handling and storage, sampling preparation and assaying as well data verification and management should be improved. SRK would be pleased to be helpful with this project preparing appropriate exploration best practices guidelines along with independent consulting.

– VII-7 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

TABLE OF CONTENTS

Executive Summary ...... VII-3

List of Tables ...... VII-11

List of Figures ...... VII-12

Disclaimer...... VII-14 1 Introduction ...... VII-15 2 Objectives and Work Program...... VII-15 2.1 Program Objectives ...... VII-15 2.2 Purpose of the Report ...... VII-16 2.3 Reporting Standard ...... VII-16 2.4 Work Program ...... VII-16 2.5 Project Team ...... VII-17 2.6 Statement of SRK Independence ...... VII-18 2.7 Warranties ...... VII-18 2.8 SRK Experience...... VII-18 2.9 Forward Looking Statements ...... VII-19 3 Background of the Project ...... VII-20 3.1 History ...... VII-20 3.2 Present Work ...... VII-21 4 Accessibility, Climate, Physiography and Infrastructure ...... VII-22 5 Geological and Mineral Inventory Assessment ...... VII-26 5.1 Regional Geology ...... VII-26 5.1.1 Stratigraphy ...... VII-26 5.1.2 Magmatism ...... VII-28 5.1.3 Tectonics ...... VII-28 5.2 Regional Natural Resources ...... VII-29 5.3 Deposit Geology ...... VII-30 5.3.1 Stratigraphy and Lithology...... VII-31 5.3.2 Tectonic Framework of Deposit Area ...... VII-32 5.3.3 Magmatism ...... VII-34

– VII-8 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

5.3.4 Geochemistry...... VII-34 5.4 Orebody (Vein) Characters – Hongzhuang Gold Mine ...... VII-35 5.4.1 Fracture Alteration Zones (Belts) ...... VII-35 5.4.2 Occurrences and Geometry of the Ore Bodies ...... VII-36 5.4.3 Description of the Ore ...... VII-38 6 Exploration...... VII-41 6.1 Engineering Survey ...... VII-42 6.2 Topographical and Geological Mapping ...... VII-45 6.3 Trenching and Pitting...... VII-47 6.4 Underground Workings...... VII-49 6.5 Diamond Drilling...... VII-50 6.6 Geochemical Survey ...... VII-57 7 Sampling and Assaying ...... VII-58 7.1 Sampling ...... VII-58 7.2 Sample Preparation ...... VII-59 7.3 Assaying ...... VII-60 7.4 Sample Handling and Storage ...... VII-62 7.5 Quality Assurance/Quality Control ...... VII-63 7.6 SRK’s Verification Sampling ...... VII-64 8 Resources and Reserves Estimation...... VII-69 8.1 Mineral resources and reserves of Hongzhuang mine ...... VII-69 8.1.1 Industrial Index ...... VII-69 8.1.2 Method Used for the Resource Estimate...... VII-69 8.1.3 Extreme grade ...... VII-70 8.1.4 Resources category ...... VII-71 8.1.5 Resources and reserve in 2001 ...... VII-71 8.1.6 Resources and reserve in 2007 ...... VII-72 8.2 Mineral resources and reserves of Yuanling mine ...... VII-75 8.3 Chinese Resource and Reserve Standards ...... VII-79 8.3.1 Categorisation of Mineral Resources and Ore Reserves ...... VII-79 8.3.2 Relationship between JORC Code and the Chinese Reserves System ...... VII-80

– VII-9 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

9 Conclusions and Recommendations ...... VII-81

References ...... VII-81

Appendices ...... VII-83 Appendix No. 1 – Mining Licence ...... VII-83 Appendix No. 2 – Exploration Licence ...... VII-85 Appendix No. 3 – Approval of Mining License Area Delineation by Land and Resources Bureau of Henan Province ..... VII-86 Appendix No. 4 – Intertek Assaying Report ...... VII-88

– VII-10 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

LIST OF TABLES

Table 2-1: SRK Project Team...... VII-17 Table 2-2: Recent Reports by SRK about Gold Deposits in China ...... VII-19 Table 3-1: Completed Workload in Hongzhuang Mining Area...... VII-22 Table 4-1: Coordinates of Vertices of Hongzhuang Mine – Beijing 1954 Coordinate System ...... VII-23 Table 4-2: Vertices Coordinates of Yuanling Mine – Beijing 1954 Coordinate System ...... VII-23 Table 5-1: Geological Characteristics of Yuanling Mining Area, Hongzhuang Gold Mine ...... VII-34 Table 5-2: The Gold Anomalies in Hongzhuang and Yuanling Area ...... VII-35 Table 5-3: Thickness & Grade of Ore Discovered in Boreholes and Adits...... VII-38 Table 5-4: Thickness & Ore Grade of Ore Calculated from Drilling & Tunnelling Workings...... VII-38 Table 5-5: Mineralogy of Ores ...... VII-38 Table 5-6: Native Gold Samples Analysis with Electron Probe ...... VII-39 Table 5-7: Grain Size Fractions and Distribution of Gold in the Ore ...... VII-39 Table 5-8: Gold Paragenesis...... VII-40 Table 5-9: Pyrite Average Chemistry ...... VII-40 Table 5-10: Galena Average Chemistry...... VII-40 Table 6-1: Coordinates of Reference Points ...... VII-43 Table 6-2: Hongzhuang Reference Points ...... VII-43 Table 6-3: Reference Points Deviation ...... VII-44 Table 6-4: Hongzhuang Reference Points Deviation ...... VII-44 Table 6-5: Comparison between the Two Networks ...... VII-44 Table 6-6: Borehole Collars of Hongzhuang Gold Mine ...... VII-57 Table 7-1: External Check for Borehole Samples Assaying – Feb. 2007 ...... VII-60 Table 7-2: External Check for Channel Samples Assaying – Jan. 2007 ...... VII-61 Table 7-3: External Check for Channel Samples Assaying – Apr. 2007...... VII-61 Table 7-4: External Check for Channel Samples Assaying – May 2007...... VII-62 Table 7-5: External Check for Channel Samples Assaying – May 2007...... VII-62 Table 7-6: The SRK Checking Samples Submission to the Lab...... VII-65 Table 7-7: Assay Results of SRK Checking Samples vs. Original Assays ...... VII-66

– VII-11 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Table 7-8: Assay Results of SRK Checking Samples – Taken from Adits ...... VII-68 Table 7-9: Two Standard Samples Assayed by Intertek Lab ...... VII-69 Table 8-1: Resources Estimation Result of No. 96234 Vein of Hongzhuang Mine in 2001...... VII-71 Table 8-2: Recoverable Resources of No. 96234 Vein submitted by the No. 9 Detachment of Gold Brigade in October 2001 ...... VII-72 Table 8-3: Resources Result of Hongzhuang Gold Mine provided by Henan Jinqu Inc. in July 2007 ...... VII-73 Table 8-4: Recoverable Resources of 980 Vein of Yuanling Mine Submitted by the No. 9 Detachment of Gold Brigade in November 1993 ...... VII-76 Table 8-5: Recoverable Resources in Yuanling Gold Mine estimated by Henan Industry and Tradition School in March 2008 ...... VII-77 Table 8-6: Processing Production Record of Yuanling Mine in 2009 Provided by Multi Resources in January 2010 ...... VII-77 Table 8-7: Recoverable Resources in Yuanling Gold Mine estimated Updated to January 2010 ...... VII-78 Table 8-8: Comparison Guide between the Chinese Classification Scheme and the JORC Code ...... VII-79 Table 8-9: Definition of the New Chinese Resource and Reserve Category Scheme . VII-80

LIST OF FIGURES

Figure 4-1: General Location of the Hongzhuang and Yuanling Projects ...... VII-23 Figure 5-1: Regional Geology and Tectonics – Modified ...... VII-26 Figure 5-2: Regional Metallogenic Prognosis – Southwest of Henan Province ..... VII-29 Figure 5-3: Regional Geology for the Mine Area ...... VII-30 Figure 6-1: Topographical and Engineering Layout of Hongzhuang Mining Area . . . VII-46 Figure 6-2: Topographical and Engineering Layout of Yuanling Mining Area ...... VII-47 Figure 6-3: One of the Exploration Trenches – Yuanling Area ...... VII-48 Figure 6-4: Abandoned Artisan Workings – Yuanling Area ...... VII-48 Figure 6-5: Adits; a) – Hongzhuang and b) – Yuanling Mines ...... VII-49 Figure 6-6: The Veining System # 8004 – Yuanling Mine...... VII-50 Figure 6-7: One of the Drilling Platforms – Borehole #ZK42 in Yuanling Area .... VII-51 Figure 6-8: Sealed Borehole Collar – ZK482 in Hongzhuang Area ...... VII-51 Figure 6-9: The Drill Core Storage at Hongzhuang Gold Mine ...... VII-52 Figure 6-10: The Drill Core Wooden Box...... VII-53

– VII-12 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Figure 6-11: The Cross-section of Hongzhuang Area ...... VII-56 Figure 7-1: Channel Sample on the Tunnel Wall – Hongzhuang Mine...... VII-59 Figure 7-2: The Drill Core Storage Building at Hongzhuang Gold Mine...... VII-63 Figure 7-3: Bias Chart of the Sample Assaying ...... VII-67 Figure 8-1: Longitudinal Section Resource Map of No. 1 Ore body (as provided by Henan Multi Resources Limited) ...... VII-73 Figure 8-2: Longitudinal Section Resource Map of No. 2 Ore body (as provided by Henan Multi Resources Limited) ...... VII-74 Figure 8-3: Longitudinal Section Resource Map of No. 3 Ore body (as provided by Henan Multi Resources Limited) ...... VII-74 Figure 8-4: Longitudinal Section Resource Map of No. 4 Ore body (as provided by Henan Multi Resources Limited) ...... VII-75 Figure 8-5: Longitudinal Section Resources Map of Yuanling (Estimated by Henan Industry and Tradition School in March 2008) ...... VII-76

– VII-13 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

DISCLAIMER

The opinions expressed in this report have been based on the information supplied to SRK Consulting China Ltd (“SRK”) by Hongzhuang Gold Mine of Henan Multi Resources Mining Company Limited. The opinions in this report are provided in response to a specific request from Multi Resources. SRK has exercised all due care in reviewing the supplied information. Whilst SRK has compared key supplied data with expected values, the accuracy of the results and conclusions from the review are entirely reliant on the accuracy and completeness of the supplied data. SRK does not accept responsibility for any errors or omissions in the supplied information and does not accept any consequential liability arising from commercial decisions or actions resulting from them.

Opinions presented in this report apply to the site conditions and features as they existed at the time of SRK’s investigations, and those reasonably foreseeable. These opinions do not necessarily apply to conditions and features that may arise after the date of this report, about which SRK have had no prior knowledge nor had the opportunity to evaluate.

– VII-14 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

1 INTRODUCTION

In April 2008, Multi Resources completed the acquisition of Hongzhuang Gold Mine (“HGM”) which includes two properties (Hongzhuang Mining Area and Yuanling Mining Area) with total 5.6645 square kilometres and a processing plant of 100-ton per day capacity, from the previous holder – a state owned enterprise named Henan Jinqu Gold Inc..

The Hongzhuang Gold Mine now managed by Multi Resources is involved into two properties namely Hongzhuang and Yuanling Mining Area, which are both gold deposits being processed for decades of years.

2 OBJECTIVES AND WORK PROGRAM

The objective of SRK Consulting (“SRK”) was to perform an independent expert technical review on available relevant aspects of the Hongzhuang Gold Mine which consists of two mining areas, namely Hongzhuang and Yuanling, both located in the Luanchuan County, Henan province of Centre China. SRK was commissioned by Continental Holdings Limited (“Continental” or “Client”) to conduct a due diligence review in order to provide an independent technical assessment report for future possible transaction or IPO in Stock Exchange of Hong Kong (“SEHK”).

Continental Holdings Limited is an investment holding company listed in the Hong Kong Stock Exchange since 1988 (“HK0513”). The principal activities of the Company and its subsidiaries are the designing, manufacturing, and marketing of fine jewellery. Also, the Group maintains an investment portfolio including property development and other industries.

2.1 Program Objectives

SRK Consulting understands that the objectives of this study are to:

¼ Review what exploration or mining programs associated with resources or reserves in Hongzhuang and Yuanling Area, comment upon the existing exploration programs and data, and highlight potential risks and opportunities;

¼ Assess the potential viability of the deposits in terms of mineral inventory and exploration potential;

¼ Provide an indicative assessment of what exploration work is required to progress the technical economic evaluation of the Hongzhuang and Yuanliang projects to the next stage.

The work program involved three phases:

¼ Phase 1: conduct a desktop review of available information provided by Client,

– VII-15 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

¼ Phase 2: travel to Luanchuan County, inspection of mining permit areas, interview with related staff of the Hongzhuang Gold Mine, collection and review of documents provided to SRK, and collecting check samples from adits, remainders of core and pulps; and

¼ Phase 3: analysis of the provided data, completion of a draft report, copy to the client and finalise the report.

2.2 Purpose of the Report

The purpose of this Report is to provide Client with an independent technical report on Hongzhuang and Yuanling projects for its consideration of investment. The due diligence review report also provides the potential investors with an unbiased report on the risks and opportunities associated with the projects.

2.3 Reporting Standard

This Report has been prepared to the standard of, and is considered by SRK to be, a Technical Assessment Report under guidelines of the Valmin Code. The Valmin Code incorporates the Joint Ore Reserves Committee (“JORC”) Code for the reporting of Mineral Resources and Ore Reserves and is binding upon all Australasian Institute of Mining and Metallurgy (“AusIMM”) members.

This Report is not a valuation report and does not express an opinion as to the value of mineral asset. Resources reported in this document are not classified according to the JORC code and have been reported against the relevant Chinese classification system. SRK does not express an opinion regarding the specific value of asset and tenement involved.

2.4 Work Program

The work program consisted of a review of data provided by Henan Multi Resources Mining Company Limited, travel to the projects sites in Luanchuan County, in Henan Province, PRC; inspection of the Hongzhuang and Yuanling mine sites, including field/mine observations, interviews with the representatives of the Hongzhuang Gold Mine, analysis of the data provided and collected, and preparation of this Report, provided to the Client as a draft for review of factual content. SRK will finalise the report after feedback and comments have been considered.

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2.5 Project Team

The SRK project Geological Brigade, title and responsibility within this Report are shown in Table 2-1.

Table 2-1: SRK Project Team

SRK Personnel Initial Project Role Richard Kosacz (M.Sc.Eng.) RK Principal Consultant – geology Jinhui Liu (M.Sc.) JL Senior Geologist Pengfei Xiao (M.Sc.) PX Geologist Anson Xu (Ph.D) AX Principal Consultant – geology

Richard Kosacz, M.Sc.Eng. P.Geo. MAusIMM, a principal consultant (geology) has over 30 years of geological experience which includes mine geological services, scientific research and international geological consulting of different mineral deposits for planning, managing and conducting of regional as well target-scale mineral exploration from the grass roots stadium to definition drillings. His portfolio of geological research and services includes precious (Au-Ag, Pt-Pd), base (Cu, Zn, and Pb) as well as other non-ferrous metal deposits in different geological environments, world wide. He also has extensive experience in the management of field data (geological and geochemical) as well high level skills of their interpretation and geological modelling. Richard has been working SRK China over 3 years. He is the project manager.

Jinhui Liu, Master, Geologist (Mineral deposit), MAusIMM, graduated from China University of Geosciences in 2004. He has been engaged in exploring and surveying of deposit and application of computer. He is skilled in the application of Surpac, Micromine, ERDAS, ENVI, PCI,ARCGIS, MAPINFO, MAPGIS,CAD software. He has extensive prior experience in geology and geochemical exploration design, resource and reserve estimation for numerous metal ore projects and compiling public report. Jinhui has been working with SRK China over 3 years, involving more than twenty exploration and mining projects located in China mainland, and several overseas projects located in Indonesia, Mongolia, Australia, North America and Africa.

Pengfei Xiao, M.Sc. (Geophysics) of Chinese Academy of Sciences, graduated from Institute of Geology and Geophysics Chinese Academy of Science, now is a geologist of SRK Consulting China. In the past years, Pengfei has joined a number of training on Petrology, Tectonics, and Geophysical exploration; also he has taken part in geological mapping. As a main participant, he has worked on Geophysical exploration and Geological survey in some metal minerals and coal projects, including a key project sponsored by National Nature Science Foundation of China. Pengfei joined SRK China in 2008, and he has worked for over ten exploration and mining projects located in China, and several overseas projects located in Mongolia, Kazakhstan, South America and Africa.

– VII-17 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Dr Anson Xu, PhD (Geology), MAusIMM, is a principal geologist who specialises in exploration of mineral deposits. He has more than 20 years experience in exploration and development of various types of mineral deposits including copper-nickel sulphide deposits related to ultrabasic rocks, tungsten and tin deposits, diamond deposits, and in particular, various types of gold deposits, vein-type, fracture-breccia zone type, alteration type, carlin type. He was responsible for resource estimations of several diamond deposits, and review of resource estimations of several gold deposits. He recently completed several due diligence jobs for clients in China, including gold, silver, lead-zinc, iron, bauxite, and copper projects, and several technical review projects, as well as Canadian NI43-101 and HKSE IPO technical reports. Dr. Anson Xu graduated from Nanjing University, China with a B. S. degree in the specialty of Geology of Ore Deposits, from Chengdu University of Technology, China with a M.S. degree in the specialty of Geology of Ore Deposits, and from University of Nebraska-Lincoln, USA with a Ph.D. degree in specialty of Geology. Dr Anson Xu is responsible for peer review.

2.6 Statement of SRK Independence

Neither SRK nor any of the Report authors have any material present or contingent interest in the outcome of this Report, nor do they have any pecuniary or other interest that could be reasonably regarded as being capable of affecting their independence or that of SRK.

SRK has no prior association with Client in regard to the mineral properties that are the subject of this Report. SRK has no beneficial interest in the outcome of the technical assessment being capable of affecting its independence.

SRK’s fee for completing this Report is based on its normal professional daily rates plus reimbursement of incidental expenses. Payment of that professional fee is not contingent upon the outcome of this report.

2.7 Warranties

Multi Resources has represented to SRK that full disclosure has been made of all material information and that, to the best of its knowledge and understanding, such information is complete, accurate and true. SRK has no reason to doubt this representation.

2.8 SRK Experience

The SRK group employs over 900 professionals internationally and has 33 permanently staffed offices in 10 countries on six continents. SRK has considerable experience in providing Independent Export Reports for companies who are seeking to or are listed on the stock exchanges in Australia, Britain, Canada, Hong Kong, South Africa and the USA. In China, SRK has provided Independent Expert Reports on gold projects for the companies as shown in Table 2-2.

– VII-18 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Table 2-2: Recent Reports by SRK about Gold Deposits in China

Company Year Nature of Transaction/SRK’s Duty Listing on the Stock Exchange of Fujian Zijin Gold Mining Company 2004 Hong Kong Limited Listing on the Stock Exchange of Lingbao Gold Limited 2005 Hong Kong Limited Potential acquisition target on a Centerra Gold Inc. (Canada) 2006 gold mine in China Potential acquisition associated with Penglai Jinchuang Gold 2006 a gold mine in China Dual listing on the Stock Exchange Sino Gold Mining Limited 2007 of Hong Kong Limited Guo Ye Holdings Co. Ltd 2007 Potential investment Gold World Resources Inc 2007 Potential investment SRK QA/QC on exploration China Goldcorp Ltd 2008 program SRK Geology and resources review Huabei Zhaojin Mining Company 2008 for future operation Potential investment and possible Tongbai Yindongpo Gold Mine 2008 share dealing

2.9 Forward Looking Statements

Estimates of mineral resources are inherently forward looking statements. Being projections of future performance, they will differ from actual performance. The errors in such projections result from inherent uncertainties in interpretation of geologic data, variations in the execution of mining and processing plans, the ability to meet construction and production schedules, availability of necessary equipment and supplies, fluctuating prices and changes in regulations.

Possible sources of error in the forward looking statements are addressed in more detail in the appropriate sections of this Report. Also provided in the Report are comments on inherent risks in different areas of the mining and processing operations.

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3 BACKGROUND OF THE PROJECT

3.1 History

From 1956 to 1957, the Geological Brigade of Qinling Mountains District conducted 1:200000-scale regional geological survey. Consequently in 1965 a regional geological map associated with an explanatory memorandum of mineral resources, for Luoning and Luanchuan Area was published, which provided a systematic and fundamental geological research result on this area.

From 1958 to 1960, the 902, 903 and 905 Brigade of Geology and Mineral Resources Ministry of China conducted 1:200000, 1:100000 and 1:50000 aeromagnetic surveys in this area, and totally thirteen areas of magnetic anomalies were delineated at that time.

In 1961, 1:50000-scale regional geological survey was conducted in Machaoying – Tantou area by Yu 01 Geological Team (No.01 Geological Brigade of Henan Province).

From 1979 to 1981, the No. 01 Geological Brigade undertook 1:5000 stream sediments survey in the south slope of Xiong’er Mountain and submitted “Stream sediment survey report in the south slope of Xiong’er Mountain, Henan Province”. After that the same brigade conducted 1:50000-scale regional survey in the north of Luanchuan from 1982 to 1986 and published “Regional geological survey report for north Luanchuan County of Henan Province” at the end of the work.

From 1984 to 1986, the No. 9 Detachment of Gold Brigade, Chinese Armed Police carried out the gold prospecting in Hongzhuang area, and submitted prospecting report of No. 860 Vein, in which 2335kg of gold metal were estimated.

