HISTORY AND DEVELOPMENT
OVERVIEW
We were the largest among gold producers listed in the PRC and/or Hong Kong that operate in the PRC in terms of 2017 gold mine production volume in the PRC. We are engaged in gold exploration, mining, processing, smelting and sales. With our base in Shandong province, the largest gold producing province in China in terms of 2017 gold mine production volume, we have achieved rapid development through organic growth as well as domestic and overseas acquisitions. As of March 31, 2018, we controlled and operated a total of 12 PRC Mines located in Shandong province, Inner Mongolia autonomous region, Fujian province and Gansu province and operated the Veladero Mine in Argentina jointly with Barrick Gold, a leading global gold company, through our 50% indirect interest in MAG. According to the F&S Report, Veladero Mine was the largest gold mine in operation in South America in terms of 2017 gold mine production volume.
OUR HISTORY
Our key promoter, SDG Group Co., is a large-scale state-owned enterprise with more than 40 years of experience in the gold business. It was established in July 1996 by conversion from its predecessor, Shandong Province Gold Industry Company (山東省黃金工業總公司), which was incorporated in 1975. Our Company was established in January 2000, and our A Shares have been listed on the Shanghai Stock Exchange since August 28, 2003.
As of the Latest Practicable Date, our registered capital was RMB1,857,118,809, comprising 1,857,118,809 Shares. For details of the previous changes in our share capital after the establishment of our Company, please see “Appendix VIII — Statutory and General Information” in this Prospectus.
Milestones
Major milestones in our history of establishment and development are summarized as follows:
January 2000 Our Company was established by our key promoter, SDG Group Co., and four other promoters.
February 2001 “Research on Mining Methods of Deposits under the Complex Conditions of Xincheng Gold Mine” (新城金礦複雜條件礦床 採礦方法研究) led by Xincheng Gold Mine won the Second Prize of the National Science and Technology Progress Awards (國家科學技術進步獎二等獎) granted by the Ministry of Science and Technology of the PRC.
December 2001 We became an accredited gold supplier of the Shanghai Gold Exchange (in establishment).
August 2003 We were listed on the Shanghai Stock Exchange.
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January 2008 We acquired (i) exploration and mining permits of Linglong Gold Mine, Sanshandao Gold Mine, Yinan Gold Mine and Qingdao Gold Mine-Xinhui mine area, and (ii) mining permits of Sizhuang mine area and Wangershan mine area of Jiaojia Gold Mine, which laid the foundation for our strategic layout of gold mines in Shandong.
December 2008 We acquired approximately 73.52% interest in Chifengchai Gold Mine, which was our first mine outside Shandong province and realized our strategic layout of gold mines in Inner Mongolia autonomous region.
March 2011 Our Xincheng Gold Mine, Sanshandao Gold Mine and Guilaizhuang Gold Mine were selected by the MLR as the first batch of “National Level Pilot Green Mines” (國家級綠色礦山試點單位) in the PRC.
March 2012 We acquired 70% interest in Xihe Zhongbao Gold Mine and realized our strategic layout of gold mines in Gansu province.
October 2012 We acquired 80% interest in Fujian Yuanxin Gold Mine and realized our strategic layout of gold mines in Fujian province.
October 2016 We acquired (i) exploration and mining permits of Linglong Gold Mine-Dongfeng mine area, (ii) exploration permit of Sanshandao Gold Mine-Xinli mine area, (iii) entire interest in Penglai Gold Mine, and (iv) 70.65% interest in Guilaizhuang Gold Mine, which further boosted our mining resources in Shandong.
December 2016 We were admitted as a constituent stock of SSE 50 Index of the Shanghai Stock Exchange.
June 2017 We acquired 50% interest in the Veladero Mine located in San Juan Province of Argentina, being our first overseas mine, and realized our strategic layout of gold mines in Argentina of South America.
September 2017 We were admitted as a constituent stock of the Hang Seng China A Industry Top Index.
November 2017 According to F&S Report, our Jiaojia Gold Mine and Linglong Gold Mine were among the few gold mines in China that have reached a cumulative gold mine production volume of 100 tonnes, (equivalent to approximately 3,215.1 koz).
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Promoting for Establishment
In July 1996, with approval from the People’s Government of Shandong Province (山東省人民 政府), the former Shandong Province Gold Industry Company (山東省黃金工業總公司) and the Linglong Gold Mine, Xincheng Gold Mine, Jiaojia Gold Mine, Sanshandao Gold Mine and Yinan Gold Mine of Shandong province were converted into a wholly state-owned enterprise and formed SDG Group Co. Our Company was established on January 31, 2000 with approval from Shandong Province Economic System Reform Commission (山東省經濟體制改革委員會) and the People’s Government of Shandong Province. Our largest shareholder, SDG Group Co., acted as the key promoter to establish our Company together with four other promoters, namely Shandong Zhaojin Group Co., Ltd. (山東招金集團有限公司), Shandong Laizhou Gold (Group) Co., Ltd. (山東萊州黃金(集團)有限公司), Jinan Yuquan Development Centre (濟南玉泉發展中心) (subsequently renamed as Jinan Yuquan Development Co., Ltd. (濟南玉泉發展有限公司)) and Rushan Gold Mine (乳山市金礦) (subsequently renamed as Shandong Jinzhou Mining Group Co., Ltd. (山東金洲礦業集團有限公司)). Most of our promoters were state-owned enterprises in Shandong province. At the time of our establishment, SDG Group Co., Shandong Zhaojin Group Co., Ltd., Shandong Laizhou Gold (Group) Co., Ltd., Jinan Yuquan Development Centre and Rushan Gold Mine held as to 97%, 1%, 1%, 0.6% and 0.4% of our shareholders’ equity, respectively.
