Relationship with Controlling Shareholders

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT RELATIONSHIP WITH CONTROLLING SHAREHOLDERS OVERVIEW Immediately following the completion of the Reorganization but prior to the [REDACTED] and the [REDACTED], Spring Snow Limited, held 90.0% of the issued share capital of our Company. As at the Latest Practicable Date, Spring Snow Limited was held as to 48.3% by Lucky Street Limited (which was wholly owned by Mr. Yu Bangping), as to 12.9% by Black Pearl Limited (which was wholly owned by Mr. Sun), as to 28.7% by Sunrise Morning Limited (which was wholly owned by Ms. Qu), as to 7.2% by Beautiful Day Limited (which was wholly owned by Mr. Yu Bangcheng), and as to the remaining 2.9% by Seasons In The Sun Limited (which was wholly owned by Mr. Wang). Upon completion of the [REDACTED] and the [REDACTED] (assuming the [REDACTED] is not exercised and without taking into account any Shares which may fall to be issued upon the exercise of share options granted under the [REDACTED]), Spring Snow Limited, will hold [REDACTED]% of the issued share capital of our Company. As such, Spring Snow Limited, Mr. Yu Bangping, Lucky Street Limited, Mr. Sun, Black Pearl Limited, Ms. Qu, Sunrise Morning Limited, Mr. Yu Bangcheng, Beautiful Day Limited, Mr. Wang and Seasons In The Sun Limited will together be entitled to directly or indirectly exercise or control the exercise of 30% or more of the voting rights at the general meeting of our Company immediately upon completion of the [REDACTED] and the [REDACTED], assuming the [REDACTED] is not exercised and without taking into account any Shares which may fall to be issued upon the exercise of Share Options granted under the [REDACTED]. Accordingly, these parties are considered as a group of Controlling Shareholders immediately following completion of the [REDACTED] and the [REDACTED]. Among our abovementioned group of Controlling Shareholders, Mr. Yu Bangping, Mr. Sun and Mr. Wang are our executive Directors. For more details on Mr. Yu Bangping’s, Mr. Sun’s and Mr. Wang’s biographies, please refer to the section headed “Directors and Senior Management — Executive Directors” in this document. As at the Latest Practicable Date, our group of Controlling Shareholders do not hold shares in any listed companies to the extent subject to reporting or disclosure requirements in that jurisdiction. As for the purpose of presentation of the historical financial information of our Group in the Accountants’ Report set out in Appendix I to this document, Mr. Yu Bangping is considered as the only controlling shareholder after taking into consideration his contractual arrangement with Ms. Qu, pursuant to which Ms. Qu follows the decisions of Mr. Yu Bangping in all shareholders’ meetings. Under such contractual arrangement, Mr. Yu Bangping is able to control our Group’s entities throughout the Track Record Period under the principles of merger accounting under Accounting Guideline 5 “Merger Accounting for Common Control Combination” issued by the Hong Kong Institute of Certified Public Accountants. Please refer to Notes 2 and 41 in the Accountants’ Report set out in Appendix I to this document for further details. – 177 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT RELATIONSHIP WITH CONTROLLING SHAREHOLDERS INTEREST OF CONTROLLING SHAREHOLDERS IN GUIZHOU BANGDA Guizhou Bangda is principally engaged in mining business comprising exploration and mining of No.25 coking coal and related coal trading business in Guizhou Province, the PRC. No.25 coking coal is a metallurgical coal suitable for use in coke production. Guizhou Bangda is a company established in the PRC on 15 November 2006 and the equity interest of which is held as to 80% by Mr. Yu Bangping, 10% by Mr. Yu Bangcheng and 10% by Mr. Wang respectively. Each of Mr. Yu Bangping and Mr. Wang is an executive Director of our Company. Historically and prior to the 2016 Restructuring taking place, the mining rights of the two operating coal mines of our Group, namely the Hongguo Mine and the Baogushan Mine, and certain related assets were held by Guizhou Bangda and Old Songshan, a sole proprietorship enterprise owned by Mr. Yu Bangping. The Hongguo Mine and the Baogushan Mine became our operating coal mines as a result of the 2016 Restructuring. For further details of the 2016 Restructuring and of the acquisition by our Group of the Hongguo Mine and the Baogushan Mine and the transfer of certain related assets to our Group from Guizhou Bangda and Old Songshan, please refer to the paragraphs headed “The 2016 Restructuring” and “Acquisition During the Track Record Period” in the section headed “History, Reorganization and Group Structure” in this document. As at the Latest Practicable Date, Guizhou Bangda owned the mining rights of and operated three