From 1991 to 1993, the Geology Department of Nanjing University undertook the gold mine research in Yuanling area, and submitted a result report named “Research and Guideline of Geological exploration in Yuanling Area of Luanchuan County, Henan Province”.

At the end of Year 1993, the No. 9 Detachment of Gold Brigade, Chinese Armed Police submitted “geological exploration report on No. 980 Vein of Yuanling gold mining area, Shizimiao Town of Luanchuan County, Henan Province”. And on January 15th, 1994, this report was approved by the Minerals Reserve Committee of Henan Province (proof document: No. 05 (1994)), indicating that C and D-grade ore tonnage is 302992 tonnes and the gold metals weigh 2463 kilograms. Based on this report, a gold processing plant with the capacity of 100 tonnes per day was planned to be invested and constructed by Luanchuan County Government. The mine was constructed for two years after the submission of exploration report. At present, after reserves verification on Vein 980 of Yuanling by No. 1 Geological Exploration Brigade of Henan Geological and Mineral Resources Exploration and Development Bureau, the recoverable reserves of gold is 220.44 kg which has been kept as record by the associated authority (proof document YUGUOTU (XIAO) ZI No. 020 (2005)).

– VII-20 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

It is reported that at the end of Year 2000, the “gold geological reserves report in Suocaogou Mining Area, Shizimiao Town of Luanchuan County, Henan Province” was complied by the No. 9 Detachment of Gold Brigade, Chinese Armed Police and other companies or organizations as a joint effort. On December 17th, 2000, the Reserves Division of National Land and Resources Office held an assessment meeting in Luoyang to discuss and check the resources/reserves estimated in the report, and on Feb 27th, 2001, mineral resources/reserves confirmation letter under “YUGUOTUZIRENCHUZI [2001] No. 03” confirms that C-grade (122b) gold is 207 kilograms, and D-grade (333) gold weighs 689 kilograms. However this report is not available now.

In July 2005, Land Resources Science Academy of Henan Province verified the gold resources/reserves in Suocaogou mining area and compiled a report called “reserves verification report in Hongzhuang Mining area of Hongzhuang Gold Mine, Luanchuan County of Henan Province”. This report was appraised by Mineral Reserves Assessment Center of Henan Province and kept as record under Document “YUGUOTUZICHUBEI (XIAO) ZI [2005] No. 232” by Land and Mineral Resources Bureau of Henan Province, indicating that recoverable ore quantity weighs 104 kilograms.

From 1994 to 2001, the No. 9 Detachment of Gold Brigade, Chinese Armed Police conducted geological prospecting in Hongzhuang Gold Mine area and submitted a report named “Exploration Report on No. 96234 Fracture Alteration Zone in Hongzhuang Gold Mining Area of Shizimiao Gold Mine Field, Luanchuan County, Henan Province”. This report was assessed by No. 2 General Division of Gold Brigade, Chinese Armed Police, but it was not confirmed by authorities like Reserves Committee of Henan Province. This report showed that No. 96234 fracture alteration zone is an exciting potential prospect, which was considered as an exploration base for the further prospecting.

3.2 Present Work

Since January 2005, Henan Jinqu Gold Inc. had conducted a series of aggressive exploration work while they were mining in the area of the two properties. Exploration work taken in Yuanling Area was mainly concentrated on the drilling to verify the No.6 gold anomaly area. Adits were excavated to explore the west extension of Vein 986, Vein 987, Vein 988 and Vein 989. Drilling exploration was conducted to control the prospective resources below the elevation of 500 meters.

The exploration was based on previous work undertaken by the No.9 Detachment of Gold Brigade, Chinese Armed Police, and for Hongzhuang Area the emphases were put on Vein 96234. Prospective resources/reserves were controlled by drilling with the lowest elevation of 200 meters above sea level (A.S.L.). Above the elevation of 600 meters and at the east of Exploration Line 50, adits with level-interval of 40 m, and 50 m to 100 m crosscut the vein, were excavated to research for further understanding of horizon distribution, deposit shape and occurrence, ore composition, quality change and processing technique and indexes (guidelines). General survey and brief research on hydrogeology, engineering and environmental geology were also conducted, which augmented geological understandings in the area.

– VII-21 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Metal quantity of Hongzhuang property was estimated by Henan Jinqu Inc., indicating that 122b and 333 grade resources/reserves are 35391 kilos of gold metals, among which 122b grade reserves weigh 10729 kilos while the left 24662 kilos of gold metals from 333 grade resources.

The exploration workload in Hongzhuang Area completed both by the No.9 Detachment of Gold Brigade, Chinese Armed Police and Henan Jinqu Gold Inc. can be referred to following table (Table 3-1).

Table 3-1: Completed Workload in Hongzhuang Mining Area

No. 9 Detachment of Hongzhuang Gold Gold Brigade Mine of Jinqu Inc. Work Remark Before After Unit Total 2004 2004 Trenching m3 20349.9 20349.9 Tunnelling m 990 6517.13 7507.13 Drilling m 6274.4 6470.08 12744.48 24 holes Samples-basic analysis Piece 1049 1823 2872 Samples-combinatory analysis Piece 50 50 1:10000 geological survey km2 20 20 1:2000 topographical survey km2 2 2 2 Modified Polished thin section Piece 78 50 128 Minute weight Piece 50 50 100 Ore processing test Piece 1 1

4 ACCESSIBILITY, CLIMATE, PHYSIOGRAPHY AND INFRASTRUCTURE

Both the Hongzhuang and Yuanling Properties are located at Shizimiao Town, Luanchuan County, Henan Province of People’s Republic of China. The Yuanling property is seated to the northwest of the Hongzhuang area, with minimum distance approximately 1,500 meters (Southeast corner of Yuanling mine to Northwest corner of Hongzhuang mine). The Hongzhuang Gold Mine facilities are close to the mine areas governed by Shizimiao Town (see Figure 4-1).

Accessibility to the mine site is excellent and granted from Shizimiao town with about three kilometres long paved road. The new provincial highway crosses the town, which leads to the Luanchuan County centre located about 20 kilometres apart. There are several highways crossing the county to nearby big cities such as Sanmenxia, Luoyang and Zhengzhou. The total mileage from Hongzhuang Gold Mine to Zhengzhou, the capital of Henan Province is approximately 350 kilometres.

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The corner coordinates of the two mining licences are listed as following (Table 4-1 and Table 4-2):

Table 4-1: Coordinates of Vertices of Hongzhuang Mine – Beijing 1954 Coordinate System

Vertex ID East North Vertex ID East North 1 37552800 3766695 3 37554000 3765750 2 37554000 3766700 4 37552800 3765800

Table 4-2: Vertices Coordinates of Yuanling Mine – Beijing 1954 Coordinate System

Vertex ID East North Vertex ID East North 1 37551270 3766170 4 37550030 3768860 2 37549500 3766640 5 37551150 3768070 3 37548850 3767940 6 37551650 3766580

Figure 4-1: General Location of the Hongzhuang and Yuanling Projects

The mining area is located at low mountainous and valley area, south slope of Xiong’er Mountain. It was formed by the uplift movement of sedimentary terrace deposit during the neotectonic (post-Miocene) period. The highest elevation within the mining area is 1,099 meters above sea level (A.S.L.) and the lowest is at 750 meters A.S.L., with relative difference about 349 meters. Generally, north part of the tenement is more elevated than the

– VII-23 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE south one, and the whole area inclines to the south with slopes varying from 20° up to 60°. Most of the mountains and rivers in the area extend from east to west, and some secondary ones (small scale of mountains or rivers) spread along south-north direction. South Shizimiao area is deeply cut which due to the long term landform uplift movement affected by continuous erosional processes.

Drainage in this area belongs to the Yellow River water system. Xiao he River, the branch of Yi River flows to the east from west passing through Baitu Town, Shizimiao town and Qiupa town, finally joining Yi River at Tantou town. This perennial river, of total 44 km long with mean flow 4.37 m3 per second, crosses the south of the mining licensed area, assuring plenty of drinking as well industrial water source. Power supply should be convenient without any problems as SRK has noticed that relevant facilities were well constructed in this region, and industrial power was available in the adits which SRK has visited during the time.

Mining area is located in the warm temperature, continental monsoon semi-arid climate zone. Annual average temperature is +12.0°C; daily highest temperature is +35.7°C and the lowest is -16.7°C. Annual hours of sunshine in this region is about 2,103 hours; total annual radiation is 113.81kcal/m3; total annual photosynthetic active radiation oscillates around 55.79 kcal/cm3. Annual average precipitation is 864.4 mm, and annual average evaporation is 1,514.7 mm. Monsoon wind is apparent, winds from north-west prevail in autumn and winter, from easting dominant winds blow in spring and summer, and north-western are present all year long with the average speed of 1.6m/s. Frost-free period last for 198 days, and frost period will lasts from December to January or February of next year. Maximum frozen soil depth is 24 cm, and average snow cover is about 0.2 m.

The available economy activities for local people in Shizimiao town area include farming, forestry, Chinese herbal medicine production, animal husbandry, and mineral mining and processing. Industrial mining, ore processing and smelting, selecting forestry and products processing presently became the important local economic activities. New agriculture system formed in this region, which takes agriculture as dominant one, combining with subsidiary agricultural products processing, as well as developing township enterprise. The third industry here, i.e. tourism, is developing quickly, and infrastructure is getting improved.

Shizimiao town governs 1,220 hectares (12.20 square kilometres) of cultivated land which mainly are slope-terrace farmlands planted with crops of wheat, corn, beans and small scale of minor cereals. Animal husbandry concentrates on hybridized Boer Goat and cattle improvements as well as pig farming. Forest land covers 14,000 hectares, including 8,667 hectares of timberland, and forest coverage rate reaches 88.8%; economic forest covers 5,333 hectares planting with the commercial crops of walnut, persimmon, Chinese red pepper and chestnut. Recently, government of Shizimiao Township is making adjustment for planting structure. By end of 2003, herbal medicine farming area has reached 900 hectares.

Mineral resources in Shizimiao area mainly are gold, iron, talc and white marble. Iron deposits are found in Wangfugou village, Lengshuigou village and Wengyugou village; white marble mines are mainly located around Baishiya village. Gold deposits are mined in Henglingshan village and Hongzhuang village.

– VII-24 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Shizimiao township administrates twenty one villages with total population of 19,684 distributing in 180 residential areas, including agricultural population of 18,174 (population statistics by 2000s). Residential areas are concentrated, and surplus labour force resources become a source of migrant industrial workers.

There is a township central primary school, a township junior high school and an adult education school in Shizimiao. All of those three schools are located in Shizimiao Willage, the administrative centre of the town. In Shizimiao town, there are 21 township and village primary schools; each administrative village has its own primary school. Village primary school of Hongzhuang has 6 classes, 6 teachers and more than 100 students.

A township health centre built with basic equipments and twenty village first aid stations constitute the whole town health and medical system. Shizimiao town has a post office, computerized telephone, mobile phone and internet can be accessed.

– VII-25 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

5 GEOLOGICAL AND MINERAL INVENTORY ASSESSMENT

5.1 Regional Geology

Regionally the project area (Hongzhuang property and Yuanling property) is located in the transitional conjunction zone between the south rim of North China Platform and the Fold Belt of Qinling Mountains. This stratigraphy is a part of the Xiong’er Platform, which is located in the west subregion of Henan province. Impacted by the Luanchuan-Que Mountain – Gushi deep fault in the south and the active geosynclinal movement in Qinling Mountains, the tectonics framework is relatively complicated. The dominant structural arrangement of this area is nearly east-west, and the faults and folds which built it are progressively developed from the north to the west. Folding arrangement in this region is unclear due to cutting by the abundant faults. The nearly E-W striking regional faults are mostly developed in the region, associated with north-easterly oriented secondary fractures (Figure 5-1).

Figure 5-1: Regional Geology and Tectonics – Modified

5.1.1 Stratigraphy

The regional outcropped strata are marked by Archaeozoic Taihua Group, meso-Proterozoic Xiong’er Group, with sporadic distribution of the Tertiary system in local area.

– VII-26 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Taihua Group (Arth):

Archaeozoic Taihua Group consists of two sections which are named as Lower Unit (Arth1) and Upper Unit (Arth2).

¼ Lower Unit (Arth1) of Taihua Group is characterized by gray or light gray biotite-plagioclase gneiss; mixed gneisses with inclusion of gray-green biotite-amphibolite-plagioclase gneiss, plagioclase-hornblende leptynolite (hornfels), with local presence of banded or ribbon migmatite and homogeneous migmatite. The total thickness of Arth1 is over 894 m.

¼ Upper Unit (Arth2) of Taihua Group is characterized by gray-green plagioclase– hornblende gneiss, amphibole-plagioclase gneiss, plagioclase-hornblende, hornblende with interbeds of biotite-plagioclase gneiss and homogeneous migmatite. The total thickness of Arth2 is over 643 m.

Xiong’er Group:

Meso-Proterozoic Xiong’er Group in the area is mainly composed by the following formations;

¼ Moshigou formation (Chm): This formation is formed from fluviolaccustrine clastic sediment, and the lithology is characterized by feldspar quartz sandstone, shale and conglomerate. The Moshigou Formation is mainly distributed in the Kangshan area, with thickness of 9.2 m.

¼ Zhanghemiao Formation (CHz): The majority of rocks in this formation are represented by gray-violet andesite, and secondly for amygdaloidal andesite, basaltic andesite, andesitic porphyries and large spotted andesite. The formation is mainly distributed in the northern part of Machaoying Fault, with thickness ranging from 1,072 m to 1,634 m.

¼ Jiaoyuan Formation (Chj): The major rocks in this formation are represented by violet-gray and violet-red dacitic porphyry, lithophysa-dacitic porphyry, rhyolite porphyry, and secondary dacite, rhyolite, with local distribution of gray-green andesite and basaltic andesite. The formation is mainly distributed in Magoumen-Wangliangou area and Shizimiao-Wengyugoumen area, with thickness of 1,590 m.

¼ Poqianjie Formation (Chp): The main lithologies are represented by gray-green and gray-violet andesite and basaltic andesite, and minor amygdaloidal andesite, basaltic trachyandesite, trachyporphyrite, with thickness less than 2060m.

¼ Yanyaozhai formation (Chy): The formation mainly consists of gray rhyolite porphyry, and then the violet dacite porphyry. It is roughly discovered at both flanks of Machaoying Fault, with thickness of 298 m.

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5.1.2 Magmatism

Active magmatic activities and volcanic eruption are widely distributed in the project area. Besides of the intermediate-acidic igneous rocks of Proterozoic Xiong’er Group, intrusive Heyu Granite Pluton also outcrops widely well, mainly to the east of Machaoying Fault Belt. Isotopic dating shows that the age of the granite is approximately 135 Ma (million years).

5.1.3 Tectonics

The regional tectonics is characterized by Chongdu-Sanmen overturned anticline, Hangou-Liziping syncline and Machaoying Major tectonic zone (faults). Detailed structural features are characterized as follows:

5.1.3.1Folds

Chongdu-Sanmen Inverted Anticline is a tight linear fold, which is located at the south of Machaoying Fracture Belt and extends over 38 kilometres, with axial dip angle between 50° and 60°, and the strike of 105°. Zhanghemiao Formation is the core structure of the Chongdu-Sanmen overturned anticline, whose eastern flank merges into the Taihua Group and the south flank is reversed. Both flanks incline to north-northeast, and their dip angle ranges from 45° to 65°. Comparably the dip angle at the south flank is dipper than this of northern counterpart.

Hangou-Liziping Syncline is the main fold in the south area of Xiong’er Mountain. Located in the north of Machaoying Fracture Belt, the length of the syncline is about 22 km from the east to the west and the maximum width is over 6 km. The axis of the syncline is nearly of east-west direction, with uplifts in the west and dipping towards east. The dip angle of the two flanks, a couple of expansive synclines, varies from 30° up to 50°. The axial plane dips to the south, with dip angle of 82°. The angle between the two flanks is 75°. Both of the two flanks consist of rocks of Xiong’er Group, and the syncline has been destructed by later faults.

5.1.3.2Faults

Machaoying major tectonic zone is marked by a series of faults forming a belt striking over the whole project area, with the total length reaching 48 kilometers. This tectonic zone connects Tantou town from the east and Lushi town in the west, crossing Machaoying area. The general strike of the fractured zone varies from 270° to 300°, and mostly is inclined to the north with dip angle of 50° to 80°. The Machaoying tectonic zone extends and cut the Taihua group, Xiong’er Group and lower strata of Luanchuan Group in this region.

The Machaoying fractured belt mainly consists of three reverse thrusts, which are Kangshan-Nanping Fault, Tieling-Shiyaogou Fault, and Machaoying-Shizimiao-Hongzhuang Fault. There are 3 to 5 parallel sub-fractures

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distributed between the every two faults, and the sub-fractures can be defined as branches of the associated major fault. The evolution process of compress-tension-compress-shearing-compress occurred to the faults. Influenced by intense dynamic metamorphism, rocks in the fractured belt are complicatedly deformed. The mylonites, breccias, cataclasites and schistose rocks are common.

5.2 Regional Natural Resources

The primary mineral resource in the project area is gold deposit, located in the Machaoying Fractured Belt. Mostly the gold deposits in this region are discovered at the conjunction part (collision part) between Machaoying Fracture and the crossed N-E fractures, therefore they are classified as cataclastic alteration type of gold deposit. From the west to the east, there are several gold mines i.e. Kangshan, Yuanling, Hongzhuang, Tantou Gold Mine, etc.

Besides mined gold deposits that are largely distributed in the region, some other commodity deposits are also well present. Silver and lead are usually associated with gold, and small scale deposits of zinc, copper and iron are discovered as well. It is reported that molybdenum deposits in this region accounts the most production (measured resources and reserves about 2.1 million tonnes of molybdenum metal) in Asia and where is the second molybdenum place of origin. Besides resources mentioned above, talc and white marble resources are also however sporadically present in the region.

Figure 5-2: Regional Metallogenic Prognosis – Southwest of Henan Province

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5.3 Deposit Geology

The geological settings of Hongzhuang and Yuanling deposits are similar in particular regarding stratigraphy, as the both of them are spatially neighboring each other and consequently belong to the same region geology.

Figure 5-3: Regional Geology for the Mine Area

Legend

Siltstone, conglomerate Ore-vein occurrence

Rhyolite porphyry, rhyorite Au orebody

Andesite, basalt and trachyte Alteration fracture zone

Rhyodacite porphyry with andesite Trench & ID Andesite, occassional megaphyric or Adit & ID basaltic andesite Altered rock, migmatite Pit & ID

Diabase Outcrop & ID

Volcanic facies plane Borehole – mineralization discovered

Compressional fault and attitude Borehole – mineralization undiscovered

Compressive sheering fault and attitude Au anomaly

Cataclastic altered andesite Exploration line & ID

Fault – defined Geological unconformity

Fault – infered Anomaly – stream sediments

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Geological boundary Anomaly – panning concentrate

Stratum occurrence Mining area

Lava-flow occurrence

5.3.1 Stratigraphy and Lithology

The outcropped strata in the two deposit areas are mainly Zhanghemiao Formation, Jiaoyuan Formation, Poqianjie Formation, and Yanyaozhai Formation of meso-Proterozoic Xiong’er Group, and secondly for Longjiayuan Formation of meso-Proterozoic Guandaokou Group, Cretaceous Gaoyugou Formation, and the residual Quaternary talus (slope wash or slide rocks).

Xiong’er Group: Following formations of meso-Proterozoic Xiong’er Group in the deposit area:

¼ Zhanghemiao Formation (CHz): The Zhanghemiao Formation mainly outcropped in the west of Shiyagou of Yuanling Mining Area, which is at the north part of Machaoying Fracture Belt and the south part of Kangshan-Nanping Fault. The lower section consists of gray and gray-green spotted basaltic andesite, spotted andesite, basaltic andesite, with local inclusion of thin de-vitric andesite. The lithology of the upper section is characterized by gray-green andesite, amygdaloidal andesite, basaltic andesite with obsidian, spotted andesite, and spotted alkaline andesite (trachyandesite).

¼ Jiaoyuan Formation (Chj): The outcrops of Jiaoyuan Formation are basically found in the north of Yuanling Mining Area and Nanping Mining Area. The north boundary is in contact with the fault while the south boundary is in contact with the underlying stratum-Zhanghemiao Formation of Xiong’er Group.

¼ Lower section of Chj: The components of the lower part are gray-violet and violet-red dacitic porphyry with lithophysa-dacitic porphyry, and the gray-green and violet andesite, amygdaloidal andesite with andesitic obsidian are distributed in the middle part. The upper part consists of violet-red rhyolite porphyry, and dacitic andesite thin green andesite.

¼ Middle section of Chj: The main components are gray-green andesite, amygdaloidal andesite with multi-layers of basaltic andesite, with local distributing violet-red quartz porphyry. The feldspar sandstone is occasionally observed in the bottom.

¼ Upper section of Chj: Violet-red dacitic porphyry, and rhyolite porphyry with thin layered green andesite are the major components of the section, and lithophysa structure is developed on the top.

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¼ Poqianjie Formation (Chp): The Poqianjie Formation is mainly distributed in the north of Nanping Fault and the south of Machaoying-Hongzhuang Fault, with large outcropped area.

¼ Lower section of Chp: The main lithology of the lower section is marked by gray-green andesite and alkaline basalt, with basaltic andesite, thin layer of crystal tuff. The andesite and basaltic andesite are the main components in local area, with spotted andesite in central part. Tuffaceous sandstone is sporadically distributed.