Listing of A Shares
In August 2003, we completed the initial public offering of our A shares and listing on the Shanghai Stock Exchange (stock code: 600547). Immediately after the listing of A Shares, our shareholding structure was as follows:
Approximate shareholding percentage
SDG Group Co...... 60.625% Shandong Zhaojin Group Co., Ltd...... 0.625% Shandong Laizhou Gold (Group) Co., Ltd...... 0.625% Jinan Yuquan Development Centre ...... 0.375% Rushan Gold Mine ...... 0.250% Public shareholders ...... 37.500% Total ...... 100%
Since the listing of our A Shares on the Shanghai Stock Exchange and up to the Latest Practicable Date, we had not received any notification from the Shanghai Stock Exchange indicating that we were involved in any non-compliance issues. Our Directors considered that our operation was in compliance with the relevant listing rules of the Shanghai Stock Exchange in all material aspects since the listing date of our A Shares on the Shanghai Stock Exchange.
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Major Shareholding Changes
Equity Division Reform
In March 2006, after obtaining approval from the Shandong SASAC, the Company completed the equity division reform. The shareholders of non-tradable shares of the Company, namely, SDG Group Co., Shandong Zhaojin Group Co., Ltd., Shandong Laizhou Gold (Group) Co., Ltd., Jinan Yuquan Development Centre and Rushan Gold Mine advanced Shares to all the then shareholders of tradable shares on a basis of 2.5 Shares for every 10 existing Shares at nil consideration, in order to convert all non-tradable shares into restricted tradable shares. Upon completion of the equity division reform, all our Shares became tradable shares.
Private Placement in 2008
In January 2008, we completed the private placement of 17,884,051 Shares. Such private placement was divided into two parts, being asset subscription and cash subscription. In respect of the asset subscription, SDG Group Co. and SDG Group Pingdu Gold Co., Ltd. (山東黃金集團平度黃金有 限公司)(“Pingdu Gold”, a subsidiary of SDG Group Co. and subsequently renamed as Qingdao Gold) subscribed for an aggregate of 8,944,051 Shares at a total consideration of RMB992,163,693.20 settled by way of (i) a combination of assets in Linglong Gold Mine, Sanshandao Gold Mine and Yinan Gold Mine, and 2% equity interest in SDG Jincang Mining Co., Ltd. (山東黃金集團金倉礦業有限公 司) held by SDG Group Co., and (ii) assets of Xinhui Gold Mine held by Pingdu Gold. The value of the above assets was appraised by an independent asset valuation institution. In respect of the cash subscription, China Life Asset Management Company Limited (中國人壽資產管理有限公司)(“China Life Asset Management”), China International Fund Management Co, Ltd. (上投摩根基金管理有限 公司)(“CIFM”), China Southern Asset Management Co., Ltd. (南方基金管理有限公司)(“CSAM”), Beijing Kaiyuan Jiusheng Investment Co., Ltd. (北京開元久盛投資有限公司)(“Kaiyuan Jiusheng”) and Rongtong Fund Management Co. (融通基金管理公司)(“Rongtong Fund”) contributed a total of RMB991,714,200 in cash to subscribe for 8,940,000 Shares.
The final issue price for the private placement was RMB110.93 per Share, which was determined on the basis of the average closing price of A Shares of the Company for 20 trading days preceding the announcement date of the Board resolution and having duly considered the interests of the shareholders with tradable shares. In January 2008, the change of registration at the Shanghai branch of China Securities Depository and Clearing Corporation Limited (中國證券登記結算有限公司上海分 公司) was completed in respect of the above Shares. At the time of the private placement, except for SDG Group Co., our Controlling Shareholder and its wholly-owned subsidiary Pingdu Gold, all the other counterparties were Independent Third Parties.
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The table below sets out the shareholding structure immediately before and after the private placement in January 2008:
Approximate Approximate shareholding shareholding percentage percentage immediately immediately before private after private placement placement
SDG Group Co...... 51.53% 50.25% Pingdu Gold...... — 1.13% China Life Asset Management ...... — 1.12% CIFM...... — 1.12% CSAM ...... — 1.09% Kaiyuan Jiusheng...... — 0.84% Rongtong Fund ...... — 0.84% Other shareholders of tradable shares...... 48.47% 43.60% Total ...... 100% 100%
Capital Increases in 2008, 2009 and 2010
In July 2008, the registered capital of the Company was increased to RMB355,768,102 by way of capital reserve transfer to share capital on a basis of 10 existing Shares for 10 shares for all the then shareholders.
In June 2009, the registered capital of the Company was increased to RMB711,536,204 by way of capital reserve transfer to share capital on a basis of 10 existing Shares for 10 shares for all the then shareholders.
In December 2010, the registered capital of the Company was increased to RMB1,423,072,408 by way of capital reserve transfer to share capital on a basis of 10 existing Shares for 5 shares for all the then shareholders and stock dividends in respect of retained earnings on a basis of 10 existing Shares for 5 shares for all the then shareholders.
Private Placement in 2016
In October 2016, we acquired the exploration and mining permits of Linglong Gold Mine — Dongfeng mine area, 70.65% equity interest in Guilaizhuang Gold Mine, 100% equity interest in Penglai Gold Mine and the exploration permit of Sanshandao Gold Mine — Xinli mine area through private placement with concurrent financing.
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As consideration for the acquisition of the above assets, we issued an aggregate of 316,621,055 Shares to SDG Group Co., SDG Non-ferrous, SDG Exploration, Yantai Jinmao Mining Co., Ltd. (煙臺市金茂礦業有限公司)(“Jinmao Mining”) and an individual, Wang Zhiqiang (王志強), who was also the controlling shareholder of Jinmao Mining, at RMB14.13 per Share in an aggregate amount of RMB4,473,855,507.15. Of which, 116,836,100 Shares, 71,932,142 Shares, 99,424,515 Shares, 11,603,387 Shares and 16,824,911 Shares were issued to SDG Group Co., SDG Non-ferrous, SDG Exploration, Jinmao Mining and Wang Zhiqiang, respectively. The issue price was determined based on 90% of the average trading price of A Shares of the Company for 20 trading days preceding the pricing base date of this placement, and correspondingly adjusted pursuant to the 2014 and 2015 profit distribution plans.