coal mines in Guizhou Province, namely, Dongli mine (貴州邦達能源開發有限公司盤縣板橋鎮東李煤礦), Changxing mine (貴州邦達能源開發有限公司盤縣淤泥鄉昌興煤礦) and Laowadi mine (貴州邦達能源開發有限公司盤縣石橋老窪地煤礦), together the “Excluded Mines”, and the business carried on by Guizhou Bangda and the Excluded Mines is referred to in this document as the “Excluded Business”. The Excluded Mines were acquired by Guizhou Bangda in 2013 and 2014 from third parties respectively pursuant to governmental coal mines reorganization scheme initiated and led by the Guizhou Provincial Coal Mining Enterprise Merger and Reorganization Work Leading Group Office and the Energy Bureau of Guizhou Province (貴州省煤礦企業兼併重組工作領導小組辦公室及貴州省能源局). The principal coal product of the Excluded Mines is No.25 coking coal, which is different in types, quality and principal characteristics from 1/3 coking coal produced by our Group and is discussed further below in this section. As the Latest Practicable Date, we do not have any equity interest in Guizhou Bangda and Guizhou Bangda does not have any equity or shareholding interest in any member of our Group. In respect of the [REDACTED], Guizhou Bangda will not form part of our Group and accordingly the Excluded Business will not form part of the business of our Group, having considered the principal coal product of our Group and the Excluded Business are distinct from each other as further elaborated in this section. Furthermore, we also consider certain uncertainties and risks associated with the current expansion project of each of the Excluded Mines. From the perspective of regulatory requirements, the construction of the expansion project of the Excluded Mines requires the approvals from the Energy Bureau of Guizhou Province (貴州省能源局), the Guizhou Land and Resource Department (貴州省國土資源廳), the Guizhou Water Resource Department (貴州省水利廳), – 178 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT RELATIONSHIP WITH CONTROLLING SHAREHOLDERS the Guizhou Administration of Coal Mine Safety (貴州煤礦安全監察局) and the Guizhou Environmental Protection Department (貴州省環保廳). As at the Latest Practicable Date, the Excluded Mines were yet to obtain any of the aforementioned regulatory approvals. Accordingly, there is no certainty or guarantee that the construction of the expansion project of the Excluded Mines will be successful and before such regulatory approvals are obtained, there would remain the risk that the application for such regulatory approvals may be rejected or suspended by the relevant competent authorities. There also exists the risk in relation as to when such regulatory approvals would be issued for the Excluded Mines. In light of these uncertainties and risks associated with the expansion project of the Excluded Mines which are beyond the control of our Group, none of Mr. Sun Dawei, Ms. Qu Liumei and Mr. Leung Ka Hung, who are among ultimate beneficial owners of our Group but currently do not have any equity interest in Guizhou Bangda intends to acquire any interest in the Excluded Mines. Upon the same reason, our Directors are also of the view that it would not be in the best interest of our Group and our Shareholders as a whole to include the Excluded Mines in our Group at this stage. Our Group is principally engaged in the mining, production and sale of 1/3 coking coal (also known as “clean coal”), whereas Guizhou Bangda is principally engaged in the mining, production and sale of No. 25 coking coal. As further elaborated below, the principal coal product of our Group and the Excluded Business are distinct from each other, and coupled with the protective measures to be put in place upon [REDACTED] including but not limited to the non-competition undertakings from the Controlling Shareholders and Guizhou Bangda the details of which is disclosed in this section below, we are of the view that there is no actual or potential competition between the respective principal businesses of our Group and Guizhou Bangda’s Excluded Business. To demonstrate that there is no actual or potential competition between our business and the Excluded Business and that our respective businesses are clearly delineated, we set forth below a detailed discussion of the differences in the business of our Group and Guizhou Bangda and our respective independent operation including but not limited to: • distinct principal coal products; • separate mining rights and production facilities; • segregation of operation and management teams; • unique market condition resulting in common customers for coking coal; and • existence of multiple coal mines producing 1/3 coking coal and No.25 coking coal. (a) Coal product of our Group (1/3 coking coal) and the Excluded Business (No.25 coking coal) The clean coal produced from our Hongguo Mine and Baogushan Mine is classified as 1/3 coking coal based on the Chinese Classification of Coal.

Load more