¼ Upper section of Chp: The main lithology of the upper section is marked by gray-violet and violet-red basaltic trachyandesite, trachyte and gray-green andesite with multi thin layers of tuff and alkaline basalt.

¼ Yanyaozhai Formation (Chy): The main lithology is gray-violet rhyolite porphyry, which has transformed into quartz porphyry in local area. Lithophysa structures developed, which appears as leaching-overflowing.

Longjiayuan Formation of Guandaokou Group (Jxl1)

The typical lithology of Longjiayuan Formation is marked as gray-white or red thick layered dolomite with siliceous streak crystal dolomite, dolomitic marble and occasional layers of talc, quartz, dolomite and phyllite. The outcropped area in the mine site is between the 45th and 48th exploration lines. The northern area of Longjiayuan Formation is adjacent to Poqianjie Formation, with tectonic unconformities.

Cretaceous Gaoyugou Formation (K2E1g1)

Rocks of this formation are mainly violet-red medium-thin layered siltstone with lenses of gravel; also violet-red gravel is found at the bottom. The outcrops are found in the north part of the mine, around Nanwa and Hongzhuang primary school.

5.3.2 Tectonic Framework of Deposit Area

Faults in the deposit area are well developed because of the multi-stage tectonic movements of Machaoying Fracture Belt. The numerous faults in this area could be divided into two groups by their spatial orientation.

Nearly East-West (E-W) Striking Faults

Faults of this type are comparatively developed in the project area, and the general strike is nearly E-W, dipping to the north with dip angle of 60˚ to 80˚. Rocks in the fault zones are complicatedly deformed in consequence of active tectonic movements. Geological features in the zones are characterized by crushed rocks, developed joints, intense alteration, and a number of secondary E-W

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oriented structures. Mylonite and breccia are commonly observed in the cross sections. Among all of the E-W faults, the No.96234 Fracture Alteration Zone (Machaoying-Hongzhuang Fault) is the major deposit-controlling structure in Hongzhuang Mining Area.

¼ Machaoying-Hongzhuang Fault (No.96234 Fracture Alteration Zone): As the major fault of Machaoying Fracture Belt (first range fault in this region), Machaoying-Hongzhuang Fault starts from Chenjialing in the west, and extends to Hongzhuang in the east, crossing the front area of Lishugou. The outcropped length is about 7km. There are secondary E-W branches in this fractured belt, such as Zhangjiazhuang-Lishugou Fault (F3), Sangshuwa-Houao Fault (F8), and Lingshang-Xilangwo Fault. The Yanyaozhai Formation of Xiong’er Group and the Gaoshanhe Formation of Guandaokou Group outcropped in the south of this fault. The outcropped strata in the south wall of the fault are younger than the ones in the north wall, revealing thrust compress-shearing feature.

¼ Kangshan-Nanping Fault: This fault begins from Houcun area in the west and extends to Nanping in the east by crossing the whole mining tenement. The strike is nearly E-W, with tendency to the north and nearly vertical dipping angle. The main outcrop in the north section is Poqianjie formation of Xionger group (Chp), while the outcrop in the south is Zhanghemiao formation of Xionger group (Chz), with a small amount of outcrop in Jiaoyuan formation (Chj).

North-East (N-E) Fault

The N-E fault, which is an associated secondary structure in the project area, is mainly distributed in the upper section of Machaoying fracture belt and the area between Kangshan-Nanping faults. As a crushed compressive and contorted fracture, the width of the crushed belt in the fracture is between 0.3-1.74 m, and the length is less than 1 km. The main lithologies are clastics and breccia, with intense silification and chloritization. Locally lenses of quartz with gold mineralization are present, which is the major ore controlling structure in the project area. Commonly the length of ore-controlling structure is about tens meters, and the thickness is less than 0.3m, with ore grade around 1-3g/t. Private small scale mining is common in this region. The #980 vein is the only industrial ore body in Yuanling mining area, and mine closure will have place in the near future as most of the ore body has been mined out.

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Characteristics of the Major Fractures are shown in Table 5-1:

Table 5-1: Geological Characteristics of Yuanling Mining Area, Hongzhuang Gold Mine

Gold Length Thickness Occurrence Number of Vein No. Potential Workings (m) (m) Strike Dip Dip Angle (g/t) two workings 981 2000 0.42-1.74 70-100˚ N 60-75˚ 28 >1g/t 985 380 0.42-1.25 70-100˚ NNW 35-47˚ >1g/t 11 One working 989 820 0.30-1.00 45-120˚ NW 38-75˚ 11 >1g/t Five workings 988 350 0.40-0.95 45-85˚ NW 35-70˚ 16 >1g/t 987 820 0.40-0.95 45-85˚ NW 60-85˚ >1g/t 16 NWW- One working 986 800 0.50-1.40 25-60˚ 45˚ 13 NNW >1g/t Two workings 970 300 0.48-0.81 50-65˚ NW 70˚ 7 >1g/t

5.3.3 Magmatism

The main magmatic activities in the project area are represented by medium-acid volcanic rocks and diabase of Meso-Proterozoic Xiong’er Group (PUch).

5.3.4 Geochemistry

In 1999, the No.9 Detachment of Gold Brigade, Chinese Armed Police conducted 1:10000-scale geochemical sectional survey in the project area, where the numbers of anomaly areas for Au, Ag, Cu, Pd, As and Sb are respectively 19, 18, 9, 12, 9 and 14. The main characteristics of gold anomalies are as follows:

The lower limit for gold anomaly in operational area is defined as 3.5 x 10-9 (3.5 ppb), and totally there are 19 delineated gold anomalies, whose distribution is mainly in Machaoying Fracture Belt and its neighbouring area. The gold anomalies are of long strip-shape elongated in E-W direction. Among the 19 anomalies, two of them are located in the west of Yangdaogou area, while the others are concentrated in the east region. The gold anomaly area in the west of Yangdaogou is small and there is no trend for concentration, while the eastern anomaly area is large and extremely concentrated.

As the largest anomaly area in the mine site, the No. 5 anomaly area covers 0.67 square kilometres with average intensity of 31.5 ppb Au. The anomaly area with maximum intensity, the No. 7 anomaly area is covering about 0.175 square kilometres, with maximum intensity of 670 ppb Au and average intensity of 127.6 ppb Au.

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The No. 17 soil anomaly area size is about 0.58 square kilometres, with maximum intensity of 58 ppb Au averaging at 15.9 ppb Au. The No. 17 anomaly area is associated with No. 96234 Fracture Alteration Zone.

The gold anomaly parameters are shown in Table 5-2:

Table 5-2: The Gold Anomalies in Hongzhuang and Yuanling Area

Anomalous Average Anomaly Maximum Anomaly No. Area (km2) Points (ppb) Anomaly (ppb) Au-2 0.14 12 9.2 16.9 Au-3 0.075 6 56.2 418 Au-5 0.67 20 31.5 458 Au-6 0.5 11 14.6 151 Au-7 0.175 6 127.6 670 Au-8 0.13 8 22.9 88 Au-12 0.04 5 46.8 100 Au-13 0.06 6 8.4 13.8 Au-14 0.05 5 6.8 47.5 Au-16 0.45 12 30.2 300 Au-17 0.58 22 15.9 58 Au-18 0.16 9 6.2 37.2 Au-19 0.03 4 7.2 13.5 Au-15 0.085 13 27.9 58 Au-1 0.065 4 6.5 16.8 Au-4 0.21 6 6.9 24.2 Au-9 0.12 7 4.6 10.2 Au-10 0.14 11 6.4 70 Au-11 0.032 5 6.9 14.5

5.4 Orebody (Vein) Characters – Hongzhuang Gold Mine

5.4.1 Fracture Alteration Zones (Belts)

Three belts of ore-bearing alteration zones are discovered namely No. 98200, No. 96234 and No. 98201 spread from south towards north. These belts are approximately parallel, spacing about 200 m and 400 m respectively. The vein No. 96234 is the primary target for Hongzhuang Gold Mine, and two others still are not well explored and developed.

No. 96234 Fractured-altered Belt: from Longwangzhuang Ditch to the west, to Yangdao Ditch, thirty (30) surface boreholes totalling at 5,800 meters were executed. The belt is striking at 280˚ azimuth and it is dipping north-easterly at the angle varying from 50˚ to 80˚. The horizontal width of the belt varies from 50 to 100 meters. The surface of the belt usually reveals concaved landforms. The rocks within this belt show

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strong schistosity and intense fragmentation. Silification and sericitization are common along both sides of the Hongzhuang Line 54. Andesite, originally gray or gray-black in colour has been altered to gray-white, compact and hard.

The geochemical results of rock outcrops surveyed have returned apparent anomalies; which the Au-13 and Au-16 are probably associated with Vein No. 98201 as they showing adjoining location, Au-14 and Au-17 are believed to be associated with Vein No. 96234, and the position of Au-18 anomaly is considered to be connected with Vein No. 98200.

Three primary ore-bearing horizons were discovered and determined from the top downwards. The red coloured gouge of the Machaoying Major Fault was used as a reference marker; accordingly, Horizon #1 occupies thirty (30) meter deep zone down from the marker, Horizon #2, from thirty (30) to sixty (60) meters interval and Horizon #3 extends from sixty (60) down to one hundred (100) meters. Besides the three primary ore-bearing horizons, a buried horizon has been also discovered.

Mylonite belt that extends in E-W direction is observed within this zone, and its occurrence may conclude the spreading orientation of ore-bearing horizons. Discovered by the trenching and shallow drilling, the shape of horizons is described as wider to the east and narrowing towards the west.

5.4.2 Occurrences and Geometry of the Ore Bodies

The occurrence and geometrical configuration of the ore bodies (ore-bearing horizons) are shown as following (see also Table 5-3 and Table 5-4):

Horizon #1:

¼ Extends from 160 m to the west of exploration line (EL) #40, to 40 m east to the EL#58, with controlled length no less than 1,050 m – is considered as large size orebody,

¼ Outcrop elevation varies from 740 m to 825 m A.S.L.

¼ Strike bearing of the horizon is 280˚, dipping to north at dip angle 58˚– 63˚, is steeper in the shallow part,

¼ Economically feasible orebody extends between EL#40 and EL#60,

¼ Explored with 28 pits and drill holes down to average elevation ~300 m A.S.L. ( the lowest 250 m A.S.L)

¼ To the west from EL#54 Horizon #1 is thicker and with higher grade;

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Horizon #2:

¼ Extends from EL#42 to EL#60, with controlled length of 980 m – is considered as large size orebody,

¼ Outcrop elevation varies from 710 m to 805 m A.S.L.

¼ Strike bearing of the horizon is 270˚–280˚, dipping to north at dip angle 58˚–66˚, is steeper in the shallow part,

¼ Investigated with 25 pits and boreholes down to average elevation ~300 m A.S.L. ( the lowest 250 m A.S.L)

¼ Thicker and higher grade to west of EL#56,

Horizon #3:

¼ Extends from 55 meters to west of EL#58, up to 25 m to east from EL#60 (outcrop), with controlled length of 115, small scale,

¼ Outcrop elevation varies from 742 m to 815 m A.S.L.

¼ Mineralization discovered between EL#44 and #52, at the depth between lines #56 and #60,

¼ Explored with18 pits and drill holes down to average elevation ~300 m A.S.L., ( the lowest 250 m A.S.L),

¼ A gap without mineralization between EL#52 and 54,

¼ Thicker layer and higher grade with the depth increasing and to the west rather than the east,

Horizon #4: a buried orebody without outcrop

¼ Occasional mineralization discovered at depth along EL#46, 48, 50, 56, 58, and 60,

¼ Controlled only by drill holes,

¼ Explored down to average elevation about 300 m A.S.L, 160 m A.S.L. at the lowest,

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Table 5-3: Thickness & Grade of Ore Discovered in Boreholes and Adits

Variation Variation Average Grade Thickness Coefficient Average Coefficient Ore Body Thickness Variation (m) of Thickness Grade (ppm) of Grade (m) (ppm) (%) (%) I 0.24-5.95 2.91 67 1.19-15.33 4.7 81 II 0.26-6.84 2.67 82 1.08-18.84 3.57 112 III 1.00-5.72 3.45 50 1.29-9.19 3.87 67 IV 0.13-4.06 1.98 75 1.18-6.97 3.12 68

Table 5-4: Thickness & Ore Grade of Ore Calculated from Drilling & Tunnelling Workings

Variation Variation Average Grade Thickness Coefficient of Average Coefficient Ore Body Thickness Variation (m) Thickness Grade (ppm) of Grade (m) (ppm) (%) (%) I 0.24-8.20 1.79 111 1.02-36.24 4.45 146 II 0.07-6.31 0.98 109 1.04-29.10 4.48 158 III 0.03-2.54 1.04 67 1.01-18.20 4.3 91 IV 0.02-2.53 0.7 83 1.00-8.44 3.18 92

5.4.3 Description of the Ore

5.4.3.1Mineral Composition of the Ore

Complex examination of thin sections under optical microscope, electron microscope and X-ray diffraction analysis allowed to detailed description of mineral composition of ore bearing horizons (veins). The main ore minerals are native gold, pyrite, galena, sphalerite and chalcopyrite. The main gangue minerals are quartz, chlorite and sericite, with minor minerals such as calcite, alkali feldspar and hornblende, and accessory sphene, zircon, illite, kaolinite and carbonate. Details of minerals and their contents are listed in following table (Table 5-5).

Table 5-5: Mineralogy of Ores

Ore Minerals Gold Pyrite Galena Sphalerite Chalcopyrite % traces 3.0 0.3 0.4 trace Main Gangue Quartz Sericite Chlorite Calcite Illite Minerals % 40.0 20.0 22.0 4.0 5.0 Accessory Gangue Feldspar Muscovite Tourmaline Carbonate Others Minerals % 4.0 traces traces traces 1.0

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Main gangue minerals

¼ Quartz: crystalline, anhedral crystals or grains of size variable from 0.02 to 2 mm, some between 0.01 and 0.05 mm. Quartz occurs associated with sericite, chlorite and calcite, as well as ore minerals.

¼ Sericite and Chlorite: fine grained, crystalloblastic texture, alteration products from feldspar, pyroxene, hornblende and biotite. Sericite and chlorite are intercalated with other minerals like quartz, calcite, and feldspar.

¼ Calcite: Associated with quartz, sericite and chlorite, sometimes found in thin veins or around sulphides.

Main metal minerals

¼ Native gold is the principal mineral containing gold for this deposit, with bright yellow colour and good ductility, strong metallic luster. Electron microscope analysis determined Au content varying between 86.81% up to 90.15%, Ag 10.49 % to 12.14 %, with traces of Fe, S, Pt, Co. The average fineness is 886.13, Au/Ag ratio is 7.96. Details are listed in Table 5-6, 5-7 and 5-8.

Table 5-6: Native Gold Samples Analysis with Electron Probe

Sample Au Ag Fe S Pt Co Total Mineral No. (%) (%) (%) (%) (%) (%) (%) 1 Native gold 86.81 10.49 0.047 0.11 0.439 0.033 97.93 2 Native gold 87.83 11.36 0.101 0.09 0.052 99.43 3 Native gold 89.66 12.14 0.01 0.048 0.004 101.86 4 Native gold 90.15 10.52 0.031 0.046 100.75

Table 5-7: Grain Size Fractions and Distribution of Gold in the Ore

Measured Distribution Fraction Size (mm) Grain Counts Area Size Rate (%) (sq. micron) 0.3-0.074 10 70600 20.75 Coarse 0.074-0.04 77 177610 52.09 Medium 0.04-0.01 166 89925 26.42 Fine <0.01 44 2179 0.64 Very fine Total 297 340314 100.00

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Table 5-8: Gold Paragenesis

Frequency Subtotal Occurrence Paragenesis (%) (%) Intergrowths with pyrite and gangue 27.35 Intergrowths with galena-sphalerite-gangue 21.08 Intergranular minerals 53.69 gold Intergrowths with pyrite-sphalerite-gangue 2.16 minerals Associated with pyrite and gangue minerals 3.1 Pyrite 5.92 Inclusions of Galena, sphalerite 0.81 37.88 gold Quartz and other gangue 31.15 In-fill fissure In-fill pyrite fissures 8.34 8.43 gold Total 100

¼ Pyrite as major sulphide component occupies approximately 3% of the whole volume in the ore supplying 0.5% to 2% sulphur element. Pyrite also is the main carrier of gold. It occurs in euhedral, subeuhedral or anhedral forms, usually disseminated in quartz and other gangue minerals. Its grain size usually varies from 0.04 up to 2.5 millimetres, occasionally more than 3 mm at largest, less than 0.04 mm at smallest. The contents of pyrite are listed in following Table 5-9.

Table 5-9: Pyrite Average Chemistry

Element Fe S Cu Co Au Ag Total % 46.58 52.44 0.084 0.087 0.744 0.014 99.95

¼ Galena constitutes 0.3% of the ore mineralogy, showing in subhedral or anhedral granular forms. Mainly grain sizes of galena vary between 0.03 and 1 millimetre, occasionally fine grains size cam be small as 0.005 millimetres. Lead element content in the ore varies from 0.01-0.98% and its average chemical composition is shown in Table 5-10.

Table 5-10: Galena Average Chemistry

Element Pb S Fe Pt Co Au Ag Total % 83.46 13.1 0.014 0.12 0.023 1.25 97.97

¼ Chalcopyrite is found occasionally in the ore occurring in the grains mostly varying in sizes from 0.02 to 0.2 mm, sporadically below 0.01 mm.

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¼ Sphalerite occupies 0.4% of the ore with different size of grain. Coarse grain could reach 2 mm, while fine grains can come down below 0.02 mm of diameter but predominant granularity varies between 0.03 and 1 mm. Sphalerite is closely associated with native gold. Zinc contents vary from 0.01% up to 0.98%

5.4.3.2Structures and Textures of the Ore

The main ore minerals such pyrite, galena and sphalerite occur mainly in disseminated form in gangue minerals. Stockwork like veinlets are also present composed of quartz with associated ore minerals. Common width of the fissures ranges from 1 to 5 mm.

The main types of ore textures are:

¼ Euhedral or subeuhedral crystal granular texture: The pyrite presents as euhedral or subeuhedral crystal or grains distributed in the gangue minerals.

¼ Anhedral granular texture: Sulphides and native gold occur in the ore as anhedral, irregular grains.

¼ Cataclastic texture: The pyrite and gangue components are compressed and crushed to small size; galena, quartz and other gangue minerals fill in the fissures, associated with the little of native gold.

¼ Poikilitic texture: The native gold is irregularly scattered without common orientation in pyrite, galena, sphalerite and quartz etc.

¼ Metasomatic replacement texture: The galena was replaced by sphalerite, and its remnants are distributed in the sphalerite.

¼ Mylonitic texture: Mylonitic texture is usually observed in the sub-structural plane, with alteration to sericite and chlorite.

6 EXPLORATION

In Hongzhuang mining area, the target for the exploration project is No. 96234 Fractured Alteration Zone. The exploration carried out by Jinqu Company was based on the exploration work conducted by the No. 9 Detachment, Gold Brigade, Chinese Armed Police, while the original exploration report indicated that basing on the deposit geological features, explorations were conducted by trenching on the surface, and drilling in the deep part with some investigations on historic artisanal tunnels by local people. The “D” grade resources are defined by 100 x 120 m drilling and “E” grade resources are defined by 200 x 240 m drilling; with the lowest level controlled by the drilling at 500 m A.S.L.

– VII-41 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

The present exploration classified as “Prospecting Grade” (four stages of exploration in Chinese standard: reconnaissance, prospecting, general exploration and detailed exploration) is located above the 600 m level where adits with level interval of 40 m were excavated to cross the vein with spacing 50–100 m and to control 122b reserves; under 600 m level, 200 x 240 m grid is used to control the deep potential (333+332 resources), the lowest level is at 200 m in elevation.

Due to the limited workings, up to date the exploration work has controlled a vertical depth of 500 m, and declined depth of 600 m, which provided basic understood of the dip and strike of the ore body, the ore quality, the associate minerals and the metallurgical conditions; and the mining conditions. Exploration work has expanded the deposit potentials and increased the study level, and has achieved the planed project targets.

6.1 Engineering Survey

The Hongzhuang gold mine survey maps are issued in relatively independent coordination system. The coordination (positioning) is taken as the primary place in the exploration work carried out by the companies (Henan Jinqu Gold Inc. and Multi Resources). The survey complies with the “Geological mineral exploration survey standards” complied by the Ministry of Geology and Mineral and the “Rock gold mine geology and survey standards” compiled by the National Gold Management Bureau. The surveys were internally and externally checked out. The instruments used are Tianbao-4600 GPS, theodolite, water level, Topcon-3200 total station, 50 m steel scale, which are all periodically inspected by specific quality control authorities.

¼ Planar control: It is controlled by Tianbao-4600 GPS at the Yuanling vertex (II-grade) and the Henglingshan vertex (V"). The observation points are placed in the pattern of triangles. The reference points, pits location results and deviations are indicated in Table 6-1, 6-2, 6-3 and 6-4.

In August 2005 Henan Jinqu Gold Inc. inspected two points – W5 and W6 survey points surveyed by the No.6 Detachment of Gold Brigade before, and the deviations were found within the standard permits then. In the Hongzhuang mining area, survey control network established by Henan Jinqu Gold Inc. was in the same system with the Military one and the two systems can be used interactively. The Hongzhuang and the Military survey results are listed in Table 6-1.