For concurrent financing, we issued an aggregate of 117,425,346 Shares to Shandong Province State-owned Assets Investment Holding Co., Ltd. (山東省國有資產投資控股有限公司)(“Shandong Province State Holding”), Qianhai Kaiyuan Fund Management Co., Ltd. (前海開源基金管理有限公 司)(“Qianhai Kaiyuan”), SDG Capital Management, Jinmao Mining and the Employee Shareholding Scheme (as defined below) at RMB14.30 per Share for a total amount of RMB1,679,182,447.80. Of which, 25,349,650 Shares, 52,458,041 Shares, 20,979,020 Shares, 6,993,006 Shares and 11,645,629 Shares were issued to Shandong Province State Holding, Qianhai Kaiyuan, SDG Capital Management, Jinmao Mining and the Employee Shareholding Scheme, respectively. The issue price was determined based on 90% of the average trading price of A Shares of the Company for 20 trading days preceding the pricing base date of this placement, and correspondingly adjusted pursuant to the 2014 and 2015 profit distribution plans and the actual subscription amount of the Employee Shareholding Scheme.
With respect to the Employee Shareholding Scheme, we obtained approval from the shareholders’ general meeting of our Company to establish the Phase One Employee Shareholding Scheme of Shandong Gold Mining Co., Ltd. (山東黃金礦業股份有限公司第一期員工持股計劃) (the “Employee Shareholding Scheme”) in May 2015. The eligible participants of the Employee Shareholding Scheme included certain then management members of our Company, our subsidiaries and target companies in connection with the private placement in 2016. On September 19, 2016, our Company issued an aggregate of 11,645,629 Shares to 128 individuals at the price of RMB14.30 per Share under the Employee Shareholding Scheme for a subscription amount of RMB166,532,494.70. The relevant Shares were subject to a lock-up period of 36 months and are currently kept and managed by a professional asset manager. As of the Latest Practicable Date, these Shares accounted for approximately 0.63% of the total number of our Shares. There were no outstanding Shares to be subscribed under the Employee Shareholding Scheme as of the Latest Practicable Date. Certain Directors and senior management of the Company are currently interested in our Shares under the Employee Shareholding Scheme. For details of their shareholding, please see “Directors, Supervisors and Senior Management” in this Prospectus. The Employee Shareholding Scheme does not constitute a share option scheme pursuant to Chapter 17 of the Hong Kong Listing Rules.
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In October 2016, the change of registration at the Shanghai branch of China Securities Depository and Clearing Corporation Limited for the above Shares was completed. The table below sets out the shareholding structure immediately before and after the private placement in October 2016:
Approximate Approximate shareholding shareholding percentage percentage immediately immediately before private after private placement placement
SDG Group Co...... 50.25% 44.80% SDG Exploration ...... — 5.35% SDG Non-ferrous ...... — 3.87% Qianhai Kaiyuan ...... — 2.82% Shandong Province State Holding ...... — 1.37% SDG Capital Management ...... — 1.13% Jinmao Mining ...... — 1.00% Wang Zhiqiang...... — 0.91% Qingdao Gold ...... 1.13% 0.86% Employee Shareholding Scheme ...... — 0.63% Other shareholders ...... 48.62% 37.20% Total ...... 100% 100%
Among the counterparties to this private placement, SDG Group Co. was our Controlling Shareholder at the time of this private placement. SDG Non-ferrous, SDG Exploration and SDG Capital Management were direct or indirect wholly-owned subsidiaries of our Controlling Shareholder. Wang Zhiqiang also was one of the participants of the Employee Shareholding Scheme of our Company and the controlling shareholder of Jinmao Mining. Qianhai Kaiyuan, Shandong Province State Holding were our Independent Third Parties.
OUR MAJOR SUBSIDIARIES
As of the Latest Practicable Date, we directly owned equity interest in 15 subsidiaries in the PRC and Hong Kong, and we indirectly owned equity interest in three subsidiaries and one associated company. In addition, we jointly operated the Veladero Mine through our 50% indirect interest in MAG.
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In general, we own and manage numbers of gold mines through different subsidiaries. Information about our major subsidiaries and branch companies is set out below. For information on our shareholding structure, please see “— Our Shareholding and Corporate Structure” in this Prospectus.
Place of Date of Shareholding Other shareholders and Name incorporation establishment percentage Major business/assets percentage of their shareholdings
Shandong Gold Mining PRC May 27, 2003 100% Holder of Sanshandao N/A (Laizhou) Co., Ltd. Gold Mine and operating Jiaojia Gold Mine
Shandong Gold Group PRC August 1, 2003 100% Holder of Penglai Gold N/A Penglai Mining Co., Ltd. Mine
Shandong Gold Mining PRC October 11, 2006 100% Holder of Qingdao Gold N/A (Laixi) Co., Ltd. Mine-Shanhou mine area
Shandong Gold Mining PRC August 5, 2008 100% Holder of Yinan Gold N/A (Yinan) Co., Ltd. Mine
Shandong Gold Mining PRC August 7, 2008 100% Holder of Qingdao Gold N/A (Xinhui) Co., Ltd. Mine-Xinhui mine area
Shandong Jinshi Mining PRC July 20, 2009 100% Holder of Xincheng N/A Co., Ltd. Gold Mine – Qujia exploration permit
Shandong Gold Mining PRC February 23, 2010 100% Holder of Linglong Gold N/A (Linglong) Co., Ltd. Mine
Shandong Gold Smelting PRC July 19, 2016 100% Gold smelting N/A Co., Ltd.
Shandong Gold Mining PRC May 3, 2017 100% Research and N/A Science and Technology development of core Co., Ltd. mining technology
Fujian Zhenghe Yuanxin PRC September 7, 2004 90.31% Holder of Fujian Zhong Hangsheng 4.19% Mining Co., Ltd. Yuanxin Gold Mine (鍾杭生)
Lin Rongbin (林容彬) 3.00%
Huang Runming (黃潤明) 2.50%
Chifeng Chaihulanzi PRC September 29, 2003 73.52% Holder of Chifengchai Ma Chunming (馬春明) 22.48% Gold Mining Co. Ltd. Gold Mine Li Jinglu (李景祿) 3.99%
Shandong Gold PRC August 27, 1994 70.65% Holder of Guilaizhuang Pingyi County Finance 29.35% Guilaizhuang Mining Gold Mine Bureau (平邑縣財政局) Co., Ltd.
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Place of Date of Shareholding Other shareholders and Name incorporation establishment percentage Major business/assets percentage of their shareholdings
Xihe Zhongbao Mining PRC April 1, 2008 70% Holder of Xihe Tianshui Exploration 5% Co., Ltd. Zhongbao Gold Mine Institute of Gansu Province Non-ferrous Metal Geological Exploration Bureau (甘肅省有色金屬地質勘 查局天水勘查院)
Ye Youtang (葉友堂) 25%
Shandong Jinzhou PRC November 1, 1999 60.43% Holder of Jinzhou Gold Total of 10 individuals 15.87% Mining Group Co., Ltd. Mine and participating who were employees of in the utilization of our Company tailings Rushan Guoxin Asset 23.70% Operation and Management Co., Ltd. (乳山市國鑫資產經營管 理有限公司)
Shandong Gold Mining Hong Kong February 27, 2017 100% Holder of 50% interest N/A (HongKong) Co., Limited in Veladero Mine in Argentina
Shandong Gold Mining PRC October 8, 2000 Branch Holder of Xincheng N/A Co., Ltd. Xincheng Gold company of Gold Mine Mine our Company
MAJOR ACQUISITIONS
Since our incorporation in 2000, we have been striving to achieve integration of resources through acquisitions to expand our gold reserves.
Linglong Gold Mine, Sanshandao Gold Mine, Yinan Gold Mine and Qingdao Gold Mine — Xinhui Mine Area (玲瓏金礦、三山島金礦、沂南金礦及青島金礦 — 鑫匯礦區)
In February 2007, we entered into a share purchase by asset subscription agreement with SDG Group Co. and Pingdu Gold, and an aggregate of 8,944,051 Shares were issued. Pursuant to which, SDG Group Co. used the assets of Linglong Gold Mine, Sanshandao Gold Mine and Yinan Gold Mine and 2% equity interest in SDG Jincang Mining Co., Ltd. held by it to subscribe for 6,937,217 Shares at the consideration of RMB769,545,600. Pingdu Gold used the Xinhui Gold Mine held by it to subscribe for 2,006,834 Shares at the consideration of RMB222,618,200. The above acquisition price was determined based on the evaluation result of an asset valuation report prepared by an independent asset valuer as of June 30, 2006. In January 2008,the delivery of the above assets and the change of registration in respect of the above equity interests were completed. For details of this private placement, please see “— Major Shareholding Changes — Private Placement in 2008”.
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Chifengchai Gold Mine (赤峰柴金礦)
In December 2008, we entered into an agreement with the authorized representative of 274 individual shareholders of Chaihulanzi Gold for the acquisition of 73.52% equity interest in Chaihulanzi Gold held by the said individual shareholders at the consideration of RMB261,741,500. To the best of our knowledge, except for certain transferors being the then management members of Chaihulanzi Gold at the time of launch of the Employee Shareholding Scheme in 2016, the other remaining transferors of this transaction were our Independent Third Parties. The consideration for the transaction was determined through negotiations based on the evaluation result of the asset valuation report prepared by an independent asset valuer as of October 31, 2008 and the long-term reserves of the gold mine under the mining permit held by Chaihulanzi Mining. As of January 18, 2011, the consideration of such acquisition was fully settled.
Jinshi Mining (金石礦業)
In November 2010, we entered into an agreement with Huang Jiayuan (黃加園), who was the individual shareholder of Jinshi Mining and an Independent Third Party, for the acquisition of 75% equity interest in Jinshi Mining at the consideration of RMB1,245,000,000. In December 2011, we entered into another agreement with Huang Jiayuan for the acquisition of remaining 25% equity interest in Jinshi Mining at the consideration of RMB415,000,000. Jinshi Mining owned the exploration permit in relation to Xincheng Gold Mine — Qujia exploration area. The consideration for the transactions was determined through negotiations with reference to an asset valuation report as of October 31, 2010 and an exploration permit valuation report as of August 31, 2010 prepared by independent valuers. In October 2013, we entered into a supplementary agreement with Huang Jiayuan and pursuant to which we agreed to pay an additional sum of RMB3,354,624,000 as supplementary consideration to the acquisition of the equity interest in Jinshi Mining. The supplementary consideration was determined with reference to the gold reserve volume newly discovered by the exploration work completed and filed on May 3, 2013. As of January 23, 2014, the consideration of such transaction was fully settled.
Xihe Zhongbao Gold Mine (西和中寶金礦)
In March 2012, we entered into an agreement with Tian Guolong (田國龍) and Ye Youtang (葉友堂), the individual shareholders of Zhongbao Mining and our Independent Third Parties, for the acquisition of 70% equity interest in Zhongbao Mining held by them at the consideration of RMB723,507,000. The consideration for the transaction was determined with reference to the valuation of reserves within the mine areas under the three exploration permits held by Zhongbao Mining. As of November 29, 2014, we have paid RMB531,680,250 of the consideration. As two of the three exploration permits are currently in the process of boundary and capacity expansion and cannot be transferred, pursuant to relevant terms of the agreement, the remaining unpaid amount of RMB191,826,750 is expected to be settled after the conversion of the said exploration permits into mining permits.
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Fujian Yuanxin Gold Mine (福建源鑫金礦)
In October 2012, we entered into an agreement with five individual shareholders of Fujian Yuanxin, namely Fan Shunsheng (范順生), Lin Rongbin (林容彬), Zhong Hangsheng (鍾杭生), Huang Runming (黃潤明) and Wu Yunying (吳雲英), for the acquisition of 80% equity interest in Fujian Yuanxin held by them at the consideration of RMB490,400,000. The consideration for the transaction was determined based on the asset valuation report prepared by an independent asset valuer as of June 30, 2012. In January 2014, we entered into another agreement with Fan Shunsheng and Fuzhou Dongxin Mining Technology Co., Ltd. (福州東鑫礦業技術有限公司) for the acquisition of 10.31% equity interest in Fujian Yuanxin at the consideration of RMB62,800,000. The consideration for the transaction was determined through negotiations with reference to the asset valuation report prepared by an independent asset valuer as of October 31, 2013. As of May 30, 2014, the consideration for the abovementioned acquisitions was fully settled. Huang Runming was a director and Lin Rongbin was a supervisor of Fujian Yuanxin as of the Latest Practicable Date. Other counterparties of the aforesaid transactions were our Independent Third Parties.