– VII-42 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Table 6-1: Coordinates of Reference Points

Coordinates Reference Points Elevation Northing Easting Remarks (A.S.L) National control Yuanling II 3767743.44 37550576.34 1097.87 point Basic control hengling5" 3767824.38 37549879.94 1085.07 point YL2 3766858.842 37549876.962 858.751 Hengling ZK122 3768259.022 37550304.477 870.415 Hengling ZK44 3768144.638 37549942.867 1010.289 Hengling YL6 3768404.927 37549839.746 1023.524 Hengling Lishufeng 3768584.713 37551944.885 1011.163 YL3 3766997.975 37549879.34 859.639 Hengling J800 3766997.172 37549691.986 801.650 Hengling HZ6 3766143.799 37553345.646 822.514 Hongzhuang HZ5 3765932.290 37553538.367 826.772 Hongzhuang J708 3765917.485 37553952.876 712.669 Hongzhuang SC1 3766112.054 37553260.347 752.110 Suocaogou SC2 3766027.934 37553278.932 741.015 Suocaogou HZ1 3766142.028 37553873.396 816.868 Hongzhuang Laojunmiao 3766405.547 37553536.333 832.232 Hongzhuang

Table 6-2: Hongzhuang Reference Points

Coordinates Reference Points Northing Easting Elevation (A.S.L) 758J 3766198.317 37553151.567 771.652 ZK502J 3766420.459 37553442.814 765.566 HZ8 3766563.847 37552972.527 853.708 ZK403 3766457.08 37552961.913 836.421 HZ7 3766101.747 37553031.725 843.601 HZ5 3765932.29 37553538.367 826.772 758J2 3766256.106 37553187.894 753.673

– VII-43 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Table 6-3: Reference Points Deviation

Deviation Control Points X (m) Y (m) Elevation (m) Yuanling 0 0 0 Hengling 5" 0 0 0 YL2 0.011 0.011 0.021 ZK122 0.015 0.014 0.028 ZK44 0.019 0.014 0.041 YL6 0.02 0.015 0.036 Lishufeng 0.022 0.018 0.034 YL3 0.018 0.015 0.031 J800 0.019 0.014 0.038 HZ6 0.036 0.031 0.043 HZ5 0.035 0.031 0.044 J708 0.05 0.039 0.064 Av. Deviation 0.025 0.02 0.038

Table 6-4: Hongzhuang Reference Points Deviation

Deviation Control points X (m) Y (m) Elevation (m) HZ6 0 0 0 HZ5 0 0 0 758J 0.006 0.004 0.009 ZK502J 0.007 0.012 0.032 Laojunmiao 0.002 0.003 0.003 HZ8 0.005 0.005 0.01 ZK403 0.006 0.004 0.01 HZ7 0.004 0.003 0.006 758J2 0.005 0.007 0.025 Av. Deviation 0.005 0.005 0.014

Table 6-5: Comparison between the Two Networks

Military Hongzhuang Control Elevation Point Northing Easting Elevation (m) Northing Easting (m) W5 3766398.04 37553536.22 831.49 3766398.15 37553535.98 831.51 W6 3766141.66 37553871.47 817.02 3766141.72 37553871.19 816.99

– VII-44 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

¼ Control Point Survey for Mapping: Taking the YL2 points and Lishufeng points as the starting points and by using Tianbao-4600GPS, a polygon with a centre point and a triangle grid formed by two triangles were surveyed; while Topcon total station was implemented to measured the II level mapping point, horizontal and vertical angles, and the accuracy was checked to achieve standards.

¼ Survey for Tunnelling Engineering: The nearby tunnelling survey points are controlled by the Primary Control Point in the mining area and First-Order Mapping Points. In the adits measurements are conducted by first order conductor (10"), and second order (20") conductor. The first order conductor is measured by Topcon 3200 total station. The conductor length ranges from 100 m to 300 m; the 2c value is less than 15 seconds in one round, and the distance error in three rounds should be less than 3mm. Permanent points are placed. The second order traverse is measured by J2 theodolite in two rounds and 50m scale measure for three times. The 2c value in one round should be less than 30 seconds; and the errors of the three round measurements should be less than 3 mm. Permanent points are placed. The error of the near pit point relative to the control points should be less than 0.03m; the elevation error should be less than 0.05 m.

The level position and the elevation in the adits are controlled by the near-entrance points outside the adits and by the conductor inside the adits. The conductor stations are the same as the adit roof elevations and fixed points are placed on the roof. All the survey procedures and accuracy comply with the required standard.

¼ Survey for Drilling Engineering: The drilling survey is conducted by J2 theodolite, Topcon 3200 total station. The maximum horizontal error is 0.107 m where the permit is 0.3 m; the maximum elevation error is 0.18 m where the permit is 0.25 m.

¼ Surface Exploration Projects Survey: Surface survey is conducted by theodolite utilizing of the control points, supplemented by traverse stations. The horizontal coordinates and elevation are calculated and placed on the topographical maps.

The geological and engineering survey was properly operated and technologically reasonable. The results are reliable and reflected the geological features and meet the requirements for the 1:2000-scale geological topographic surveys.

6.2 Topographical and Geological Mapping

The 1:2000 scale topographic mapping was conducted by the Military brigade and it covered an area of 1700 m x 1300 m of 2.21 km2 with contour line spacing of 5 m. Ore bodies in the zone are systematically controlled by 40 to 100m spacing. The targets for mapping are #96234 alteration zone, faults and strata. The observation line spacing is from 20 to 40 m and the observation point spacing varies from 40 to 80 m. Totally there are 1,112 observation points and 570 points every 1 km. The 43% of the total survey was done using total station. The map can expose the strata, structural ore body features and meet the required standards for this level of exploration.

– VII-45 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

The exploration cross-section lines were first set up onto the 1:2000 scale topographic map. The cross-section lines are perpendicular to the #96234 alteration zone. The planar exploration works are projected on geological map. Tunnel section was projected according to its planar positions. Borehole was projected to the cross-section by its planar position and the calculation of the azimuth and deviation.

Based on the borehole results analysis, strata and structures were marked on the cross-section and grade, dip and strike were also added.

Maps for resource estimation outlined the I, II and III ore bodies in specific projections. Boreholes intersecting with the ore bodies were projected by their floor coordinates. The ore body boundaries and estimated resources in sections and resource category were inferred.

Figure 6-1: Topographical and Engineering Layout of Hongzhuang Mining Area

– VII-46 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Figure 6-2: Topographical and Engineering Layout of Yuanling Mining Area

6.3 Trenching and Pitting

The exploration target of No. 96234 vein (Hongzhuang mining area) is located between #40 and #60 exploration lines. Previous exploration work conducted by the No. 9 Detachment of Gold Brigade, Chinese Armed Police consisted of trenching, pitting, outcrops-sampling, and re-researching on historic adits/caves.

No. I ore body was investigated using one (1) outcrop seven (7) trenches, and 14 previous local artisan mining excavations, No. II ore body by two (2) outcrops five (5) trenches, and three (3) previous adits/caves and 3 trenches were re-studied to investigate the No. III ore body. The survey provided a rough result about the thickness, length and grade variations of each ore body. Along the highly mineralized zones of the No. I ore body the exploration spacing varied from 30 to 60 m, however other two zones were explored with spacing varying from 100 to 140 meters.

Trenching was oriented perpendicular or approximately perpendicular to the ore body striking; their bottom width was about 1 m and the bedrock was excavated to 0.5 m and even deeper across exposed ore body; the length of trenches was planned and executed to expose the ore body or the all fraction zone.

The pits were excavated to expose the vein, and along with the previous artisan mining (adits/caves) provided understanding of framework of the ore bodies. There were numerous of previous artisan mining activities in the two mining area but all of these private mining had been suspended several years before and included into the Hongzhuang Gold Mine when Multi Resources took over the enterprise (see Figure 6-4).

– VII-47 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Figure 6-3: One of the Exploration Trenches – Yuanling Area

Figure 6-4: Abandoned Artisan Workings – Yuanling Area

– VII-48 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

6.4 Underground Workings

Adits and Declines

The orebody dips opposite to the surface slope; consequently the tunnel was located at the floor of orebody. Both adits and declines were used as the development and transportation driveways. The decline slope degree is less than 30˚. The size of the tunnel is 2.4 x 2.2 m or 2.3 x 2.1 m (width by height).

Levels and Crosscuts

The orebody was open with level drifts and cross-cuts. The front size of the tunnel is 2.0 x 1.8 m. The roof of the #96234 orebody is marked by fault red gouge. The cross-cuts are spaced from 50 to100 meters distance. Due to these underground workings the orebody structure, its thickness and grade variations have been basically understood.

Figure 6-5: Adits; a) – Hongzhuang and b) – Yuanling Mines

– VII-49 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Figure 6-6: The Veining System # 8004 – Yuanling Mine

6.5 Diamond Drilling

A number of boreholes have been drilled in the two mining area, and Multi Resources has available data for 24 holes, among which 12 boreholes are drilled by the No. 9 Detachment of Gold Brigade, Chinese Armed Police. Another 12 borehole are done drilled for Henan Jinqu Gold Inc. by their hired drilling teams, of which 8 were done by Shandong Jinxing Drilling Company, and the rest 4 holes implemented by the Henan No.4 Prospecting and Engineering Brigade. All holes are drilled with XY-4 drill rig with the opening diameter 108 mm and the end-hole diameters varying from 56 to 76 mm.

Core Recovery Rate

The area were ZK-584, ZK511 and ZK-505 boreholes are located, it is covered by cretaceous clay and sand and gravels and in the ZK-544 drill hole this overburden is thick as 130 meters, therefore at this section the recovery rate is very low. After reaching the Xiong’er Group bed rock the recovery rate becomes greater than 70% and the average recovery rates are from 85 to 95%.

Mineralized Zone Recovery Rate

In 24 boreholes, 148 runs revealed orebody with over 1g/t grade of gold returned; 80% of these drillings have core recovery rates more than 90% and remaining about 80%. Only one round has a very low recovery which is 58%. The total recovery rates meet the required standards.

– VII-50 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Figure 6-7: One of the Drilling Platforms – Borehole #ZK42 in Yuanling Area

Figure 6-8: Sealed Borehole Collar – ZK482 in Hongzhuang Area

– VII-51 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Drilling Characteristics

Two boreholes, namely ZK-403 and ZK-603 were drilled vertically; all the others holes were inclined and oriented with azimuth 190˚ (see Figure 6-9) which is the same as that of the exploration line in Hongzhuang area and at 330˚ in Yuanling zone. The total depth of the drill holes were: seven(7) holes less than 400 m, eight (8) between 400 and 500 m, six (6) between 500 and 600 m and three (3) more than 600 m.

During the drillings an inclination and azimuth were checked every 50 m in most of the boreholes; in some holes down hole survey was performed at the intervals of 100 meters. Every borehole was surveyed at the end of the hole. The details are listed in Table 6-8.

Borehole seal

All boreholes were sealed with mud at the bottom of the hole and with cement near surface. For the reason of rock fracture and shrinking, the zeal of the middle to deep part is not satisfying

Core storage

All drilling cores except the ones conducted by the Gold Brigade of Chinese Armed Police are kept in core shed for the future checking and sampling, SRK has visited the core storage of Hongzhuang Gold Mine, where twelve (12) drill cores (8 from Hongzhuang and 4 from Yuanling area) are stored in the wooden and plastic boxes (Figure 6-8).

Figure 6-9: The Drill Core Storage at Hongzhuang Gold Mine

– VII-52 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Figure 6-10: The Drill Core Wooden Box

– VII-53 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

– VII-54 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

– VII-55 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Figure 6-11: The Cross-section of Hongzhuang Area

– VII-56 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Table 6-6: Borehole Collars of Hongzhuang Gold Mine

Opening Core Ore-core Depth Azimuth Hole ID Northing Easting Elevation Angle Recovery Recovery Samples (m) (˚) (˚) (%) (%) ZK02 3768012.18 37549779.52 900.35 648.70 153 2 99 92 85 ZK44 3768130.02 37549942.87 1002.28 660.60 155 2 95 98 31 ZK84 3768185.24 37550153.38 916.82 626.34 140 0 95 100 15 ZK122 3768269.68 37550315.14 858.36 484.00 156 1 85 96 37 ZK401 3766428.00 37552955.01 833.99 320.26 190 5 79 81 61 ZK402 3766457.08 37552961.91 836.42 428.90 190 5 88 100 49 ZK403 3766488.79 37552964.75 839.08 407.85 192 2 89 86 74 ZK424 3766567.80 37553077.73 803.37 504.40 189 5 91 83 66 ZK442 3766427.61 37553163.46 768.06 290.95 190 8 89 88 82 ZK444 3766512.47 37553200.40 762.598 465.10 195 5 87 65 42 ZK445 3766602.97 37553194.80 808.699 643.90 191 5 99 100 130 ZK463 3766462.43 37553264.17 815.72 425.97 190 5 92 96 62 ZK464 3766538.16 37553270.74 847.046 639.10 189 5 91 87 189 ZK482 3766335.64 37553344.93 788.84 350.30 190 5 92 97 107 ZK484 3766514.97 37553345.00 786.361 594.78 244 3 91 98 199 ZK502 3766414.94 37553441.84 763.566 479.90 190 5 95 98 105 ZK503 3766434.79 37553462.36 781.91 415.50 190 5 91 98 91 ZK505 3766616.83 37553493.13 800.753 682.00 192 6 63 92 192 ZK522 3766349.38 37553551.64 816.12 269.08 190 5 82 96 29 ZK543 3766419.19 37553669.80 785.77 358.91 190 5 90 99 55 ZK544 3766548.55 37553684.33 763.493 519.00 190 5 89 100 103 ZK545 3766631.10 37553698.61 769.664 597.50 187 6 69 88 134 ZK562 3766331.54 37553739.25 810.04 400.22 190 5 78 94 105 ZK583 3766373.31 37553857.85 741.12 249.85 190 5 93 97 86 ZK584 3766508.08 37553866.87 753.162 580.00 202 5 91 97 212 ZK602 3766295.72 37553946.18 731.98 351.49 190 5 88 98 76 ZK603 3766375.30 37553962.82 750.029 334.97 150 1 86 89 117 ZK623 3766397.16 37554065.66 800.18 437.02 190 5 93 100 99

6.6 Geochemical Survey

Sampling was made every 5-10 m inside the alteration zone and every 20-50 m from the alteration zone. Rock samples were collected 2-5 m from the sampling point. The sample weight was no less than 300 g.

The geochemical exploration was carefully reviewed for quality control. 74 replicated samples were checked with qualified rate of 93.2% and the checking rate is 2.92%.

Geochemical exploration found 19 gold anomalies and 8 integrate anomalies. Anomalies are constant with the distribution of the fracture zones.

– VII-57 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

7 SAMPLING AND ASSAYING

7.1 Sampling

The trenches and adits were sampled using channel sampling; samples in trenches generally were collected along its bottom however in adit the middle part of the wall were sampled (see Figure 7-1) and almost all channel sample length ranges at 0.3 to 2 m with sample section size 10x5cm.

Grab samples were collected from trenches, drill core and other working, sample size about 10 x 10 x 10cm were packed and sent to laboratory soon after sampling. Totally one hundred such samples were collected in different location from mineralized horizon in the two deposits, among which 50 samples were collected by the No. 9 Detachment of Gold Brigade and other 50 of them were collected by the Hongzhuang Gold Mine. The specific gravity estimated after the doubled measurements are respectively 2.71 and 2.72 g/cm3.

The samples for polished thin section and microscope investigation were collected from a numerous different locations with standard sample size of about3x6x9cm.Another kind of samples was also collected from newly outcropped ores, with size of4x7x10cm. The samples for emission spectral analysis were collected with usual field weight ranging from 300 g to 2,000 g.

The drilling cores were split to halves; one halves were sent to laboratory for assaying another stored in core boxes for further reference. The multi Resources Company took over the core storage from the previous mine owner – Henan Jinqu Company, where half-cores of 12 boreholes were well saved.

– VII-58 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Figure 7-1: Channel Sample on the Tunnel Wall – Hongzhuang Mine

7.2 Sample Preparation

The sample processing and analysis were conducted by the laboratory of the No.9 Detachment of Gold Brigade and the Hongzhuang Gold Mine laboratory. The sample splitting procedure was referenced with the formula ofQ=K*d2, where Q is represented for the minimum weight of the samples (kilogram), “d” is represented for the diameter of the maximum sample size, and the splitting coefficient K is set as 0.8 according to the principle for gold ore samples preparation.

The sample preparation follows a standard procedure i.e.: firstly the sample is crushed down to the size of -40 mesh then split using quartering method to 500 g sample which is pulverized to -200 meshes. After that 125 g of pulverized sample is used for analysing the remainders are storage for further references.

SRK has visited the lab of Hongzhuang Gold Mine, where most of the samples are being prepared. SRK has noticed that the previous coarse samples that were collected by Henan Jinqu Company are anymore available for re-checking; Multi Resources Company preserves only coarse and pulp rejects prepared by them.

– VII-59 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

7.3 Assaying

For sample assaying HGM is using hydroquinone titration after foamed plastic concentration and iodimetry after active carbon concentration. Samples are dissolved by aqua regia. Samples that returned grade higher than 1 g/t Au were a subject of laboratory internal checking out.

It is reported that previously Jinqu Company had used two laboratories for samples assaying; one was located at the mine site and another in Sanmenxia city, at the company location.

For external checking samples were sent to other analytical laboratories i.e. the Laboratory of No.6 Detachment, Gold Brigade, Chinese Armed Police and Central Laboratory of Henan Zhongyuan Gold Smelter, Sino Gold. These laboratories are using Atomic Absorption Spectrometry Method for analysing the gold contents. The following tables (Table 7-1, 7-2, 7-3, 7-4 and 7-5) show some results of external check.

Table 7-1: External Check for Borehole Samples Assaying – Feb. 2007

No. of Basic Assay External Average Bias No. of Borehole Samples (ppm) Exam (ppm) (ppm) (%) H55 2.66 5.10 3.88 62.89 H56 0.92 1.10 1.01 17.82 ZK424 H61 1.85 3.90 2.88 71.30 H89 2.11 1.80 1.96 15.86 H104 0.91 0.60 0.76 41.06 ZK44 H14 0.85 0.90 0.88 5.71 H80 0.76 1.10 0.93 36.56 ZK445 H84 4.72 4.30 4.51 9.31 H88 0.96 1.40 1.18 37.29 ZK502 H25 2.28 1.80 2.04 23.53

Basic assay lab: Hongzhuang Gold Mine Lab, Henan Jinqu Gold Inc.; External exam lab: Central Lab of Henan Zhongyuan Gold Smelter, Sino Gold

– VII-60 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Table 7-2: External Check for Channel Samples Assaying – Jan. 2007

Basic Assay External Exam Average Bias Sample No. (ppm) (ppm) (ppm) (%) Jan1-4C 1.85 1.70 1.78 8.45 Jan11-4B 1.62 2.15 1.89 28.12 110 1.05 1.08 1.07 2.82 134 1.39 1.04 1.22 28.81 026 0.80 0.84 0.82 4.88 081 0.40 0.35 0.38 13.33 112 1.22 1.54 1.38 23.19 105 1.71 1.76 1.74 2.88 094 2.36 2.23 2.30 5.66 091 7.72 8.85 8.29 13.64

Basic assay lab: Hongzhuang Gold Mine Lab, Henan Jinqu Gold Inc.; External exam lab: Lab of No.6 Detachment, Gold Brigade, Chinese Armed Police

Table 7-3: External Check for Channel Samples Assaying – Apr. 2007

Basic Assay External Exam Average Bias Sample No. (ppm) (ppm) (ppm) (%) Apr9-4C 0.20 0.34 0.27 51.85 Apr15-8A 1.80 1.30 1.55 32.26 Apr5-4B 2.12 2.02 2.07 4.83 Apr4-0C 2.32 2.19 2.26 5.76 04009 0.82 1.06 0.94 25.53 04014 10.45 9.81 10.13 6.32 04019 5.52 4.79 5.16 14.16 04047 13.08 11.30 12.19 14.60 04036 8.16 7.66 7.91 6.32 04055 7.96 7.29 7.63 8.79

Basic assay lab: Hongzhuang Gold Mine Lab, Henan Jinqu Inc.; External exam lab: Lab of No.6 Detachment, Gold Brigade, Chinese Armed Police

– VII-61 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Table 7-4: External Check for Channel Samples Assaying – May 2007

Basic Assay External Exam Average Bias Sample No. (ppm) (ppm) (ppm) (%) 05025 8.42 7.14 7.78 16.45 05016 0.78 0.93 0.86 17.54 05029 1.37 1.37 1.37 0.00 05022 2.73 2.71 2.72 0.74 05015 4.31 4.20 4.26 2.59 MAY7-8C 1.06 1.13 1.10 6.39 MAY4-8B 1.15 1.17 1.16 1.72 MAY11-8A 1.28 1.32 1.30 3.08 MAY15-8B 0.06 0.26 0.16 125.00 MAY10-0C 0.06 0.26 0.16 125.00

Basic assay lab: Hongzhuang Gold Mine Lab, Henan Jinqu Inc.; External exam lab: Lab of No.6 Detachment, Gold Brigade, Chinese Armed Police

Table 7-5: External Check for Channel Samples Assaying – May 2007

Basic Assay External Exam Average Bias Sample No. (ppm) (ppm) (ppm) (%) MAR17-4C 1.97 1.80 1.89 9.02 MAR16-0C 2.38 2.10 2.24 12.50 MAR2-8C 1.57 1.92 1.75 20.06 MAR2-4C 1.63 1.56 1.60 4.39 011 1.13 1.14 1.14 0.88 008 2.09 2.04 2.07 2.42 023 4.76 4.94 4.85 3.71 018 6.64 5.84 6.24 12.82 036 11.98 11.50 11.74 4.09 022 1.58 1.24 1.41 24.11

Basic assay lab: Hongzhuang Gold Mine Lab, Henan Jinqu Inc.; External exam lab: Lab of No.6 Detachment, Gold Brigade, Chinese Armed Police

7.4 Sample Handling and Storage

Reportedly sampling of trenches, adits and drilling cores were collected accordingly with generally accepted rules. Also packing, labelling and transportation samples to assigned laboratory observed those regulations.