Mawan Exploration Permit (麻灣探礦權)
In May 2014, our wholly-owned subsidiary, Xinhui Mining, entered into an agreement with Qingdao Gold for the acquisition of the exploration permit in Mawan, Shandong province owned by Qingdao Gold at the consideration of RMB236,972,700. Qingdao Gold, as the transferor of this agreement, was a wholly-owned subsidiary of our Controlling Shareholder. The consideration for the transaction was determined with reference to the asset valuation report prepared by an independent asset valuer as of December 31, 2013 and taking into account the actual exploration costs incurred. As of September 27, 2014, the consideration of such transaction was fully settled.
Sizhuang Exploration Permit (寺庄探礦權)
In August 2014, our wholly-owned subsidiary, Laizhou Mining, entered into an agreement with our Controlling Shareholder for the acquisition of the exploration permit in Sizhuang, Shandong province at the consideration of RMB599,279,600. The consideration for the transaction was determined with reference to the asset valuation report prepared by an independent asset valuer as of September 30, 2013 through competitive bidding. As of June 2, 2016, the consideration of such transaction was fully settled.
Penglai Gold Mine and Guilaizhuang Gold Mine (蓬萊金礦及歸來莊金礦)
In May 2015, we entered into agreements with SDG Group Co., SDG Non-ferrous, SDG Exploration, Jinmao Mining and Wang Zhiqiang, respectively, and pursuant to which the Company agreed to issue shares for the acquisition of (i) the exploration and mining permit of Linglong Gold Mine — Dongfeng mine area and related assets and liabilities held by SDG Group Co.; (ii) the 70.65% equity interest in Guilaizhuang Mining and 51% equity interest in Penglai Mining held by SDG Non-ferrous; (iii) the exploration permit of Sanshandao Gold Mine — Xinli mine area held by SDG Exploration; (iv) the 20% equity interest in Penglai Mining held by Jinmao Mining; and (v) the 29%
— 146 — HISTORY AND DEVELOPMENT equity interest in Penglai Mining held by Wang Zhiqiang. The total consideration for the transactions was RMB4,473,855,507, which was determined unanimously through multilateral negotiations with reference to the asset valuation estimated by an independent asset valuer as of June 30, 2014. Please see “— Major Shareholding Changes — Private Placement in 2016” for details of the transaction.
Qianchen-Shangyangjia Exploration Permit (前陳 — 上楊家探礦權)
In March 2017, Laizhou Mining entered into an agreement with the Sixth Geology Team of Shandong Geological Mine Exploration Development Bureau (Shandong No. 6 Geological Mine Exploration Institute) (山東省地質礦產勘查開發局第六地質大隊(山東省第六地質礦產勘查院)), which was an Independent Third Party, for the acquisition of exploration permit in the Qianchen-Shangyangjia mine area at the consideration of RMB892,000,000. The consideration for the transaction was determined through competitive negotiations based on the asset valuation report prepared by an independent asset valuer as of December 31, 2016. As of November 1, 2017, we have paid RMB847,400,000 and the remaining balance of RMB44,600,000 is expected to be settled upon completion of the conversion of the said exploration permit into mining permit.
Veladero Mine
On June 30, 2017, we acquired a 50% interest in the Veladero Mine from Barrick Gold, a leading global gold company, which was listed on the Toronto Stock Exchange (TSE: ABX) and the New York Stock Exchange (NYSE: ABX) in May 1983 and February 1987, respectively. Immediately before the said acquisition, Barrick Gold indirectly held 100% equity interests in MAG which operates the Veladero Mine in Argentina. The Veladero Mine is located in the high Andes Cordillera of central western Argentina. According to the F&S Report, the Veladero Mine was the largest gold mine in Argentina and in South America in terms of 2017 gold mine production volume with approximately 641.1 koz.
In April 2017, our Company and SDG Hong Kong entered into the Share Purchase Agreement with Barrick Gold and Barrick Cayman, pursuant to which, SDG Hong Kong would acquire a 50% equity interest in AGB II, the MAG Assigned Debt and a direct 2.1547% equity interest in MAG. The initial aggregate consideration for the transaction was US$960.0 million and was subsequently adjusted to US$989.8 million based on certain financial metrics pursuant to the Share Purchase Agreement. Such initial consideration (including the adjustment mechanism) was determined through negotiations based on the valuation report and investment analysis report prepared by independent investment banks with reference to the preliminary due diligence investigation result. These transactions were completed on June 30, 2017. Upon completion of these transactions, each of SDG Hong Kong and Barrick Cayman holds a 50% equity interest in AGB II. AGB II holds a 95.6906% equity interest in MAG. SDG Hong Kong holds a 2.1547% equity interest in MAG and two wholly-owned subsidiaries of Barrick Gold hold, in aggregate, a 2.1547% equity interest in MAG. Accordingly, Barrick Gold and we each indirectly hold a 50% interest in the Veladero Mine. As of November 28, 2017, the consideration of such acquisition was fully settled.
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According to the Shareholders’ Agreement, we and Barrick Gold jointly operate the Veladero Mine through MAG and its majority equityholder, AGB II. For the specific arrangement of business operations at the Veladero Mine, please see “Business — Our Operations in Argentina — Shareholders’ Arrangement” in this Prospectus.
As of the Latest Practicable Date, we have completed all approval procedures in China and Argentina.
Jinxing Gold Mine (金興金礦)
In September 2017, our wholly-owned subsidiary, Xinhui Mining, entered into an agreement with Qingdao Pingdu Jinxing Gold Mine (青島市平度金興金礦) and the Villagers’ Committee of Dazhuangzi Village, Xinhe Town (former Huibu Town), Pingdu (平度市新河鎮(原灰埠鎮)大莊子村民 委員會), both of which are Independent Third Parties, for, among other things, the acquisition of the exploration permits in Dazhuangzi — South Sector mine area (大莊子 —南段礦區) and Dazhuangzi — Houjia mine area (大莊子 — 侯家礦區) at an aggregate consideration of RMB174,179,500.56. The consideration for the transaction was determined with reference to the asset valuation report prepared by an independent asset valuer as of April 30, 2017. As of the Latest Practicable Date, we have paid RMB105,687,227.16. The remaining balance will be paid over a term of nine years and is expected to be fully settled before January 31, 2026.
Xincheng Exploration Permit (新城探礦權)
In November 2017, our Company entered into an agreement with our Controlling Shareholder for the acquisition of the exploration permit of “the outer rim and deep part of the gold mine at Xincheng mine area in Laizhou, Shandong (exploration)” (山東省萊州市新城礦區外圍及深部金礦勘探) at the consideration of RMB569,848,000. The consideration was determined by the asset valuation report prepared by an independent asset valuer as of August 31, 2016. As of November 27, 2017, we have paid RMB398,893,600 and the remaining balance of RMB170,954,400 will be settled after obtaining the approval from the Land and Resources Department of Shandong Province (山東省國土資源廳).
Our PRC Legal Advisers confirmed that, save for the recent acquisition under “Xincheng Exploration Permit”, (i) as of the Latest Practicable Date, we had obtained necessary approvals from the relevant PRC authorities required for the above major acquisitions, and (ii) we had completed the procedures for changes in industrial and commercial registrations in the PRC in respect of the above major acquisitions.
During the Track Record Period and up to the Latest Practicable Date, save as disclosed above, we did not conduct any other major acquisitions, disposals or mergers.
— 148 — HISTORY AND DEVELOPMENT
REASONS FOR EXCLUDING SOME BUSINESSES FROM OUR GROUP
As of the Latest Practicable Date, our Controlling Shareholder, SDG Group Co., held and controlled some companies which are engaged in gold mining related business and owned certain gold mine exploration and mining permits. For reasons of not including such companies in our Group, please see “Relationship with Our Controlling Shareholder” in this Prospectus.
OUR SHAREHOLDING AND CORPORATE STRUCTURE
Our Shareholders
As of the Latest Practicable Date, all of our Shares were traded on the Shanghai Stock Exchange. Our Controlling Shareholder, SDG Group Co., directly held approximately 44.80% of our total issued Shares. SDG Exploration, SDG Non-ferrous, SDG Capital Management, Qingdao Gold and SDG Beijing held approximately 5.35%, 3.87%, 1.13%, 0.86% and 0.09% of our total issued Shares respectively as of the same date. Each of SDG Exploration, SDG Non-ferrous, SDG Capital Management, Qingdao Gold and SDG Beijing is a direct or indirect wholly-owned subsidiary of SDG Group Co. Therefore, SDG Group Co. directly and indirectly hold in aggregate approximately 56.11% of our total issued Shares, as of the same date.
Reasons for Listing
In order to implement our strategic goal to become a global leading gold company, meet our capital needs, and further enhance our corporate governance, we are seeking to list on the Hong Kong Stock Exchange, please see “Business — Business Strategy” in the Prospectus for details. We have been focused on consolidation of quality gold mine resources through mergers and acquisitions. We plan to use the proceeds from the Global Offering to repay our loans used for the Veladero Acquisition and any remaining proceeds will be applied to working capital and other general corporate purposes. Please see “Future Plans and Use of Proceeds” in this Prospectus for details.
— 149 — Immediately Before Completion of the Global Offering
The chart below sets out the shareholding structure of our Company and our subsidiaries immediately before completion of the Global Offering.
SDG Group Co.9
100%
SDG Resources DEVELOPMENT AND HISTORY Development
100% 100% 100% 100% 100%
SDG Other A Share 8 SDG Capital Qingdao Gold SDG Exploration SDG Non-ferrous Management Beijing Shareholders
5 — 150 — 44.80% 0.86% 5.35% 3.87% 1.13% 0.09% 43.89%
Our Company 1
100% 100% 100% 100% 100% 100% 100% 100% 100% 90.31% 73.52% 70.65% 70% 60.43% 100% Guilaizhuang Mining Guilaizhuang SDG Hong Kong Chaihulanzi Gold Zhongbao Mining Linglong Mining Laizhou Mining Jinzhou Group Penglai Mining Penglai Xinhui Mining Yinan Mining Jinshi Mining Mining Co., Ltd.Mining Co., Fujian Yuanxin Fujian Laixi Mining Laixi SDG Smelting Shandong Gold Shandong Gold Xincheng Gold Gold Xincheng SDG S&T Mine 6 7 2 3 5 4
90% 100% 75% Shenzhen SDGPreciousMetal Qianling Mining Fuling Fuling Mining 11 10
branch company HISTORY AND DEVELOPMENT