There is storage for duplicate or rejected samples at the laboratory operated by the mine. SRK noticed that unfortunately some of the rejected samples and duplicates have been already disposed and not available for checking re-assaying.

– VII-62 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

The core storage for 12 boreholes drilled by Hongzhuang Gold Mine is located at the mine campground in two rooms secured by locked doors and barred windows (see Figure 7-2).

Figure 7-2: The Drill Core Storage Building at Hongzhuang Gold Mine

7.5 Quality Assurance/Quality Control

The No. 9 Detachment of Gold Brigade, Chinese Armed Police collected totally 1049 samples out of which 172 were used for gold resources estimation. Internal checking was performed on an annual base and six (6) batches of total one hundred samples were re-assayed which takes 9.5% of the total samples amount. The acceptable repeatability rate ranges from 80 to 100% with the average rate 91%. External checking samples were chosen from the internal checked samples. The external checking samples accounts for 3.9% of the whole samples and 16.3% of them were with 1 g/t Au or higher grade. The acceptable repeatability rate varies from 83 to 100% with the average qualified rate is 85%.

It is reported that Henan Jinqu Inc. has collected 2,183 pieces samples out of which 391 samples returned assays greater than 0.5 g/t Au and 275 samples have grade greater than 1 g/t. The 115 samples were chosen for internal checking, which is 5.3% of the total samples. The qualified rate resulted at 90%. External checking was conducted by the laboratory of the Gold Brigade and the 2.6% of the total samples were selected for this purpose. The qualified rate returned 80% which meets the required standards.

SRK noticed that HGM laboratory is in possession of Chinese national gold standards and reportedly there are procedures for insertion of control samples such as blanks and standards into the stream of assayed samples. However before 2008 (when the present enterprise took over the mine) neither the coarse-rejects or pulps duplicates of analysed samples were used for the QA/QC purposes and they are anymore available for re-assaying.

– VII-63 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

SRK also noticed that the HGM laboratory has neither ISO (International Standard Organization) nor CMA accreditation, however the laboratory of Gold Brigade used for external checking is admitted by domestic authority.

7.6 SRK’s Verification Sampling

SRK has verified 47 samples from Hongzhuang Gold Mine through Beijing Branch of Intertek Testing Services Ltd., Shanghai, which is a branch of an international lab. Among these samples, 36 of them are pulp samples (27 of which from drilling and 9 from adits) provided by the gold mine; 5 samples spited from the core in the core storage of the mine, and 6 of them collected by SRK from two visited adits.

These samples were sent to Beijing Branch of Intertek directly from Luanchuan County. All of the rock samples were prepared in the lab, including drying, crushing, splitting, fine pulverising and sieving, and for the pulp samples, roasting and sieving procedures were done by the lab. The SRK checking samples were assayed using atomic absorption of fire assay method (code FA30, using 30 grams of samples for assaying), with insertion of blanks and making of duplicates suggested by SRK. SRK also sent two standard samples which are named properly and mixed within the samples from mine for assaying (Table 7-6).

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Table 7-6: The SRK Checking Samples Submission to the Lab

Powder Rock 1 ZK44H24 25 ZK445H39 41 ZK502H25C 2 ZK44H26 26 ZK445H48 42 ZK502H26C 3 ZK44H27 27 Blank 43 ZK505H48C 4 ZK44H30 28 ZK484H63 44 ZK505H49C 5 ZK44H31 29 ZK484H70 45 ZK505H50C 6 ZK84H13 30 ZK484H75 46 ZK505H50CD 7 ZK84H50 31 ZK484H78 47 CM980AY3 8 ZK424H30 32 CM50640SH1 48 CM980AY4 9 ZK424H43 33 CM50640SH2 49 CM8004AY8 10 Blank 34 CM50640SH5 50 CM8004AY8D 11 ZK502H29 35 CM50640SH6 51 CM96234H4 12 ZK502H30 36 CM50640SH7 52 CM96234H7 13 ZK502H38 37 CM52600NH37 53 CM96234H9 14 ZK502H39 38 CM52600NH38 15 ZK505H49 39 CM52600NH39 16 ZK603H35 40 CM52600NH40 17 ZK603H109 18 ZK603H115 19 ZK603H116 20 ZK584H32 21 ZK584H88 22 ZK584H99 23 ZK584H100 24 ZK584H102

In the table above, samples with initial name of “ZK” are from boreholes, except the two standard samples “ZK84H50” and “ZK584H100”, and samples with “CM” are from adits, and the last letter with “D” means duplicate. SRK specified the blanks insertion after comparably high-grade samples according to the assay results provided by the mine.

Due to some pulp samples was not enough to support accurate testing, four results (ZK84H13, ZK424H30, ZK584H88, CM50640SH1) are suggested only for reference and one sample (ZK484H75) has no result. The following table (Table 7-7) shows the difference of assaying results by the lab of Hongzhuang Gold Mine and Intertek.

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Table 7-7: Assay Results of SRK Checking Samples vs. Original Assays

Intertek HGM Au Average Difference Bias No. Sample ID. (SRK) (ppm) (ppm) (ppm) (%) Au (ppm) 1 ZK44H24 2.17 1.82 2 –0.35 17.54 2 ZK44H26 2.69 2.27 2.48 –0.42 16.75 3 ZK44H27 0.59 0.62 0.61 0.03 4.96 4 ZK44H30 3.28 2.28 2.78 –1.00 35.97 5 ZK44H31 1.29 1.12 1.21 –0.17 14.11 6 ZK84H13 1.45 1.53 1.49 0.08 5.37 7 ZK424H30 0.57 1.26 0.92 0.69 75.41 8 ZK424H43 0.82 34.64 17.73 33.82 190.75 9 ZK502H29 5.92 6.45 6.19 0.53 8.57 10 ZK502H30 4.5 1.11 2.81 –3.39 120.86 11 ZK502H38 3.93 2.27 3.1 –1.66 53.55 12 ZK502H39 0.55 0.9 0.73 0.35 48.28 13 ZK505H49 4.26 4.17 4.22 –0.09 2.14 14 ZK603H35 0.46 1.19 0.83 0.73 88.48 15 ZK603H109 11.66 13.65 12.66 1.99 15.73 16 ZK603H115 17.28 15.3 16.29 –1.98 12.13 17 ZK603H116 3.44 5.79 4.62 2.35 50.92 18 ZK584H32 0.22 1.79 1.01 1.57 156.22 19 ZK584H88 0.95 1.57 1.26 0.62 49.21 20 ZK584H99 2.56 3.14 2.85 0.58 20.35 21 ZK584H102 0.76 1.95 1.36 1.19 87.82 22 ZK445H39 0.85 1.31 1.08 0.46 42.59 23 ZK445H48 7.55 12.94 10.25 5.39 52.61 24 ZK484H63 1.56 2.97 2.27 1.41 62.25 25 ZK484H70 8.95 9.02 8.99 0.07 0.78 26 ZK484H78 6.46 6.25 6.36 –0.21 3.3 27 CM50640SH1 17.7 5.26 11.48 –12.44 108.36 28 CM50640SH2 0.77 5.36 3.07 4.59 149.76 29 CM50640SH5 5.22 1.29 3.26 –3.93 120.74 30 CM50640SH6 0.49 1.44 0.97 0.95 98.45 31 CM50640SH7 0.54 0.12 0.33 –0.42 127.27 32 CM52600NH37 0.35 0.53 0.44 0.18 40.91 33 CM52600NH38 0.2 0.25 0.23 0.05 22.22 34 CM52600NH39 0.27 0.49 0.38 0.22 57.89 35 CM52600NH40 0.14 0.13 0.14 –0.01 7.41 36 ZK502H25C 0.08 2.28 1.18 2.20 186.44 37 ZK502H26C 0.02 0.16 0.09 0.14 155.56

– VII-66 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Intertek HGM Au Average Difference Bias No. Sample ID. (SRK) (ppm) (ppm) (ppm) (%) Au (ppm) 38 ZK505H48C 0.17 0.1 0.14 –0.07 51.85 39 ZK505H49C 0.52 4.17 2.35 3.65 155.65 40 ZK505H50C 0.03 0.1 0.07 0.07 107.69 Average 3.03 3.97 3.5 –0.94 26.86

In the table above (Table 7-7), “difference” of minus value represents the result (gold grade) by the lab of Hongzhuang Gold Mine is lower than the other lab – Beijing Branch of Intertek. Of all assaying results of 40 samples for comparison, 14 of them by the Hongzhuang Mine are lower than the result (ore grade) provided by Intertek, which accounts 35%; while conversely 65% of the whole results shows higher value of the grade assayed by Hongzhuang Gold Mine. The average grade of the 40 samples from Hongzhuang Gold Mine (HGM) is 3.97 ppm, which is 26.86% higher than the results provided by Intertek.

The Bias Chart (Figure 7-3) intuitively shows the deviation of assaying results from the two labs. There are 12 samples biases less than 20%, and other 28 biases are larger than 20%, among which there are 11 ones larger than 100%.

Commonly the tolerance of assaying result should be within 10%, and the detection limit for fire assay – AAS is 0.01 ppm. However for some results with small differences (around 0.1 ppm), it should be seriously considered or acceptable though the biases may be very large. Conversely, for some results, though the biases are small, the differences are too larger comparing to the detection limit. SRK states that bias chart should be used with cautions due to these cases.

*UDGH SSP *UDGH SSP *UDGH SSP *UDGH SSP

6DPSOH,QGH[

$X SSP ,QWHUWHN $X SSP +*0 Figure 7-3: Bias Chart of the Sample Assaying

– VII-67 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

After re-assaying checking samples from both mining areas SRK noticed that the difference between averaged values of original versus checking assays is as high 0.94 ppm Au with higher value allocated to original sampling and assaying.

SRK consider that the differences between the analytical results of two equivalent samples returned from different laboratories are very probably caused by following aspects:

¼ Several pulp samples obtained from mine personnel were too small for using more accurate assaying method.

¼ “Nugget effect”–the mineralization is distributed in the veins unevenly, consequently the checking samples taken from the half-core can differ significantly from original samples, it’s difficult to get the two halves with identical mineralization, especially for cases of gold mineralization in veinlets,

¼ The native gold within the ore is not easy to be pulverised identically, that cause small differences for double assaying;

¼ Usually the high-grade samples of gold with primary mineralization contain sulphides, while sulphides could surfer weathering and oxidation while the pulps were stored for long period;

¼ The different assaying methods would be considered into factors; SRK believes that traditional wet chemical method (iodimetric titration) used in HGM laboratory with detection limits of gold as high as 0.1 ppm is more vulnerable for analytical errors than instrumental one (fire assay with AAS finish). The external checking shown above in this chapter seems to support this opinion.

Table 7-8: Assay Results of SRK Checking Samples – Taken from Adits

No. Sample ID. Location Au (ppm) Intertek 41 CM980AY3 Yuanling 0.10 42 CM980AY4 Yuanling 25.5 43 CM8004AY8 Yuanling 1.70 44 CM96234H4 Hongzhuang 0.14 45 CM96234H7 Hongzhuang 0.68 46 CM96234H9 Hongzhuang 0.02

Table 7-8 shows the results of samples which SRK took from two visited adits respectively in Hongzhuang and Yuanling area. These samples were collected in the placed indicated by mine personnel as a mineralized with gold, but only in two cases (sample 42 and 43) the mineralization was clearly visible on the freshly mined rocks (see Figure 6-6).

The following table (Table 7-9) gives assay results from Intertek for the two standard samples used by SRK. SRK requested also from Intertek laboratory inserting “blanks” (material devoid of mineralization) into stream of analysed samples but so the assays of blanks were not released by the lab.

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Table 7-9: Two Standard Samples Assayed by Intertek Lab

Intertek Standard Difference Average Bias Standard ID. Sample No. Results Au Au (ppm) (%) Au (ppm) (ppm) (ppm) GBW(E)070013 ZK84H50 0.96 1.09 0.13 1.03 12.68 GBW07300 ZK484H100 5.9 5.72 –0.18 5.81 3.1

8 Resources and Reserves Estimation

8.1 Mineral resources and reserves of Hongzhuang mine

8.1.1 Industrial Index

Based on Cut-off grades issued by the No.9 Detachment of Gold Brigade, related index figures used for estimating the resource are shown in the followings.

Cut off Grade 1 g/t Minimum industrial grade of block 3 g/t Minimum industrial grade of mine area 5 g/t Minimum mineable thickness 1 m Maximum band thickness 2 m

If the ore body thickness is less than minimum minable thickness, then m*g/t value was used for resources estimation (where m is the sample length).

8.1.2 Method Used for the Resource Estimate

Based on the fact shape of No.96234 vein, the vertical longitudinal projection geological method has been applied for the resources estimation. Parameters used are defined as following.

¼ Thickness; for the surface trench and underground samples true thickness that was calculated using formula as follows:

m=L(sin␣cos␤sin␥Ϯcos␣sin␤͒

Where: m – true thickness, L – sample length, ␣ – dip angle of ore body, ␤ – slope angle of trench, and ␥ – angle between vein strike and the trench direction.

If the aspect of the trench is inversed of the dip of the vein, then symbol of “+” is used for the formula, or symbol “–” is used if the dip direction of both vein and trench is the same.

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For the drillings sample true length formula:

m = Lcos(␣ – ␪)

Where: m – true thickness, L – sample length, ␣ – dip angle of ore body and ␪ – angle of borehole

Single working line: a sum of total samples length.

¼ Block average thickness: arithmetic average for the exploration workings (i.e. drilling and tunnelling) thickness in the block

¼ Average gold grade: arithmetic average for exploration workings (i.e. drilling and tunnelling) line; weighted average for block

¼ Area:

S = S'/sin␣

Where; S – inclined area, S' – vertical area and ␣ – dip angle of related ore bodies.

Ore density: Total of 50 density samples were collected from different ore bodies and different levels. After rejecting lowest and highest density samples, 33 density samples were used for the resources estimation averaging at 2.71 t/m3.

¼ Metal (Gold): The formula used for the resources estimation is shown as following.

1)Q=S× M × d 2) P = Q × C

Where: P – metal amount, C – block average grade, S – inclined area, M – block average thickness, and d – ore density,

8.1.3 Extreme grade

The single sample grade of 8 times greater than the average ore body grade was defined as extreme grade. The extreme grade was replaced by the average block grade of the same block to be used for the resources estimation.

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8.1.4 Resources category

Based on the fact that drill holes associated with tunnels and trenches at a standard grid are distributed along exploration lines in the exploration area and the lines are parallel to each other, the 100 − 120m × 100 − 120m drilling grid was classified as Category D resources, and 200 − 240m x 200 − 240m drilling grid was classified as Category E resources.

8.1.5 Resources and reserve in 2001

The No. 9 Detachment of Gold Brigade, Chinese Armed Police submitted a resources report of No. 96234 vein in October 2001.The report pointed out that total of 4.16 tonnes gold metal was mined out from mining start to October 2001, and the total resources and recoverable gold resources are shown as following tables.

Table 8-1: Resources Estimation Result of No. 96234 Vein of Hongzhuang Mine in 2001 by the No. 9 Detachment of Gold Brigade

Resources Average Average Vein Ore body Class Category Au Thickens Ore (t) Grade (t) (m) (g/t) D 1.22 227 000 16.99 3.86 No. 1 E 1.99 1,607,000 6.99 11.24 D+E 1.85 1,834,000 8.23 15.09 96234 Economic D 0.54 25,000 17.84 0.45 No. 2 E 1.23 952,000 7.59 7.23 D+E 1.19 977,000 7.85 7.67 No. 3 E 1.54 360,000 7.33 2.64 D 1.08 253,000 17.00 4.30 Total E 1.61 2,920,000 6.32 21.10 D+E 1.55 3,173,000 8.01 25.40

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Table 8-2: Recoverable Resources of No. 96234 Vein submitted by the No. 9 Detachment of Gold Brigade in October 2001

Resources Average Average Vein Class Category Au Thickness Ore (t) Grade Remark (t) (m) (g/t) D 1.08 253,000 17.00 4.30 E 1.61 2,920,000 6.32 21.10 Total D+E 1.55 3,173,000 8.01 25.41 D 0.94 142,000 15.74 2.24 96234 Economic E 1.52 296,000 6.49 1.92 Mined-out D+E 1.27 438,000 9.49 4.16 D 1.33 111,000 18.60 2.06 E 1.62 2,624,000 7.31 19.18 Recoverable D+E 1.60 2735,000 7.77 21.24

8.1.6 Resources and reserve in 2007

The Henan Jinqu Gold Corporation Limited updated the resources/reserves report in July 2007 after conducting the geological exploration including drillings and adits in Hongzhuang Gold mine by Jinqu, and No.4 ore body was discovered in the exploration, but the resource has not been properly reported and certified by government agents.

Jinqu used similar technical parameters and the same methods to estimate the resource of Hongzhuang Gold mine as those used by the No.9 Detachment of Gold Brigade. The new Chinese Resources category standard was applied to classify the resources. Above 600m elevation, 50-100 m of cross vein and 40 m of adit level was defined as 122b category, and below 600 m elevation, and 200-240 m x 200-240 m grid was classified as category 333+332 resources.

Since there is no feasibility study to be conducted in the Hongzhuang mine, SRK used the category 332 resources instead of category 2S22 and 2M22 resources as given in Table 8-3, and SRK should points out that more than half of the resources of Hongzhuang Gold Mine are out of the mining license vertical limited boundary as shown in the following resources maps of four ore bodies.

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Table 8-3: Resources Result of Hongzhuang Gold Mine provided by Henan Jinqu Inc. in July 2007

122b 332 333 Ore Average Average Average Average Average Average Ore Metal Ore Metal Ore Metal Body Grade Thickness Grade Thickness Grade Thickness (1000t) (t) (1000t) (t) (1000t) (t) (g/t) (m) (g/t) (m) (g/t) (m) 1 5.06 5.56 1,077 5.45 1.72 1.98 407 0.7 5.58 3.39 1,770 9.87 2 6.23 7.74 847 5.28 1.9 4 1,441 2.74 4.17 3.43 1,818 7.58 3 2.09 3.31 564 1.18 3.66 3.47 1,838 6.72 4 1.78 2.42 472 0.84 4.9 1.59 100 0.49 Sub-total 5.58 1,924 10.73 1.89 2,884 5.46 4.46 5,526 24.66 Total Ore (1000 t) 10,334, Au (t) 40.85, Average grade (g/t) 3.95

Figure 8-1: Longitudinal Section Resource Map of No. 1 Ore body (as provided by Henan Multi Resources Limited)

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Figure 8-2: Longitudinal Section Resource Map of No. 2 Ore body (as provided by Henan Multi Resources Limited)

Figure 8-3: Longitudinal Section Resource Map of No. 3 Ore body (as provided by Henan Multi Resources limited)

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Figure 8-4: Longitudinal Section Resource Map of No. 4 Ore body (as provided by Henan Multi Resources Limited)

8.2 Mineral resources and reserves of Yuanling mine

The geological exploration report of Yuanling mine was submitted in November 1993. The No. 9 Detachment of Gold Brigade used similar technical parameters and the same methods to estimate the resource of Yuanling Gold mine as those used in Hongzhuang Gold mine; the recoverable resources result is shown as following table (Table 8-4).

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Table 8-4: Recoverable Resources of 980 Vein of Yuanling Mine Submitted by the No. 9 Detachment of Gold Brigade in November 1993

Resources Vein Remark Category Ore Average Au (1000t) Grade (t) C 109 10.00 1.09 Total D 194 7.06 1.37 C+D 303 8.12 2.46 C 34 11.47 0.39 980 Mined-out D 3 6.67 0.02 Economic C+D 37 11.08 0.41 C 75 9.33 0.70 Recoverable D 191 7.07 1.35 C+D 266 7.71 2.05

Figure 8-5: Longitudinal Section Resources Map of Yuanling (Estimated by Henan Industry and Tradition School in March 2008)

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Table 8-5: Recoverable Resources in Yuanling Gold Mine estimated by Henan Industry and Tradition School in March 2008

Ore Average Au Category Remark (1000t) Grade (t) Within 122b 10.11 6.73 0.07 Boundary Within 13.42 3.87 0.05 Yuanling Boundary 333 Out of 3.89 10.28 0.04 Boundary 122b+333 27.42 5.83 0.16 Total Within 122b+333 23.53 5.10 0.12 Boundary

SRK did not obtain enough data about Yuanling mine production when visiting the mine in April 2009, however, based on the resources map estimated by Henan Industry and Tradition school, the ore of Yuanling gold mine was nearly mined-out as shown in Figure 8-5 and Table 8-5.

As HGM of Multi Resources started mining in Yuanling area since May 2009, the resources/reserves dated by this report time should be re-considered. SRK has reviewed the processing production data of recent five months (from May 2009 to September 2009) provided by Multi Resources as shown in Table 8-6. SRK re-travelled to the mine site in January 2010 and was told that the processing plant stopped from September 2009 due to adding one flotation production line. SRK has been told that the production tonnage was about equal to the amount of transport tonnage. SRK should points out that the gold grade in production (average 2.68g/t) is much less than the grade of the original geological body (6.73g/t).