1. Immediately before completion of the Global Offering, SDG Group Co. is our Controlling Shareholder, and directly and indirectly holds in aggregate approximately 56.11% equity interest in us. Jinzhou Group, a non-wholly-owned subsidiary of the Company, holds approximately 0.13% of our total issued Shares. 2. Fujian Yuanxin is a limited liability company established in the PRC on September 7, 2004, and was held as to approximately 90.31% by us as of the Latest Practicable Date. Its principal business is operating Fujian Yuanxin Gold Mine. As of the Latest Practicable Date, excluding us, three individuals, namely Zhong Hangsheng (鐘杭生), Lin Rongbin (林容彬) and Huang Runming (黃潤明), held approximately 4.19%, 3.00% and 2.50% equity interest of this company, respectively. Huang Runming was a director and Lin Rongbin was a supervisor of this company as of the same date. Zhong Hangsheng was an Independent Third Party. 3. Chaihulanzi Gold is a limited liability company established in the PRC on September 29, 2003, and was held as to approximately 73.52% by us as of the Latest Practicable Date. Its principal business is operating Chifengchai Gold Mine. As of the Latest Practicable Date, excluding us, two individuals, namely Ma Chunming (馬春明) and Li Jinglu (李景祿), held approximately 22.48% and 3.99% equity interest in this company, respectively. Ma Chunming was a director and Li Jinglu was a supervisor of this company as of the same date. Both Ma Chunming and Li Jinglu are participants of the Employee Shareholding Scheme of our Company. 4. Guilaizhuang Mining is a limited liability company established in the PRC on August 27, 1994, and was held as to approximately 70.65% by us as of the Latest Practicable Date. Its principal business is operating Guilaizhuang Gold Mine. As of the Latest Practicable Date, Pingyi County Finance Bureau held the remaining approximately 29.35% equity interest in this company. 5. Zhongbao Mining is a limited liability company established in the PRC on April 1, 2008, and was held as to 70% by us as of the Latest Practicable Date, Its principal business is operating Xihe Zhongbao Gold Mine. As of the Latest Practicable Date, excluding us, Tianshui Exploration Institute of Gansu Province Non-ferrous Metals Geological Exploration Bureau (an Independent Third Party) and an individual Ye Youtang (葉友堂) held 5% and 25% equity interest respectively in this company. Ye Youtang was also a director of this company as of the same date. 6. Jinzhou Group is a limited liability company established in the PRC on November 1, 1999, and was held as to 60.43% by us as of the Latest Practicable Date. Its principal business is operating Jinzhou Gold Mine and participating in the utilization of tailings. As of the Latest Practicable Date, excluding us, Rushan Guoxin Asset Operation and Management Co., Ltd. (乳山市國鑫資產經營管理有限公司) held 23.70% equity interest in Jinzhou Group, and 10 individuals who were employees of our Company also held in aggregate 15.87% equity interest in Jinzhou Group. 7. SDG Hong Kong is a company established in Hong Kong on February 27, 2017 with limited liability. SDG Hong Kong holds an indirect 50% interest in the Veladero Mine in Argentina through holding a 50% equity interest in AGB II, which holds a 95.6906% equity interest in MAG, and holding a direct 2.1547% equity interest in MAG. Two wholly-owned subsidiaries of Barrick Gold hold the remaining 2.1547% equity interest in MAG. All of the issued shares of SDG Hong Kong are pledged to China Merchants Bank Co., Ltd., New York Branch as collateral for the loan for acquisition of 50% interest in the Veladero Mine in Argentina. 8. We entered into the Profit Forecast Compensation Agreement and relevant supplementary agreements (together, the “Compensation Agreement”) with SDG Group Co. and SDG Non-ferrous when we acquired the relevant assets of Penglai Gold Mine and Guilaizhuang Gold Mine and raised ancillary capital funds in October 2016. Pursuant to the terms of the Compensation Agreement, SDG Group Co. and SDG Non-ferrous shall compensate the Company with their respective Shares held should the committed profit for the year was not achieved. As SDG Non-ferrous was affected by certain industrial safety accidents of third parties in the region and thus failed to achieve the net profit for the year committed in its undertakings in 2016, it was required to compensate 13,015,060 Shares to the Company. Pursuant to the Compensation Agreement, the Company shall repurchase and cancel such Shares at RMB1.00 upon expiry of the profit forecast period in 2019. As of the Latest Practicable Date, such Shares were being held by SDG Non-ferrous without voting power and SDG Non-ferrous shall return in full dividends from those Shares in cash to the Company until cancellation of the Shares upon approval by the Board and general meetings when the profit forecast period expires. 9. On January 23, 2017 and on September 25, 2017, SDG Group Co. pledged its 100,000,000 Shares and 160,000,000 Shares respectively to the Industrial and Commercial Bank of China, Shandong Branch (中國工商銀行山東省分行). Such pledged Shares respectively were used as the collateral for borrowing of SDG Group Co. for its own use, which accounted for approximately 14.00% of total number of our Shares. Industrial and Commercial Bank of China is an authorized institution under the meaning of the Banking Ordinance (Chapter 155 of the Laws of Hong Kong).
— 151 — HISTORY AND DEVELOPMENT
10. Shenzhen SDG Precious Metal is a limited liability company established in the PRC on August 10, 2015, and is held as to 75% by Laizhou Mining as of the Latest Practicable Date. As of the same date, Guizhou Southwest Gold Operation Center Co., Ltd. (貴州西南黃金經營中心有限公司) held the remaining 25% equity interest in this company. Guizhou Southwest Gold is held as to 92% by Chen Kaiyuan (陳開元), who was also a director of Guizhou Southwest Gold. 11. Qianling Mining is a limited liability company established in the PRC on August 9, 2001, which was held as to 90% by Jinzhou Group as of the Latest Practicable Date. As of the same date, Rushan Guoxin Asset Operation and Management Co., Ltd. (乳山市國鑫資產經營管理有限公司) held the remaining 10% equity interest in this company.
— 152 — Immediately After Completion of the Global Offering
The chart below sets out the shareholding structure of our Company and our subsidiaries immediately after completion of the Global Offering.