Table 8-6: Processing Production Record of Yuanling Mine in 2009 Provided by Multi Resources in January 2010

Au Average Month(2009) Tonnage(t) Grade (g/t) May-09 2551 2.04 Jun-09 2315 2.76 Jul-09 2872 2.75 Aug-09 2494 3.06 Sep-09 1894 2.83 Total 12127 2.68

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2008, thus some of the resources should be deducted as well, which may suggest that the 122b in March 2008 are all depleted and the recoverable ores of 333 remain at about 10,060 tonnes within the mining permit area as shown in Table 8-7.

Table 8-7: Recoverable Resources in Yuanling Gold Mine estimated Updated to January 2010

Au Average Category Ore(1000t) Au(t) Remark Grade(g/t) Yuanling 10.06 3.87 0.04 Within Boundary 333 3.89 10.28 0.04 Out of Boundary

The comparison of the Chinese Resources Classification and JORC Code is provided in the section below (Section 8.3). In general, Category 332 is similar to Indicated Resource, and Category 333 is similar to Inferred Resource, whereas Category 122b is similar to Indicated Resource or Probable Reserve (designed mining losses are not accounted). Please note that is just a comparison. SRK can not convert it to JORC system directly; due to the Chinese Standard and JORC Code are strictly different systems. They are not equivalent.

SRK has carried out a high-level review of the resources and reserves as provided by Multi-Resources for this project. The resources and reserves estimates are one of the input parameters used for the preparation of this report. Multi-Resources’ resources and reserves estimates were reported in accordance with the requirements of the Chinese system but not confirmed by appropriate governmental bureau of geology and mineral resources. It is SRK’s opinion that the current individual estimates are reliable and represent a reasonable global estimate for 122b, 332 and 333 of the relevant Mineral Resources although they are not in full compliance with the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”) standard.

The JORC Code requires vigorous recording of mineral deposit sampling, assaying, check calculations and resource estimates. This type of information is usually recorded in a digital form in a computerized database, which allows for rapid checks to be made by a third party. Therefore an independent report on mineral resources under the standards of the JORC Code requires a review of all aspects leading to the resources and reserves estimate including a review of the sample collection methods and quality control of those sampling procedures, assaying results and verification by check assays and blank samples and resource estimates by several methods to ensure applicability of the adopted estimation method. If any of these steps cannot be investigated thoroughly, the technical adviser is required under the JORC Code to state the reason why the resources and reserves estimate does not meet the JORC Code standard.

The resources estimate for Hongzhuang Gold Mine involves the original sample assays done by geological brigade and Jinqu Company, however many PRC mining companies do not have a tradition of keeping full geological sampling quality control records to the same standard used in western countries and therefore may not have duplicate samples to allow checking of assay results. Multi Resources kept some duplicate samples performed by Jinqu Company; however, there are no available duplicates to verifying the exploration carried out by geological brigade. The traditional Chinese recording system is based on paper reports,

– VII-78 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE not digital records or databases and often uses geological sections drawn on paper. Multi-Resources records most of its geological information in non-digital format. SRK noticed that the original data done by geological brigade was not available except the paper reports. The procedures adopted by SRK were to review the resources and reserves estimates provided by Multi-Resources and, wherever possible, to reassign the resources and reserves estimates and to compare the same with categories similar to those used by the JORC Code. Multi-Resources’ mines are underground mines for which resources and reserves estimates are often subject to higher levels of uncertainty compared to those for open pit mines because of a more restricted ability to intersect and sample the deposit.

8.3 Chinese Resource and Reserve Standards

8.3.1 Categorisation of Mineral Resources and Ore Reserves

The system for the categorisation of mineral resources and ore reserves in China is in a period of transition which commenced in 1999. The traditional system, which is derived from the former Soviet system, uses five categories based on decreasing levels of geological confidence – Categories A, B, C, D and E. The new system (Rule 66) promulgated by the Ministry of Land and Resources (MLR) in 1999 uses three-dimensional matrices, based on economic, feasibility/mine design and geological degrees of confidence. These are categorised by a three number code of the form “123”. This new system is derived from the UN Framework Classification proposed for international use. All new projects in China must comply with the new system, however, estimates and feasibility studies carried out before 1999 will have used the old system.

Wherever possible, the Chinese Resource and Reserve estimates have been reassigned by SRK to categories similar to those used by the JORC Code to standardise categorisation. Although similar terms have been used, SRK does not mean to imply that in their present format they are necessarily classified as ’Mineral Resources’ as defined by the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”).

A broad comparison guide between the Chinese classification scheme and the JORC Code is presented in the following table.

Table 8-8: Comparison Guide between the Chinese Classification Scheme and the JORC Code

JORC Code Resource Chinese “Reserve” Category Category Previous system Current system 111, 111b, 121, 121b, 2M11, Measured A, B 2M21, 2S11, 2S21, 331 Indicated C 122, 122b, 2M22, 2S22, 332 Inferred D 333 Non-equivalent E 334

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8.3.2 Relationship between JORC Code and the Chinese Reserves System

In China, the methods used to estimate the resources and reserves are generally prescribed by the relevant Government authority, and are based on the level of knowledge for that particular geological style of deposit. The parameters and computational methods prescribed by the relevant authority include cut-off grades, minimum thickness of mineralisation, maximum thickness of internal waste, and average minimum ‘industrial’ or ‘economic’ grades required. The resource classification categories are assigned largely on the basis of the spacing of sampling, trenching, underground tunnels and drill holes.

In the pre-1999 system, Category A generally included the highest level of detail possible, such as grade control information. However, the content of each category B, C and D may vary from deposit to deposit in China, and therefore must be carefully reviewed before assigning to an equivalent “JORC Code type” category. The traditional Categories B, C and D are broadly equivalent to the ‘Measured’, ‘Indicated’, and ‘Inferred’ categories that are provided by the JORC Code and USBM/USGS systems used widely elsewhere in the world. In the JORC Code system the ’Measured Resource’ category has the most confidence and the ‘Inferred’ category has the least confidence, based on the increasing levels of geological knowledge and continuity of mineralisation.

Table 8-9: Definition of the New Chinese Resource and Reserve Category Scheme

Category Denoted Comments Full feasibility study considering economic factors 1 has been conducted Pre feasibility to scoping study which generally Economic 2 considers economic factors has been conducted No pre feasibility or scoping study conducted to 3 consider economic analysis Further analysis of data collected in “2” by an 1 external technical department More detailed feasibility work including more Feasibility 2 trenches, tunnels, drilling, detailed mapping Preliminary evaluation of feasibility with some 3 mapping and trenches 1 Strong geological control Moderate geological control via closely-spaced data Geologically 2 points (e.g. small scale mapping) controlled 3 Minor work which is projected throughout the area 4 Review stage

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9 CONCLUSIONS AND RECOMMENDATIONS

At both of two mines, the resources and reserves estimates were reviewed by SRK; SRK has audited or verified some samples and data used for resources estimation.

Therefore SRK recommends that if HGM intends to meet QA/QC international standards in the purpose to further develop its mineral assets, all procedures regarding sampling, sample handling and storage, sampling preparation and assaying as well data verification and management should be improved. SRK would be pleased to be helpful with this project preparing appropriate exploration best practices guidelines along with independent consulting.

REFERENCES

1. Geological Exploration and Resources/Reserves Estimate Report for Hongzhuang Gold Mine, Shizimiao Town of Luanchuang Country, Henan Province and all the related geological, topographic and geophysical maps, submitted by Henan Jinqu Gold Inc., prepared by Hongzhuang Gold Mine of Henan Jinqu Inc, July, 2007

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2. Geological Prospecting (from Apr. 1994 to Oct. 2001) Report for the No. 96234 Fracture Alteration Zone, Hongzhuang Mine Area, Shizimiao Town of Luanchuang Country, Henan Province, submitted by the No. 9 Detachment of Gold Brigade, Chinese Armed Police, October, 2001

3. Geological Exploration on the No. 980 Vein in Yuanling Mining Area, Shizimiao Town of Luanchuan County, Henan Province, prepared by the No. 9 Detachment of Gold Brigade, Chinese Armed Police, November, 1993

4. Geophysical Survey in West of Gold Ore Field OF Shizimiao Town, Luanchuan, Henan Province, prepared by Henan Jinqu Gold Inc, and Institute of Geology and Geophysics, Chinese Academy of Sciences, May, 2006

5. The production data of Yuanling Mining Area, Hongzhuang Gold Mine, provided by Henan Multi Resources, January, 2010

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APPENDICES

Appendix No. 1 – Mining Licence

First Page

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Second Page

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Appendix No. 2 – Exploration Licence

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Appendix No. 3 – Approval of Mining License Area Delineation by Land and Resources Bureau of Henan Province

– VII-86 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

– VII-87 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

Appendix No.4 – Intertek Assaying Report

– VII-88 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

– VII-89 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

– VII-90 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

– VII-91 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

– VII-92 – APPENDIX VII TECHNICAL REPORT ON HONGZHUANG GOLD MINE

SRK Report Distribution Record

Ref: SCN172

Copy No: 1#

Date:

Name/Title Company Copy # Mr. Rongchang Lu / Manager Henan Multi Resources Mining Co. 1

Approval Signature:

This document is protected by copyright vested in SRK. It may not be reproduced or transmitted in any form or by any means whatsoever to any person without the written permission of the copyright holder, SRK.

– VII-93 – APPENDIX VIII INDUSTRY OVERVIEW

INTRODUCTION

Gold is unusual in that it is both a commodity and a monetary asset. As a commodity, gold’s most significant purpose is in the fabrication of jewellery. Other fabrication uses include mintage of official coins; use in the dentistry, electronics, and industrial sectors; and in the manufacturing of medals and medallions.

As a monetary asset, gold is held by central banks and other investors as a risk management tool and profit-making investment. In general, investment in gold is driven by geopolitical and economic conditions, including management of risk during economic instability. As a monetary asset, gold is unique in that it is both a tangible asset and liquid investment, providing physical and economic security.

GLOBAL DEMAND FOR AND SUPPLY OF GOLD

Set out in the table below are the global demand for and supply of gold for 2006, 2007 and 2008:

Change of 2008 2006 2007 2008 vs 2007 (tonnes)

Supply Mine production 2,485 2,478 2,415 (3%) Net producer hedging (410) (444) (351) (21%)

Total mine supply 2,075 2,034 2,064 1% Official sector sales 365 484 236 (51%) Old gold scrap 1,128 958 1,209 26% Implied net disinvestment (Note) – 76 296 289%

Total supply (Note) 3,569 3,552 3,805 7%

Demand Fabrication Jewellery 2,288 2,404 2,186 (9%) Industrial and dental 460 462 435 (6%)

Sub-total above fabrication 2,748 2,866 2,621 (9%) Bullion and coin retail investment 424 446 649 46% Other retail investment (8) (14) 213 N/A Exchange traded funds and similar 260 253 321 27% Implied net investment (Note) 145 ––N/A

Total demand (Note) 3,569 3,552 3,805 7%

Source: GFMS Ltd

Note: Implied net disinvestment/investment is the residual from combining all other GFMS data on gold supply/demand.

– VIII-1 – APPENDIX VIII INDUSTRY OVERVIEW

Factors affecting global demand for gold

Factors affecting gold demand can be divided into two categories – fabrication and investment:

(i) Fabrication demand

Fabrication demand comprises demand from jewellery, production of electronics, dental products, and gold used for other industrial and decorative applications. Most of this demand is for jewellery. The primary driver for jewellery demand is growth in real income, in particular, disposable income.

Gold’s unique properties, such as its ductility and conductivity, drive its use in the production of components for electronics, dental products, and other industrial and decorative applications. Demand for such products drives industrial demand for gold.

(ii) Investment demand

Investment demand comprises demand for coins and bullion. Demand for physical gold has largely been driven by net incremental gold stocks held in support of derivative transactions and exchange traded funds. Investment demand is a function of the current and anticipated value of gold relative to other investments, such as cash, fixed interest securities, equities and properties, resulting largely from monetary policy considerations and expectations regarding future gold prices.

Factors affecting global supply of gold

Supply of gold is affected by mine production, recycled gold scraps, net sales of gold by central banks and producer de-hedging.

(i) Mine production

Total global mine production of gold declined by approximately 3% from 2,478 tonnes in 2007 to 2,415 tonnes in 2008. According to GFMS, the mine production in 2008 was the lowest level since 1996. The largest drop in 2008 was seen in Indonesia, whilst much of the remaining losses were concentrated in South Africa and Australia. In contrast, gold production in the Commonwealth of Independent States (primarily in Russia) and Latin America (chiefly concentrated in Peru and Mexico) saw gains. China maintained its position as the leading gold producing country, while the United States moved into second place.

Global mine production costs have been on the rise in recent years. According to GFMS, annual average global total cash costs in US dollar terms increased sharply by almost 20% year-on-year, as operations worldwide faced surging input costs. Australian operations posted the sharpest annual total cash cost increases for the second consecutive year. Cash cost includes direct mining expenses, stripping costs, refining charges, royalties and production taxes, and is net of by-product credits.

– VIII-2 – APPENDIX VIII INDUSTRY OVERVIEW

(ii) Gold scrap recycling

Gold scrap recycling in 2008 surged by 251 tonnes to 1,209 tonnes from 958 tonnes in 2007, representing an approximately 26% year-on-year increase. According to GFMS, the increase in 2008 was fuelled by rising gold prices and the economic downturn. Although growth in recycling was concentrated in the Middle East and East Asia, similar trends were also apparent in western markets.

(iii) Central bank sales of gold

With their substantial holdings in gold, central banks’ sales and purchases have significant effect on the gold prices. Net official sector sales plummeted by 51% year-on-year in 2008 to just 236 tonnes. According to GFMS, the decline was the result of lower disposals as a result of Central Bank Gold Agreement and modest net purchases outside the group.

(iv) Producer de-hedging

Hedging, where the future price of gold is contractually locked in, has in the past been a common practice among gold producers to reduce their price risk. Since 2000, gold producers have started to unwind their collective hedge book. According to GFMS, gold producers’ net de-hedging reached record levels in 2007 by contributing 444 tonnes in physical demand, and it remained at an elevated level in 2008, generating 351 tonnes of physical demand. This was concentrated in the first half of the year, with producers actively seeking uncapped exposure to the gold price.

Producer de-hedging is important as it creates effective demand when physical gold is allocated to close out hedged positions.

– VIII-3 – APPENDIX VIII INDUSTRY OVERVIEW

THE PRC GOLD INDUSTRY

Gold demand in the PRC

While global consumer gold demand increased by approximately 3% in 2008, PRC consumer gold demand consumption showed much stronger growth at 18%. Consumer demand for gold primarily comprises jewellery demand and investment demand. In 2008, China was the world’s second largest gold consumer, with an annual gold consumer demand of 395.6 tonnes, accounting for approximately 13.6% of total global consumer demand of gold. Set out in the table below the consumer demand in the major gold consuming countries in 2007 and 2008:

2007 20081 change of 2008 compared to 2007 Net retail Net retail Net retail Jewellery Investment Total Jewellery Investment Total Jewellery Investment Total

India 551.7 217.5 769.2 469.7 190.5 660.2 (15%) (12%) (14%) China 302.2 25.6 327.8 326.7 68.9 395.6 8% 169% 21% Turkey 188.1 61.1 249.3 153.2 57.1 210.3 (19%) (7%) (16%) USA 257.9 16.6 274.5 179.1 77.8 256.9 (31%) 369% (6%) Other 1,100.7 89.5 1,190.1 1,008.8 375.0 1,383.8 (8%) 319% 16% World total 2,400.6 410.3 2,810.9 2,137.5 769.3 2,906.8 (11%) 87% 3%

Source: World Gold Council

Notes:

1. The figures are provisional.

2. Certain figures may not equal to the sum of the items due to rounding difference.

– VIII-4 – APPENDIX VIII INDUSTRY OVERVIEW

Jewellery demand accounted for approximately 83% of the total consumer demand for gold in China in 2008. The buoyant Chinese economy and the long standing status of gold in the PRC as a symbol of wealth and a preferred gift saw consumer demand for gold in mainland China rise by 8% in jewellery consumption in tonnage terms from 2007 to 2008. Net retail investment in China grew and accounted for approximately 17% of the total consumer demand for gold in China in 2008.

Set out below is a comparison of world gold price and PRC gold price.

US$/oz RMB/g 400 1400

350 1200

300 1000 250 800 PRC gold index 200 (SGE 9999) 600 World gold price 150 400 100

50 200

0 0 January 2005 July 2005 January 2006 July 2006 January 2007 July 2007 January 2008 July 2008 January 2009 July 2009

Source: Bloomberg

Gold supply in the PRC

According to China Mining Association, China has been the world’s largest gold producer since 2007, followed by the United States and South Africa. Based on the statistics released by the Ministry of Industry and Information Technology of China, the output of gold in China has grown over the past several years and totalled approximately 282 tonnes in 2008. Set out below are the gold production in China since 1999:

(tonnes)

300 282.007 270.491 270.491 254.552 254.552 240.078 240.078 250 224.050 212.348 224.050 200.598 212.348 189.810189.810 200.598 200 181.830 175.000 181.830 169.089 175.000

150

100

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Jan to Oct 2009

– VIII-5 – APPENDIX VIII INDUSTRY OVERVIEW

PRC GOLD MARKET DEREGULATION

The PRC gold market has undergone significant reform over the last few years. Prior to the establishment of the SGE, trading in gold was regulated by the PBOC. In November 2001, trial gold trading commenced on the SGE, followed by the official commencement of trading in October 2002. In March 2003, the PBOC removed barriers for the manufacture, distribution and retailing of gold, and in February 2004, the Commercial Banking Law of China was amended to allow all banks to participate in gold trading.

COMPETITIVE LANDSCAPE

The PRC gold mining industry used to be relatively fragmented. With over 1,200 gold mining companies in 2003, many of which are small-scale producers with low ore handling capacity. In addition, there are global gold mining companies, smaller foreign gold mining companies and domestic PRC gold mining companies, all of whom are exploring for gold in the PRC.

With a series of mergers and acquisitions, the market has become consolidated in recent years. According to the Ministry of Industry and Information Technology of China, the number of gold mining companies in the PRC has reduced to about 700 and the top ten companies have produced 46.8% of the total national gold productions in 2008 and owned gold reserves of approximately 3,200 tonnes, representing 60% of the total reserves of the country in 2008.

The major barriers to entry in the PRC gold industry include access to gold resources, the number of environmental and safety regulations to be complied with, and the ability to obtain a mining licence under the Mineral Resources Law of the PRC.

The unique market feature of determining gold price via commodities exchanges has resulted in fewer price wars when fighting for market share, as compared to other industries. As a resource based industry, the development of the gold industry will depend on various factors such as the reserve of resources owned and its quality, geological exploration technology and capability, resources development and utilisation standard.

Gold is mined all over the world. Once it is processed, smelted and refined, the finished product is a standard, close to pure, commoditised product (usually 99.99% or 99.95% pure). The tradable, commoditised product is sold in identical form through market-making banks and commodities exchanges worldwide. Having a completely open market means that demand and supply is brought into equilibrium via movements in the price. This is also known as a “terminal” market, which refers to the fact that price-setting is not up to individual suppliers competing to sell to specific buyers but is the result of almost infinite buyers and sellers meeting their requirements to buy or sell via the exchange mechanism. The gold trade is truly worldwide and the standardised nature of the commodity means if there is excess supply in one region, it can be easily exported. The market price is generally aligned globally and continuously fluctuates worldwide. Individual miners of gold typically simply receive the market price for the gold contained in their concentrates less the processing cost and margin. What this means is that competition in the traditional sense

– VIII-6 – APPENDIX VIII INDUSTRY OVERVIEW where companies compete on factors such as quality, branding and marketing of their products is less relevant and hence their position in the industry (i.e. market share) is less relevant.

With the World Trade Organisation accession and the continued liberalisation of the PRC gold sector, investment interest from foreign gold producers has increased. Foreign gold producers are actively seeking entry into the PRC market. As a result, the local market is likely to experience increased competition. Sophisticated international producers commonly have an advantage over PRC gold producers in terms of capital, equipment, expertise, operating efficiencies and corporate management. However, many PRC gold producers have the advantage of being able to sustain lower costs of labor and establish greater control of local gold reserves within the PRC, when compared to their foreign competitors. The increased capitalisation from foreign investment and the implementation of the latest gold mining and processing technologies is expected to make PRC gold producers increasingly competitive.

The following table has been compiled using publicly available data released by the gold producers, which has not been independently verified. The following resources and reserves figures reflect estimates at different dates, which may have materially changed thereafter. Furthermore, some of the gold producers described in the following table have used different technical standards or classification systems in calculating their resources and reserves. The available sources do not always describe whether and how resources and reserves estimates of non wholly-owned subsidiaries are included in the total resources and reserves of the relevant companies. Moreover, there are also many gold producers in the PRC that are unlisted and are not reflected in the following table. As a result, caution should be applied when referring to the figures in the table below.

Latest reported resources and reserves estimates of PRC gold producers listed on the Stock Exchange

Reported resources or reserves (containing Gold producer Reporting date gold) (tonnes)

Zijing Mining Group Co., Ltd. (Note 1) 30 June 2009 704.3 Sino Gold Mining Limited (Note 2) 31 December 2008 255.2 Zhaojin Mining Industry Company Limited (Note 3) 31 December 2008 253.1 Lingbao Gold Company Ltd. (Note 4) 30 June 2009 125.4 Real Gold Mining Limited (Note 5) 30 November 2008 120.3

Notes:

1. Estimated gold resource/reserves as at 30 June 2009 was stated in the interim report of Zijin Mining Group Co., Ltd. for the six months ended 30 June 2009.

– VIII-7 – APPENDIX VIII INDUSTRY OVERVIEW

2. Estimated gold reserves of 4,800 kilo ounces as at 31 December 2008 was disclosed in the interim report of Sino Gold Mining Limited for the year ended 31 December 2008 and converted at a conversion factor of 31.10348 grams per ounce.

3. Estimated gold reserves as at the end of 2008 was stated in the annual report of Zhaojin Mining Industry Company Limited for the year ended 31 December 2008.

4. Estimated gold reserves and resources as at 30 June 2009 was stated in the interim report of Lingbao Gold Company Ltd. for the six months ended 30 June 2009.

5. Estimated gold reserves and resources as at 30 November 2008 was stated in the annual report of Real Gold Mining Limited for the year ended 31 December 2008.

– VIII-8 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY

LAWS AND REGULATIONS RELATING TO MINERAL RESOURCES

The “Mineral Resources Law of the PRC” (“Mineral Resources Law”) ( ) was promulgated by the Standing Committee of the NPC on 19 March 1986 and became effective on 1 October 1986. On 29 August 1996, the Standing Committee of the NPC amended the “Mineral Resources Law”. The amended “Mineral Resources Law” became effective on 1 January 1997.

The “Mineral Resources Law” and its implementation rules are as follows:

¼ All mineral resources of the PRC, including such resources on the earth’s surface or underground, are owned by the State. The State ownership of mineral resources shall remain unchanged notwithstanding that the ownership or the right to use the land to which such mineral resources are attached has been granted to a different entity or individual.

¼ MOLAR ( ) is responsible for the supervision and administration of the mining and exploration of mineral resources nationwide. The geology and mineral resources departments of the PRC government of the respective provinces, autonomous regions and municipalities are responsible for the supervision and administration of the exploration, development and mining of mineral resources within their respective jurisdictions.

¼ Enterprises engaged in the mining or exploration of mineral resources must obtain mining and exploration permits, as the case may be, which are transferable for consideration only in certain circumstances as provided under PRC laws, subject to approval by relevant administrative authorities. Furthermore, if the mining activities involve gold resources, in accordance with the “Provisions on the Administration of Obtaining the Letter of Approval for Mining of Gold Minerals” ( ), promulgated by the National Development and Reform Commission on 17 December 2003 and became effective on 1 January 2004, the Gold Operating Permit ( ) must also be obtained. The maximum validity period of the initial term of a Gold Operating Permit for a gold mine having a daily ore processing capacity of more than 500 tpd, a daily ore processing capacity ranging from 100 tpd to 500 tpd and a daily ore processing capacity of less than 100 tpd shall be 15 years, 10 years and 5 years, respectively. Therefore, Henan Multi-Resources shall obtain the Gold Operating Permit.

¼ According to the Provisions on the “Administration of Obtaining the Letter of Approval for Mining of Gold Minerals” and the relevant PRC laws and regulations, Henan Multi-Resources shall have obtained the Gold Operating Permit before it was able to process the mining permit and the registration with the administration of industry and commerce. To apply for the Gold Operating Permit, a company shall submit, inter alia, (i) the application documents; (ii) the formal map which can accurately show the scope of the mining area; (iii) the file records on the examination of the geological reserve report or the approval documents on the geological reserve report; and (iv) the project environmental

– IX-1 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY

impact assessment report which has to be approved by the environment protection authority. Application for renewal of Gold Operating Permit shall be submitted 30 days before expiry. According to the official website of the relevant authorities, the application for Gold Operating Permit is free of charge.

¼ MOLAR and the Geological and Mineral Resources Department of the PRC government of the provinces, autonomous regions and municipalities authorised by MOLAR are responsible for the granting of exploration and mining permits. Generally, holders of exploration permits and mining permits have those rights and obligations as prescribed by laws.

¼ Anyone who exploits mineral resources must pay a resources tax and resources compensation levy in accordance with relevant regulations of the State. In accordance with “Provisional Regulations on Resources Tax of the PRC” ( ), the amount of the resources tax is computed on the basis of the taxable amount. In accordance with “Administrative Rules on the Levy of Mineral Resources Compensation” ( ) and “Notice from Ministry of Land and Resources and Ministry of Finance in Relation to the Collection of Compensation on Gold Reserves” ( ), the resources compensation levy shall be calculated in accordance with the following formula:

Amount of the Coefficient of gold reserve Sales revenue of Compensation Adjustment ratio = x x mining x compensation gold products rate of compensation recovery rate levy payable

According to the Mineral Resources Compensation Levy Rate Table ( ) announced on the official website1 of the Department of Land and Resource of Henan Province ( ), the compensation levy rate applicable to the gold mine, including the Target Group, is 4%.

In accordance with the “Notice from Ministry of Land and Resources and Ministry of Finance in Relation to the Collection of Compensation on Gold Resources” ( ), sales revenue of gold products = sales volume of gold products x unit selling price of gold products, where sales volume of gold products refers to the volume of gold products sold by mining firms to smelting firms together with that sold to banks by mining and smelting firms.

The adjustment ratios of compensation for different gold mineral mine enterprises and different categories of mineral products are:

¼ Mining and smelting conglomerates (mineral product of which is all metallic gold) 70%

¼ Mining conglomerates (gold products of which are gold concentrates and other mineral intermediate products) 78%

1 http://www.hnblr.gov.cn/Template/article/display.jsp?mid=20060602461647

– IX-2 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY

¼ Enterprises that are engaged in the mining of paragenetic and associated mineral resources (by-products for integration purposes) 70%

¼ Enterprises that are engaged in the mining of gold dust (gold dust and all metallic gold) 65%

Therefore, the higher is the adjustment ratio applied, the more compensation fee will be levied on the mineral products.

According to “Administrative Rules on the Levy of Mineral Resources Compensation”, the coefficient of mining recovery rate shall be calculated in accordance with the following formula:

Coefficient of mining Ratified coefficient of mining Ϭ Actual coefficient of mining recovery rate = recovery rate recovery rate

The ratified coefficient of mining recovery rate shall be based on the mine design approved in accordance with the national regulations; where, pursuant to the relevant national regulations, only the mining plan is required but not the mine design, the coefficient of mining recovery rate shall be subject to the ratification by the local government authority which is above the county level and responsible for the administration of geology and mineral products.

Rights and obligations of holders of exploration permits

The rights exercisable by a holder of an exploration permit include, among other things, the following: (1) to carry out exploration in the designated area and within the prescribed time; (2) to have access to the exploration area and its adjacent areas; (3) to temporarily use the land in accordance with the needs of the exploration project; (4) to have priority in obtaining the mining right of the mineral resources as specified in the exploration permit and the exploration right of other newly discovered minerals within the designated exploration area; (5) upon fulfillment of the prescribed minimum expenditure requirements, to transfer the exploration right to any third party upon government approval; and (6) to sell the mineral products extracted from the surface of the land in the exploration area, except for those mineral products which are required by the State Council to be sold to designated units.

The obligations of a holder of an exploration permit include, among other things, the following: (1) to commence and complete the exploration work within the term of the exploration permit; (2) to carry out the exploration work in accordance with the exploration plan and to ensure no occurrence of unauthorised mining activities; (3) to carry out integrated exploration and assessment on the paragenetic and associated mineral resources; and (4) to submit an exploration report regarding the mineral resources to the relevant government authority for approval.

– IX-3 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY

Rights and obligations of holders of mining permits

The rights exercisable by a holder of a mining permit include, among other things, the following: (1) to engage in mining activities in the designated area and within the term prescribed under the mining permit; (2) to set up ore processing facilities and amenities within the designated area; (3) to sell the mineral products, except for those minerals which are required by the State Council to be sold to designated units; and (4) to acquire the land use rights attaching to the mine.

The obligations of a holder of a mining permit include, among other things, the following: (1) to carry out mining activities in the prescribed designated area and within the term of the mining permit; (2) to effectively protect and reasonably extract the mineral resources and to integrate the use of the mineral resources; (3) to pay resources tax and resources compensation levy; (4) to act according to the supervision and management of the relevant government authorities; and (5) to submit a report on the development and utilisation of mineral resources to the relevant government authority.

Renewal of exploration and mining permits

In accordance with the “Administrative Measures on Registration of Mineral Resources Exploitation” ( ), the validity period of a mining permit shall be determined according to the scale of the mine. The maximum validity period of the initial term of a mining permit for a big-scale mine, medium-scale mine and small-scale mine shall be 30 years, 20 years and 10 years, respectively.

In accordance with the “Administrative Measures on Registration of Tenement of Mineral Resources Exploration and Survey” ( ), the maximum validity period of the initial term of exploration permits shall be three years.

However, the State Council issued the ( ) (State Council Regarding the Reinforcement of the Geological Work (No. 4 document issued by State Council (2006)) which stipulates that the State Council will enforce the monitoring and management of the exploration activities of mineral resources and will prohibit activities of marking without exploration and mining without exploration ( ). In light of the above, when approving the validity period of exploration permits and mining permits, the Department of Land and Resources ( ) of all the provinces in the PRC will act in accordance with their internal guidelines and principles and will normally grant mining permits and explorations permits with a validity period of approximately 3 years and a validity period of approximately 1-2 years respectively.

In accordance with the relevant provisions stipulated in the “Administrative Measures on Registration of Tenement of Mineral Resources Exploration and Survey” ( ) and the “Administrative Measures on Registration of Mineral Resources Exploitation” ( ), exploration permits and mining permits can be renewed within a prescribed period prior to their expiration, upon compliance with the prescribed extension procedure. Each renewal of exploration permit

– IX-4 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY shall not exceed two years. Where a holder of an exploration permit or a mining permit fails to renew its permit, such exploration or mining permit shall be automatically annulled upon expiration.

Qualifications for initial admission and renewal of exploration and mining permits

The relevant PRC laws and regulations contain certain specific qualifications for the initial issue of exploration and mining permits. In accordance with the “Notice on Regulations regarding the Registration of Exploration and Exploitation of Mineral Resources” ( ) issued by the Department of Land and Resources, the registration authority (that is the Department of Land and Resources) shall focus on the following aspects in the examination of an application for an exploration permit:

¼ whether the exploration areas applied for have already been applied for by other parties;

¼ whether the application form is properly filed, the exhibits are complete and the required materials are correctly supplied;

¼ whether the exploration areas applied for are out of the permitted registered areas and are classified as continuous areas;

¼ whether exploration or mining rights have already been granted in respect of the exploration areas applied for;

¼ in relation to exploration areas where exploration activities were funded by the State, whether the value of the relevant exploration right is properly assessed, whether the assessment result has been confirmed by relevant government authorities and the payment method of consideration for such exploration rights has been ratified by the relevant government authorities;

¼ within the 90 days prior to the making of the application, whether the exploration right of the exploration areas applied for has been revoked; and

¼ within the 6 months prior to the making of the application, whether an exploration license held by the applicant was revoked.

In accordance with the “Notice on Regulations regarding the Registration of Exploration and Exploitation of Mineral Resources” ( ) issued by the Department of Land and Resources, the registration authority (that is the Department of Land and Resources) shall, after receiving the application materials for a mining permit and the investigation results of the low-level

– IX-5 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY registration authority, will examine the following aspects in the examination of an application for a mining permit:

¼ whether the range and acreage of the mining area applied for is the same as those of the approved areas by the registered authority;

¼ whether the production quantity of mines will change and whether it complies with the devised mineral reserves;

¼ whether the designed mine life of the mines is reasonable;

¼ whether the integrated exploration, use and recycle of mining resources are reasonable;

¼ whether the applicant of mining rights meets the prescribed qualifications; and

¼ other aspects required for inspection.

The relevant PRC laws and regulations have not set forth any specific standards and qualifications for the renewal of exploration and mining permits.

Documents to be submitted for the application/renewal of mining permits

Pursuant to relevant PRC laws and regulations, the documents to be submitted to the relevant government authorities for the application of mining permit include the following:

¼ application document and the mining area diagram;

¼ qualification document of the applicant;

¼ exploitation plan of mineral resources;

¼ approval documents for establishment of mining enterprise;

¼ environmental impact assessment report for the mining of mineral resources; and

¼ other documents required by the department in charge of geology and mineral resources under the State Council.

Relevant PRC laws and regulations do not provide which documents shall be submitted to the relevant government authorities for the renewal of mining permit. However, the Department of Land and Resources ( ) publicises on its official website (http:// www.mlr.gov.cn) the application documents which must be submitted to the Department of Land and Resources for renewal of mining permit, as follows:

¼ an application for the renewal of a mining permit;

– IX-6 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY

¼ the reserved copy and the counterpart copy of the original mining permit;

¼ the opinion of the Department of Land and Resources at the provincial level regarding the mining right holder’s fulfillment of its obligations and documents proving that the mining right holder has fulfilled its obligations under the license;

¼ the documents providing the residual reserves;

¼ an explanation of the exploitation of the mine;

¼ in relation to a mining right that was transferred for consideration the relevant materials regarding the evaluation, confirmation and amount paid for such mining right;

¼ a copy of the business license;

¼ in the case of a foreign-invested enterprise, a copy of the certificate of approval for a foreign invested enterprise; and

¼ pre-renewal compliance record in relation to mineral resource registration and mineral resource register.

Fees

Holders of exploration permits and holders of mining permits are subject to exploration right usage fees and mining right usage fees, respectively. In accordance with the “Administrative Measures on Registration of Mineral Resources Exploitation” ( ), mining right usage fees shall be payable on an annual basis. The rate of mining right usage fees shall be RMB1,000 per km2 of mining area per year. On the other hand, in accordance with the “Administrative Measures on Registration of Tenement of Mineral Resources Exploration and Survey” ( ), exploration right usage fees shall be calculated according to the terms of the exploration permit and shall be payable on an annual basis. The rate of exploration right usage fee for the first year through the third year of exploration shall be RMB100 per km2 of exploration area per year. From the fourth year of exploration onwards, the rate will be increased by RMB100 per km2 of exploration area per year. However, the annual maximum rate shall not exceed RMB500 per km2 of exploration area.

Laws and regulations relating to the administration of gold

Pursuant to the “Administrative Regulations on Gold and Silver of the PRC” ( ) promulgated and implemented on 15 June 1983, purchases of gold and silver were made centrally by the PBOC ( ). No entity or individual was permitted to purchase gold and silver without the consent of the PBOC. All gold and silver produced by mining enterprises, rural communes, brigades, armed forces or individuals engaged in the production of gold and silver (including those with ore exploration, production and smelting as their supplementary business) were required to be

– IX-7 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY sold to the PBOC, and could not be retained individually for sale, exchange or use. Entities requiring gold and silver for use were required to submit a proposal to the PBOC on the proposed use of gold and silver for examination and approval.

On 30 October 2002, the SGE commenced operation under the supervision of the State Council. Thereafter, the PBOC ceased its operation in gold allocation and gold purchase. All PRC gold producers are now required to sell their standard gold bullion through the SGE ( ), and prices of gold on the SGE are determined by market demand and supply, which essentially converge with the price of gold in the international market. On 27 February 2003, the State Council promulgated the “Decision of the State Council in relation to Termination of the Second Batch of Administrative Approval Projects and Amendment of the Management Method of Certain Administrative Approval Projects” ( ) and cancelled the approval requirements for the production and sale of gold. As a result, the policy of “centralised purchase and allocation of gold” as stipulated under the “Administrative Regulations on Gold and Silver of the PRC” has been terminated in practice.

Since the promulgation of the “Administrative Permission Law of the PRC” ( ) on 27 August 2003, the State Council reformed the administrative approval system and clarified that the outstanding projects would be subject to administrative approval by its departments. The State Council promulgated the “Decision of the State Council on the Enactment of Administrative Permission for Certain Administrative Approval Projects which Shall be Retained” ( ) on 29 June 2004. According to the decision, the import and export of gold and gold products remain subject to administrative examination and approval. The authority responsible for such examination and approval is the PBOC. Such decision became effective as of 1 July 2004.

Laws and regulations relating to environmental protection

The PRC government has formulated a comprehensive set of environmental protection laws and regulations that covers areas such as land rehabilitation, sewage discharge and waste disposal. The State Environmental Protection Administration Bureau ( ) regulates matters relating to environmental protection in the PRC and formulates the national standards on environmental quality and discharge of pollutants. The environmental protection departments at the county level or above are responsible for matters relating to environmental protection within their own jurisdictions.

The “Environmental Protection Law of the PRC” (“Environmental Protection Law”) ( ) and the “Administrative Regulations on Environmental Protection for Construction Projects” ( ) stipulate that prior to the construction of new production facilities or expansion or transformation of existing facilities that may cause a significant impact on the environment, a report on the environmental impact of the construction project shall be submitted to the relevant environmental protection authority. Newly constructed production facilities cannot operate until the relevant department is satisfied that such facilities are in compliance with all relevant environmental protection standards. Pursuant to the requirements of the “Environmental Protection Law”,

– IX-8 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY any production facilities that could possibly cause pollution or other public hazards shall adopt measures on environmental protection and shall establish a system on environmental protection and administration. Effective measures shall be adopted to prevent and control the pollution and harm caused to the environment by the emission of exhaust air, sewage, waste residues, dust, malodorous gas, radioactive substances, noise, vibration and electromagnetic radiation. Enterprises that discharge pollutants shall register with the relevant environmental protection authority. The State Environmental Protection Administration Bureau formulates national standards on emission of pollutants in accordance with the national standards on environmental quality and the national economic and technological conditions. Governments at the provincial level and of the autonomous regions and municipalities may formulate their respective local standards on the discharge of pollutants for items not specified in the national standards. The local governments may formulate local standards which are more stringent than the national ones. Pursuant to the requirements under the “Law on Prevention of Water Pollution of the PRC” ( )”, “Law on Prevention of Air Pollution of the PRC” ( ) and “Administrative Regulations on Levy and Utilisation of Sewage Charge” ( ), enterprises which discharge water or air pollutants shall pay discharge fees pursuant to the types and volume of pollutants discharged. The discharge fees are calculated by the local environmental protection authority which shall review and verify the types and volume of pollutants discharged. Once the discharge fees have been calculated, a notice on payment of discharge fees shall be issued to the respective enterprises. In addition, enterprises which discharge sulfur dioxide at a level exceeding the prescribed standards are required to install “de-sulfurising devices” or adopt other “desulfurising” measures to control the emission of sulfur dioxide.

Pursuant to the “Mineral Resources Law”, “Land Administration Law of the PRC” ( ) and “Rules on Land Rehabilitation” ( ), exploitation of mineral resources shall be conducted in compliance with the legal requirements on environmental protection so as to prevent environmental pollution. With respect to any damage caused to cultivated land, grassland or forest as a result of exploration or mining activities, mining enterprises shall restore the land to a state appropriate for use by reclamation, re-planting trees or grasses or such other measures as are appropriate to the local conditions. In the event that the mining enterprise is unable to rehabilitate or the rehabilitation does not comply with the relevant requirements, the mining enterprise shall pay a fee for land rehabilitation. Upon the closure of a mine, a report in relation to land rehabilitation and environmental protection shall be submitted for approval. Enterprises that fail to perform or satisfy the requirements on land rehabilitation will be penalised by the relevant land administration authority.

In accordance with the “Law on Prevention of Environmental Pollution Caused by Solid Waste of the PRC” ( ), entities and individuals collecting, storing, transporting, utilising or disposing of solid waste shall take precautions against the spread, loss and leakage of such solid waste or adopt such other measures for preventing such solid waste from polluting the environment.

– IX-9 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY

The penalties for breaches of the environmental protection laws vary from warnings, fines to administrative sanctions, depending on the degree of damage. Any entity whose construction projects fail to satisfy the requirements on pollution prevention may be ordered to suspend its production or operation and be subject to a fine. The person responsible for the entity may be subject to criminal liability for serious breaches resulting in significant damage to private or public property or personal death or injury.

Laws and regulations relating to production safety

The PRC government has formulated a relatively comprehensive set of laws and regulations on production safety, including the “Law on Production Safety of the PRC” ( ), the “Law on Mine Safety of the PRC” ( ) as well as “Regulations on Mine Safety” ( ) and “Regulations on the Monitoring of Mine Safety” ( ) promulgated by the State Council, which pertain to the mining, processing and smelting operation of the mining industry. The State Administration of Work Safety ( ) is responsible for the overall supervision and management of the production safety nationwide, while the departments in charge of production safety at the county level or above are responsible for the overall supervision and management of production safety within their own jurisdictions.

The PRC government implements a licensing system for production safety of mining enterprises under the “Regulations on Production Safety License” ( ). No mining enterprise may engage in production activities without holding a valid production safety license. Enterprises which fail to fulfill the production safety conditions may not carry out any production activity. Mining enterprises which have obtained the production safety licenses shall not lower their production safety standards, and shall be subject to the supervision and inspection of the licensing authorities from time to time. If the licensing authorities are of the opinion that the mining enterprises do not fulfill the production safety requirements, may order the production safety licenses to be withheld or revoked.

The PRC government has also formulated a set of national standards on production safety for the mining industry. In general, the mine design shall comply with production safety requirements and industry practice. Each underground mine shaft is required to have at least two safety exits and the mine shall be equipped with transportation and communication facilities, which connect the mine to the outside. The mine design must be approved in accordance with the requisite procedures.

A mining enterprise shall have its own management body or designated safety management team handling production safety matters. Education and training on production safety shall be provided to workers to ensure that they fully understand the regulations on and the procedures required for production safety and are able to master the necessary skills for operation safety for their respective positions. Those not having received such said education and training may not be allowed to work at the mine.