SDG Group Co.9
100%
SDG Resources DEVELOPMENT AND HISTORY Development
100% 100% 100% 100% 100% SDG H Share Qingdao Gold SDG Capital SDG Other A Share SDG Exploration Non-ferrous8 Management Beijing Shareholders Shareholders
38.08% 0.73% 4.55% 3.29% 0.96% 0.08% 37.31% 15% 5 — 153 —
Our Company 1
100% 100% 100% 100% 100% 100% 100% 100% 100% 90.31% 73.52% 70.65% 70% 60.43% 100% Guilaizhuang Mining Guilaizhuang Zhongbao Mining Zhongbao Chaihulanzi Gold Linglong Mining Linglong Fujian Yuanxin SDG Hong Kong Hong SDG Laizhou Mining Mining Laizhou Yinan Mining Yinan Penglai Mining Penglai Jinzhou Mining Mining Jinzhou Jinshi Mining Xinhui Mining SDG Smelting Laixi Mining Laixi Mining Co., Ltd. Mining Co., SDG S&T SDG Shandong Gold Shandong Gold Xincheng Gold Mine 2 5 6 3 7 4
90% 100% 75% Shenzhen SDGPreciousMetal Qianling Mining Qianling Fuling Mining Fuling 11 10
branch compan y HISTORY AND DEVELOPMENT
1. Immediately after completion of the Global Offering, SDG Group Co. will continue to be our Controlling Shareholder, and directly and indirectly holds in aggregate approximately 47.69% equity interest in us. Jinzhou Group, a non-wholly-owned subsidiary of the Company, will hold approximately 0.11% of our total issued Shares. 2. Fujian Yuanxin is a limited liability company established in the PRC on September 7, 2004, and was held as to approximately 90.31% by us as of the Latest Practicable Date. Its principal business is operating Fujian Yuanxin Gold Mine. As of the Latest Practicable Date, excluding us, three individuals, namely Zhong Hangsheng (鐘杭生), Lin Rongbin (林容彬) and Huang Runming (黃潤明), held approximately 4.19%, 3.00% and 2.50% equity interest of this company, respectively. Huang Runming was a director and Lin Rongbin was a supervisor of this company as of the same date. Zhong Hangsheng was an Independent Third Party. 3. Chaihulanzi Gold is a limited liability company established in the PRC on September 29, 2003, and was held as to approximately 73.52% by us as of the Latest Practicable Date. Its principal business is operating Chifengchai Gold Mine. As of the Latest Practicable Date, excluding us, two individuals, namely Ma Chunming (馬春明) and Li Jinglu (李景祿), held approximately 22.48% and 3.99% equity interest in this company, respectively. Ma Chunming was a director and Li Jinglu was a supervisor of this company as of the same date. Both Ma Chunming and Li Jinglu are participants of the Employee Shareholding Scheme of our Company. 4. Guilaizhuang Mining is a limited liability company established in the PRC on August 27, 1994, and was held as to approximately 70.65% by us as of the Latest Practicable Date. Its principal business is operating Guilaizhuang Gold Mine. As of the Latest Practicable Date, Pingyi County Finance Bureau held the remaining approximately 29.35% equity interest in this company. 5. Zhongbao Mining is a limited liability company established in the PRC on April 1, 2008, and was held as to 70% by us as of the Latest Practicable Date. Its principal business is operating Xihe Zhongbao Gold Mine. As of the Latest Practicable Date, excluding us, Tianshui Exploration Institute of Gansu Province Non-ferrous Metals Geological Exploration Bureau (an Independent Third Party) and an individual Ye Youtang (葉友堂) held 5% and 25% equity interest respectively in this company. Ye Youtang was also a director of this company as of the same date. 6. Jinzhou Group is a limited liability company established in the PRC on November 1, 1999, and was held as to 60.43% by us as of the Latest Practicable Date. Its principal business is operating Jinzhou Gold Mine and participating in the utilization of tailings. As of the Latest Practicable Date, excluding us, Rushan Guoxin Asset Operation and Management Co., Ltd. (乳山市國鑫資產經營管理有限公司) held 23.70% equity interest in Jinzhou Group, and 10 individuals who were employees of our Company also held in aggregate 15.87% equity interest in Jinzhou Group. 7. SDG Hong Kong is a company established in Hong Kong on February 27, 2017 with limited liability. SDG Hong Kong holds an indirect 50% interest in the Veladero Mine in Argentina through holding a 50% equity interest in AGB II, which holds a 95.6906% equity interest in MAG, and holding a direct 2.1547% equity interest in MAG. Two wholly-owned subsidiaries of Barrick Gold hold the remaining 2.1547% equity interest in MAG. All of the issued shares of SDG Hong Kong are pledged to China Merchants Bank Co., Ltd., New York Branch as collateral for the loan for acquisition of 50% interest in the Veladero Mine in Argentina. 8. We entered into the Profit Forecast Compensation Agreement and relevant supplementary agreements (together, the “Compensation Agreement”) with SDG Group Co. and SDG Non-ferrous when we acquired the relevant assets of Penglai Gold Mine and Guilaizhuang Gold Mine and raised ancillary capital funds in October 2016. Pursuant to the terms of the Compensation Agreement, SDG Group Co. and SDG Non-ferrous shall compensate the Company with their respective Shares held should the committed profit for the year was not achieved. As SDG Non-ferrous was affected by certain industrial safety accidents of third parties in the region and thus failed to achieve the net profit for the year committed in its undertakings in 2016, it was required to compensate 13,015,060 Shares to the Company. Pursuant to the Compensation Agreement, the Company shall repurchase and cancel such Shares at RMB1.00 upon expiry of the profit forecast period in 2019. As of the Latest Practicable Date, such Shares were being held by SDG Non-ferrous without voting power and SDG Non-ferrous shall return in full dividends from those Shares in cash to the Company until cancellation of the Shares upon approval by the Board and general meetings when the profit forecast period expires. 9. On January 23, 2017 and on September 25, 2017, SDG Group Co. pledged its 100,000,000 Shares and 160,000,000 Shares respectively to the Industrial and Commercial Bank of China, Shandong Branch (中國工商銀行山東省分行). Such pledged Shares were used as the collateral for borrowing of SDG Group Co. for its own use, which accounted for approximately 14.00% of total number of our Shares. Industrial and Commercial Bank of China is an authorized institution under the meaning of the Banking Ordinance (Chapter 155 of the Laws of Hong Kong).
— 154 — HISTORY AND DEVELOPMENT
10. Shenzhen SDG Precious Metal is a limited liability company established in the PRC on August 10, 2015, and was held as to 75% by Laizhou Mining as of the Latest Practicable Date. As of the same date, Guizhou Southwest Gold Operation Center Co., Ltd. (貴州西南黃金經營中心有限公司) held 25% equity interest in this company. Guizhou Southwest Gold is held as to 92% by Chen Kaiyuan (陳開元), who was also a director of Guizhou Southwest Gold. 11. Qianling Mining is a limited liability company established in the PRC on August 9, 2001, which was held as to 90% by Jinzhou Group as of the Latest Practicable Date. As of the same date, Rushan Guoxin Asset Operation and Management Co., Ltd. (乳山市國鑫資產經營管理有限公司) held the remaining 10% equity interest in this company.
— 155 —