Pursuant to the “Regulations on Mine Safety” ( ), the PRC government also implemented a safety supervision system in mines and established the mine safety supervisory authorities. The major responsibilities of such supervisory authorities include,

– IX-10 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY among other things, the following: (1) to supervise the provision of safety education and training by mining enterprises; (2) to approve mine design and carry out examinations upon completion of mine construction; (3) to monitor the status of the construction of safety facilities carried out by the mining enterprises; (4) to inspect the safety of mines and require the mining enterprises to rectify any facilities or equipment that fall below the requisite safety standards within a particular time limit; (5) to investigate mining accidents and to supervise the handling of mining accidents; (6) to impose fines or administrative sanctions or submit the case to the judicial authorities for legal actions against the mining enterprises, the management or any related staff thereof who have severely violated the “Regulations on Mine Safety” ( ); and (7) to suggest the relevant authorities suspending or closing the operation of mining enterprises which cannot meet the basic safety requirements.

Upon occurrence of accidents, mining enterprises shall immediately take measures to rescue their workers and report any deaths or injuries to the relevant authority. In the event of a minor accident, the mining enterprise shall be responsible for investigating and handling the case. In the event of a serious accident, the government, the relevant authority, the labor union and the mining enterprise shall conduct an investigation and handle the case together. In addition, the mining enterprise shall pay compensation to any employee who has been injured or die in the accident in accordance with the national requirements. Such mining enterprise may only resume production after the relevant danger at the scene has been eliminated.

In addition, pursuant to the “Law on Production Safety of the PRC” ( ), the PRC government implemented an accountability system for incidents relating to production safety. The responsible person for a production safety incident may be subject to demotion or termination of employment, and may be subject to criminal liabilities.

Laws and regulations relating to taxation

Enterprises engaged in the mining of mineral resources must pay resources tax in accordance with relevant regulations of the State. In accordance with the “Provisional Regulations on Resources Tax of the PRC” ( ), which became effective as of 1 January 1994, the rate of the resources tax ranges from RMB0.40 to RMB30 per tonne of nonferrous metal products. The amount of resources compensation levy payable is computed on the basis of the sales revenue of mineral products. According to the “Implementing Rules for the Provisional Regulations on Resources Tax of the PRC” ( ) issued by the Ministry of Finance which became effective as of 30 December 1993, resources tax is levied according to the grade of mines and the applicable amount of tax per tonne of ore produced as provided in the schedules attached to these implementing rules. The resources tax rates applicable to gold ore ranges from RMB1.3 per tonne to RMB2.5 per tonne.

On 19 May 2006, the Ministry of Finance ( ) and the State Administration of Taxation ( ) issued “Notices on Adjusting Policies with respect to Resource Tax of Rock Gold Ore” ( ), which became effective on 1 May

– IX-11 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY

2006. The notice is about the adjustment of tax, which, among other things, adjusted upwards the rates of resource tax for various grades of rock and gold mines. The resources tax rates applicable to gold ore ranges from RMB1.5 per tonne to RMB7.0 per tonne.

The PRC government encourages the development of the gold industry by implementing a policy of preferential treatment on taxation. In accordance with the “Notice from Ministry of Finance and State Tax Bureau in Relation to Exemption of Value Added Tax on Gold Production” ( ) promulgated in 1994 and other relevant laws and regulations, gold produced and sold by gold mining and smelting enterprises are exempted from VAT. “Notice regarding issues on Tax Policy on Gold Transactions” issued by the Ministry of Finance and the State Tax Bureau ( ) on 12 September 2002 provides that gold production enterprises engaged in the sales of standard gold and gold sand (containing gold content) are exempt from VAT. For transactions with physical settlement, the tax authority will issue VAT invoices based on the actual transaction price and immediately refund any VAT levied and paid.

On 16 March 2007, the NPC enacted a new enterprise income tax law, or the New Enterprise Income Tax Law ( ), which took effect from 1 January 2008. The implementing rules of the New Enterprise Income Tax Law ( ) (the “Implementing Rules”), were adopted on 6 December 2007 and took effect from 1 January 2008. Under the New Enterprise Income Tax Law and the Implementing Rules, foreign invested enterprises and domestic companies would be subject to Enterprise Income Tax at a uniform rate of 25%.

Laws and regulations relating to the control of currency conversion

RMB currently is not a freely convertible currency. Under the current foreign exchange regulations in the PRC, PRC incorporated entities can effect foreign exchange for current-account transactions (including the distribution of dividends) only through accounts permitted by the PRC government. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from SAFE or its local branch is required where Renminbi is to be converted into foreign currencies and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.

Since 1994, the conversion of RMB into foreign currencies, including US dollars, has been based on rates set by the PBOC, which are set daily based on the previous business day’s interbank foreign exchange market rates and current exchange rates on the world financial markets. From 1994 to 20 July 2005, the official exchange rate for the conversion of RMB to US dollars was generally stable. On 21 July 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the RMB to fluctuate within a regulated band based on market supply and demand and by reference to a

– IX-12 – APPENDIX IX THE PRC LAWS AND REGULATIONS RELATING TO MINING INDUSTRY basket of currencies. On the same day, the value of the RMB appreciated by approximately 2% against the US dollar. The PRC government has since made, and in the future may make, further adjustments to the exchange rate system.

– IX-13 – APPENDIX X GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company at the Latest Practicable Date and immediately after the Completion, completion of the Subscription, full conversion of the Convertible Note and the issue of the Warrant Shares is set out as follows:

HK$ Authorised capital:

3,500,000,000 Shares 350,000,000

Issued (or agreed to be issued) and fully paid:

312,830,334 Shares of HK$0.10 each 31,283,033.4 176,470,588 Consideration Shares of HK$0.10 each 17,647,058.8 21,764,705 Subscription Shares of HK$0.10 each 2,176,470.5 171,052,631 Conversion Shares of HK$0.10 each 17,105,263.1 50,000,000 Warrant Shares of HK$0.10 each 5,000,000.0

732,118,258 Shares 73,211,825.8

All existing Shares rank equally in all respects, including capital, dividends and voting rights. The Shares are listed on the Stock Exchange.

– X-1 – APPENDIX X GENERAL INFORMATION

3. DISCLOSURE OF INTERESTS OF DIRECTORS

(a) As at the Latest Practicable Date, the interests and the short positions (within the meaning of the SFO) of the Directors and the chief executives of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO), or were required pursuant to section 352 of the SFO to be entered in the register referred to therein, or were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, were as follows:

Number of ordinary shares of Percentage of HK$0.10 each in the Company the Company’s Name of Personal Corporate Family issued share director interest interest interest capital

Chan Sing Chuk, – 506,339,522 – 161.858% Charles (Note 1)

Cheng Siu Yin, – 506,339,522 – 161.858% Shirley (Note 1)

Chu Wai Kok 8,000 ––0.003%

Chan Ping Kuen, 20,000 ––0.006% Derek

Chan Wai Lap, ––270,000 0.086% Victor (Note 2)

Debenture Personal (principal amount) Family Name of director interest Corporate interest Interest

Chan Sing Chuk, Charles – HK$325 million – (Note 3)

Cheng Siu Yin, Shirley – HK$325 million – (Note 3)

Note 1: Such interests are held by a company, Tamar Investments Group Limited, which is wholly owned by Dr. Chan Sing Chuk, Charles, BBS, JP and Ms. Cheng Siu Yin, Shirley and include interest in the Consideration Shares and Conversion Shares.

Note 2: The 270,000 Shares were held by Ms. Kwok Ching Yan, Louisa who is the spouse of Mr. Chan Wai Lap, Victor, an Executive Director.

– X-2 – APPENDIX X GENERAL INFORMATION

Note 3: Such interest is held by Tarmar Investments Group Limited in the Convertible Note in HK$325 million principal amount. Tarmar Investments Group Limited is wholly owned by Dr. Chan Sing Chuk, Charles, BBS, JP and Ms. Cheng Siu Yin, Shirley as referred to in Note 1.

Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had or was deemed to have any interest or short position in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO), or were required pursuant to section 352 of the SFO to be entered in the register referred to therein, or were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

(b) Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have since 30 June 2009 (being the date to which the latest published audited consolidated accounts of the Group were made up) been acquired or disposed of by or leased to or by the Company, the Target Company or any of their respective subsidiaries, or are proposed to be acquired or disposed of by or leased to or by the Company, the Target Company or any of their respective subsidiaries.

(c) Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Enlarged Group since 30 June 2009, being the date to which the latest published audited financial statements of the Company were made up, and which was significant in relation to the business of the Enlarged Group.

(d) As at the Latest Practicable Date, none of the Directors or their respective associates was interested in any business apart from the business of the Group, which competed or was likely to compete, either directly or indirectly, with that of the Group.

(e) Dr. Chan has a service contract with the Company for an indefinite period, which may be terminated by either party giving three months’ written notice. Save for the above, none of the Directors had a service contract with the Company which is expiring or not determinable by the Company within one year without payment of compensation, other than statutory compensation as at the Latest Practicable Date.

(f) An acquisition agreement dated 4 July 2008 was entered into between Invest Companion Limited, a wholly-owned subsidiary of the Company, and Brilliant Top Properties Limited, a company wholly-owned by Mr. Chan, in relation to the acquisition of the entire issued share capital and shareholder’s loan in Precious Palace International Limited at HK$389,500,000 less the amount of the mortgage

– X-3 – APPENDIX X GENERAL INFORMATION

loan (if any) outstanding as at the completion date, details of which were set out in the announcement of the Company dated 9 July 2008 and the circular of the Company dated 27 August 2008. Other than the transactions contemplated under the aforementioned acquisition agreement, none of the Directors has any interest, direct or indirect, in the promotion of, or in any assets which have been within the two years immediately preceding the Latest Practicable Date acquired or disposed of by or leased to, the Company or any of its subsidiaries.

4. SUBSTANTIAL SHAREHOLDERS

As far as was known to any Director or chief executive of the Company, as at the Latest Practicable Date, there is no any person, other than a Director or chief executive of the Company, had an interest or short position in the Shares or underlying Shares which fell to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

5. QUALIFICATION AND CONSENT OF EXPERTS

The following are the qualifications of the experts who have given their opinions and advice which are included in this circular:

Name Qualification Access Capital a licensed corporation to carry out type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO Grant Thornton certified public accountants BMI independent professional valuers Chung, Chan and Associates independent professional valuers SRK technical consultant Hills & Co. PRC legal adviser

Each of Access Capital, Grant Thornton, BMI, Chung, Chan and Associates, SRK and Hills & Co. has given and has not withdrawn its written consent to the issue of this circular with inclusion of its letter and the references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of Access Capital, Grant Thornton, BMI, Chung, Chan and Associates, SRK and Hills & Co. was not interested in any Shares or shares in any member of the Enlarged Group, nor does it have any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any Shares or shares in any member of the Enlarged Group. As at the Latest Practicable Date, none of the aforesaid parties had any direct or indirect interests in any assets which have since 30

– X-4 – APPENDIX X GENERAL INFORMATION

June 2009 (being the date to which the latest published audited consolidated accounts of the Group were made up) been acquired or disposed of by or leased to or by the Company, the Target Company or any of their subsidiaries, or are proposed to be acquired or disposed of by or leased to or by the Company, the Target Company or any of their respective subsidiaries.

SRK did not have any interest, direct or indirect, in the promotion of, or in any assets which have been within the two years immediately preceding the Latest Practicable Date acquired or disposed of by or leased to, the Company or any of its subsidiaries. SRK did not have any interest in the share capital of the Company as at the Latest Practicable Date.

6. MATERIAL CONTRACTS

The following material contracts, not being contracts entered into in the ordinary course of business of the Enlarged Group, have been entered into by any member of the Enlarged Group within two years immediately preceding the date of this circular:

(a) the assignment dated 28 February 2008 and entered into between Poly Jade Development Limited as assignor and Alpha Fortune Properties Limited as assignee in relation to the assignment of the property situated at Nos. 2 – 6 Bowring Street, Kowloon, Hong Kong in Hong Kong at a consideration of HK$105,000,000;

(b) the provisional agreement for sale and purchase dated 5 March 2008 and entered into between Hon Cheong Limited as vendor and Well Friendship Investment Limited (“Well Friendship”) as purchaser in relation to the acquisition of the land site situated at 236-242 Des Voeux Road Central, Hong Kong on which a commercial building known as Yien Yieh Commercial Building was formerly erected thereon (“Central Property”), by Well Friendship at HK$335,000,000;

(c) the sale and purchase agreement dated 14 April 2008 entered into between Well Friendship as purchaser and Hon Cheong Limited as vendor in relation to the acquisition of the Central Property at a consideration of HK$335,000,000;

(d) the conditional agreement entered into on 4 July 2008 between, among other persons, Invest Companion Limited, a wholly owned subsidiary of the Company, and Brilliant Top Properties Limited in relation to, among others, the acquisition of entire issued share capital of Precious Palace International Limited and the interest-free shareholder’s loan due to Brilliant Top Properties Limited by Precious Palace International Limited and its subsidiaries as at the date of completion, by Invest Companion Limited, at a total consideration of HK$389,500,000;

(e) the mortgage of the Central Property dated 31 July 2008 and entered into between Well Friendship as mortgagor and the Hongkong and Shanghai Banking Corporation Limited as mortgagee relating to a mortgage loan of HK$167,500,000;

– X-5 – APPENDIX X GENERAL INFORMATION

(f) the assignment dated 31 July 2008 and entered into between Hon Cheong Limited as assignor and Well Friendship as assignee in relation to the assignment of the Central Property at HK$335,000,000;

(g) the provisional agreement for sale and purchase dated 16 June 2009 entered into between Crystal Gain Developments Limited, a wholly-owned subsidiary of the Company, and Winvote Century Limited in relation to the disposal of Continental Diamond Plaza located at Nos. 523, 525, 527 Hennessy Road, Hong Kong at a total consideration of HK$838,000,000;

(h) the sale and purchase agreement dated 10 July 2009 entered into between Crystal Gain Development Limited as vendor and Winvote Century Limited as purchaser in relation to the disposal of Continental Diamond Plaza located at Nos. 523, 525, 527 Hennessy Road, Hong Kong at a total consideration of HK$838,000,000;

(i) the Sale and Purchase Agreement;

(j) the Subscription Agreement;

(k) the service agreement dated 4 December 2009 between the Company, Digichina Trading Limited (“Digichina”) and Mr. Tao Yu Zhen whereby Digichina was engaged to seek suitable business projects for the development or diversification of the business of the Company in consideration of the issue to it of HK$43,125,000 unlisted warrants; and

(l) the service agreement dated 4 December 2009 between the Company, Paramount Ability Corporation (“Paramount”) and Mr. Kwok Wai Tak whereby Paramount was engaged to seek suitable business partners/investors from the PRC for the Company for fund raising projects in consideration of the issue to it of HK$43,125,000 unlisted warrants.

7. LITIGATION

As at the Latest Practicable Date, as far as was known to the Directors, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened against any member of the Enlarged Group.

8. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Company since 30 June 2009, being the date of the latest published audited financial statements of the Company.

– X-6 – APPENDIX X GENERAL INFORMATION

9. GENERAL

(a) The secretary of the Company is Ms. Lee Ching Sze Susana. Ms. Lee is a practising lawyer in Hong Kong and a partner of Chiu & Partners.

(b) The share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday (public holidays excepted) at the registered office of the Company at Flats M and N, 1st Floor, Kaiser Estate, Phase III, 11 Hok Yuen Street, Hunghom, Kowloon, Hong Kong, up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;

(b) the annual reports of the Company for the two years ended 30 June 2008 and 2009, respectively;

(d) the letter from Access Capital to the Independent Board Committee and the Independent Shareholders as set out on pages 46 to 67 of this circular;

(e) the accountants’ report prepared by Grant Thornton on the Target Group, the text of which is set out in Appendix II to this circular;

(f) the accountants’ report prepared by Grant Thornton in respect of the unaudited pro forma consolidated balance sheet of the Enlarged Group, the text of which is set out in Appendix III to this circular;

(g) the property valuation report on the Group prepared by Chung, Chan and Associates as set out in Appendix IV to this circular;

(h) the property valuation report on the Target Group prepared by BMI as set out in Appendix V to this circular;

(i) the valuation report on Hongzhuang Gold Mine prepared by BMI as set out in Appendix VI to this circular;

(j) the technical report on Hongzhuang Gold Mine prepared by SRK as set out in Appendix VII to this circular;

– X-7 – APPENDIX X GENERAL INFORMATION

(k) a copy of service contract with Dr. Chan referred to in note (e) to the paragraph headed “disclosure of interests of Directors” in this Appendix;

(l) the written consents referred to in paragraph headed “qualification and consent of experts” in this Appendix;

(m) a copy of each of the material contracts referred to in the paragraph headed “material contracts” in this Appendix; and

(n) the circular of the Company dated 10 July 2009 in relation to a very substantial disposal of the Group.

– X-8 – NOTICE OF THE EGM

(Incorporated in Hong Kong with limited liability) (Stock Code: 00513)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Continental Holdings Limited (the “Company”) will be held at Ballroom Three, 18/F, The Mira Hong Kong, 118 Nathan Road, Tsimshatsui, Kowloon, Hong Kong on Thursday, 11 February 2010 at 10:00 a.m. for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolutions, which will be proposed as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “THAT the sale and purchase agreement in relation to Big Bonus Limited (the “Target Company”) dated 20 November 2009 between the Company as the purchaser, Benefit Well Investments Limited (the “Vendor”) as the vendor and Dr. Chan Sing Chuk, Charles as the guarantor for the Vendor as subsequently amended and supplemented by the supplemental agreement dated 30 November 2009 amongst the said parties (collectively defined as the “Sale and Purchase Agreement”, a copy of both of which having been produced at the meeting marked “A” and signed by the chairman of the meeting for identification purposes), under which the Company shall purchase from the Vendor the entire issued share capital of the Target Company (and the entire outstanding shareholder loan due or payable to the Vendor by the Target Company subject as provided in that Sale and Purchase Agreement) for a total consideration of HK$738 million to be satisfied upon its completion in the following manner:

(a) as to HK$113 million in cash;

(b) as to HK$300 million by the Company issuing and allotting a total of 176,470,588 fully paid new ordinary shares (“Shares”) in the share capital of the Company (“Consideration Shares”); and

(c) as to the balance of HK$325 million by the Company issuing a convertible note in the equivalent principal amount, which shall fall due for redemption on the third anniversary of the date of issue and convertible into fully paid new Shares at HK$1.9 per Share (subject to adjustment), with interest accruing at 1.5 per cent. per annum (“Convertible Note”),

– EGM-1 – NOTICE OF THE EGM

on and subject to the terms and conditions contained therein as further described and summarized in the circular of the Company dated 25 January 2010, and the transactions contemplated under the Sale and Purchase Agreement, including without limitation the said issue and allotment of Consideration Shares and the Convertible Note and the issue of any further new Shares upon due conversion of the Convertible Note, be and are hereby approved, confirmed and ratified; and the directors of the Company be and are hereby authorised to sign, execute and deliver any agreements, deeds, instruments and any other documents (and, where necessary, to affix the seal of the Company on them in accordance with the articles of association of the Company) in connection with the Sale and Purchase Agreement, to make such non-material amendments and changes to it and to do and take all such action, steps, deeds and things in such manner and to sign all documents as they may deem necessary, desirable or appropriate to give effect to the Sale and Purchase Agreement and the transactions contemplated under it.”

2. “THAT the subscription agreement dated 23 November 2009 between the Company as the issuer and All Max Holdings Limited (the “Subscriber”)asthe subscriber, under which the Company shall issue and allot to the Subscriber an aggregate of 21,764,705 new ordinary shares in the share capital of the Company at the price of HK$1.7 per Share (the “Subscription Agreement”, a copy of which having been produced at the meeting marked “B” and signed by the chairman of the meeting for identification purposes) on and subject to the terms and conditions contained therein and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and the directors of the Company be and are hereby authorised to sign, execute and deliver any agreements, deeds, instruments and any other documents (and, where necessary, to affix the seal of the Company on them in accordance with the articles of association of the Company) in connection with the Subscription Agreement, to make such non-material amendments and changes to it and to do and take all such action, steps, deeds and things in such manner and to sign all documents as they may deem necessary, desirable or appropriate to give effect to the Subscription Agreement and the transactions contemplated under it.”

By Order of the Board Chan Sing Chuk, Charles Chairman Hong Kong, 25 January 2010

Registered Office: Flats M and N, 1st Floor Kaiser Estate, Phase III 11 Hok Yuen Street Hunghom, Kowloon Hong Kong

– EGM-2 – NOTICE OF THE EGM

Notes:

(a) Any member of the Company entitled to attend and vote at the meeting is entitled to appoint another person as his proxy to attend and vote instead of him. A proxy need not be a member of the Company.

(b) Where there are joint registered holders of any share of the Company, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.

(c) Completion and return of the form of proxy will not preclude a member from attending and voting at the meeting or any adjournment thereof if he so wishes. In that event, his form of proxy will be deemed to have been revoked.

(d) In order to be valid, the form of proxy duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be delivered to the registered office of the Company at Flats M and N, 1/F, Kaiser Estate, Phase III, 11 Hok Yuen Street, Hunghom, Kowloon, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

As at the date of hereof, Dr. Chan, Ms. Cheng Siu Yin, Shirley, Ms. Chan Wai Kei, Vicki and Mr. Chan Wai Lap, Victor are executive Directors, Mr. Chu Wai Kok is a non-executive Director, Mr. Wong Kai Cheong, Mr. Yu Shiu Tin, Paul BBS, MBE, JP, Mr. Chan Ping Kuen, Derek and Mr. Sze, Irons are independent non-executive Directors.

– EGM-3 –