Technical Review of China Hanking's Mine Projects in Fushun City and Benxi City, Liaoning Province, China
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APPENDIX V INDEPENDENT TECHNICAL REPORT Technical Review of China Hanking’s Mine Projects in Fushun City and Benxi City, Liaoning Province, China Report prepared for China Hanking Holdings Limited Report Prepared by – V-1 – APPENDIX V INDEPENDENT TECHNICAL REPORT Technical Review of China Hanking’s Mine Projects in Fushun City and Benxi City, Liaoning Province, China for China Hanking Holdings Limited No. 227, Qingnian Street Shenhe District Shenyang 110015, Liaoning Province The PRC SRK Project Number SCN252 SRK Consulting China Ltd. B1205, COFCO Plaza, 8 Jianguomennei Dajie Dongcheng District, Beijing 100005 Contact: Dr. Yiefei Jia Telephone No.: +86 10 6511 1053 Email: [email protected] URL: www.srk.cn 20 September 2011 Compiled by: Endorsed by: Dr. Yiefei Jia, MAusIMM Mike Warren, FAusIMM Principal Consultant Principal Consultant (Geology) (Project Evaluations) Authors: Jinhui Liu, Pengfei Xiao, Zhongxin Guo, Haixiang Zhang, Hong Gao, Peter Smith, Dr. Yiefei Jia Peer reviewers: Dr. Anson Xu (internal), Mike Warren (external) – V-2 – APPENDIX V INDEPENDENT TECHNICAL REPORT EXECUTIVE SUMMARY China Hanking Holdings Limited (together with its subsidiaries, ‘‘China Hanking’’, ‘‘the Company’’ or ‘‘the Client’’) commissioned SRK Consulting China Ltd. (‘‘SRK’’) to undertake an independent expert review of all relevant technical aspects of the Company’s three iron operating mines and associated five ore processing plants in Fushun City and one operating iron mine with one ore processing facility in Benxi City, Liaoning Province, People’s Republic of China (PRC). The SRK Independent Technical Report (‘‘ITR’’) was required for inclusion in documents for its proposed listing (‘‘Proposed Listing’’) on the Main Board of the Stock Exchange of Hong Kong Limited (‘‘HKEx’’). OUTLINE OF WORK PROGRAM The work program involved two phases: . Phase 1: to review information provided, conduct a site visit to inspect China Hanking’s properties, hold discussions with the company employees, geological brigade professionals and consultants who conducted the geological exploration and feasibility study, and conduct a limited verification program of survey engineering, sampling and resource estimation of these properties. Phase 2: to analyse the data provided by the Company and generated by SRK, to compile a draft report, and finalise the report in consideration of the Client’s feedback. RESULTS Overall The Company is a major private mining enterprise in Liaoning Province, PRC. Liaoning Province is one of the major iron concentrate production bases in mainland China. In 2010, the statistical data show that the Company possesses the largest resources and reserves in the region, and in 2010 produced approximately 1,315,000 tonnes (‘‘t’’) of iron concentrate at a grade of greater than 65% total iron (‘‘TFe’’). Currently, the Company has three operating iron mines covering four mining licences, and five ore processing plants located in Fushun; and one operating iron mine situated in Benxi City, Liaoning – V-3 – APPENDIX V INDEPENDENT TECHNICAL REPORT Province, PRC. Details of these operating iron mines with design capacities and actual productions in 2010 are described below: Design Capacity 2010 Actual Mines and Concentrators (tpa) Production (t) Status Aoniu Mine (held by Aoniu Mining) Aoniu operating mine (raw ore) 1,200,000 1,856,739 Production No. 1 concentrator (iron concentrate) 300,000 318,721 Production No. 2 concentrator (iron concentrate) 300,000 323,673 Production Bangze concentrator (iron concentrate) 60,000 Stopped Mengjia Mine* (held by Benxi Mining) Mengjia operating mine (raw ore) 800,000 1,321,284 Production Mengjia concentrator (iron concentrate)** 300,000 256,780 Production Xingzhou Mine*** (held by Xingzhou Mining) Xingzhou operating mine (raw ore) 5,000,000 352,739 Production Xingzhou concentrator (iron concentrate) 1,170,000 78,145 Production Jingmao Iron Mine (held by Maogong Mining) Maogong operating mine (raw ore) 300,000 963,441 Production Jingjia operating mine (raw ore) 50,000 0 Production Maogong concentrator (iron concentrate) 150,000 148,607 Production Jingjia concentrator (iron concentrate) 150,000 189,073 Production Note: * Also referred to as Benxi iron mine in this report. ** The Company operated the Mengjia concentrator near the Mengjia Mine until September 2010. The Company sold this concentrator to Benxi Hanking Iron Processing Co., Ltd. in September 2010 and has since engaged it to process ore mined at Mengjia Mine. *** Also referred to as Luobokan Mine in this report. The mines and concentrators operated by the Company in Liaoning Province are well integrated and well managed operations. The operating standards at all sites are generally comparable to good national and/or international industry practice. On 30 June 2011, the JORC Code comparable Indicated and Inferred Mineral Resources were 60.51 million tonnes (‘‘Mt’’) with average TFe and mFe grades of 30.75% and 25.26%, and 46.31 Mt at average TFe and mFe grades of 31.39% and 23.96%, respectively. In addition, the low-grade Indicated Resource is 63.72 Mt at average TFe and mFe grades of 22.76% and 17.48%, respectively. By – V-4 – APPENDIX V INDEPENDENT TECHNICAL REPORT considering the mining loss and mining dilution factors, the qualified mineral resources can be converted into JORC Code comparable Probable Ore Reserves as: 68.94 Mt with average TFe and mFe grades of 26.16% and 21.06%, respectively. The low-grade Probable Ore Reserve is 70.83 Mt at average TFe and mFe grades of 19.45% and 14.94%. The mines are either open pits or underground operations accessed by shafts and adits. The mining methods are relatively simple. Generally, for the open pit mining, the mining recovery rates are 95% and the mining dilutions are 18 to 28%. For underground mining, the short-hole shrinkage and sublevel caving mining methods have been adopted with mining recoveries of 75 to 88% and mining dilutions of 17 to 25%. A conventional ore processing flow sheet includes dry and wet magnetic concentrating processes to produce high-quality iron concentrates. In 2010, the ore processing plants achieve average grades of iron concentrates between 65.05% and 66.72% with iron recovery rates ranging from 71.63% to 94.02%. The strengths of the Company include high self-sufficiency from established vertical integration based on mining and developing mineral deposits, to on-site processing allowing economical operations with production of good quality concentrates. The Company’s mines, concentrators and support facilities have achieved reasonably acceptable accident statistics. SRK considers that the Company is committed to safety training and providing safety equipment and monitoring. Statistics compare well with other mining companies in China. Workforce numbers at the Company were 1,393 on 30 June 2011. This figure includes the following employees: 140 in company headquarters administration, 180 in the mine management department, 315 in the mining departments, 577 in the ore processing plants and tailings dams, 94 in the workshops for maintenance, and 87 employees in the safety departments. Annual staff turnover is estimated at 5% of the workforce. Based on past experiences, there have been no problems with sourcing skilled workers. SRK considers that the workforce number can completely meet the Company’s production capacities. A number of the Company’s technical management personnel have worked at the mine for more than three years. They have a thorough knowledge of the geology and mining conditions in the mine, and can employ suitable techniques and experience from a range of plants. As part of their development program, the Company has committed to a greening program at the mines and plants with improvements in dust control, waste water and sewage treatment. Once implemented, these practices will demonstrate the Company’s responsible approach towards environmental protection. Geology Regionally the project is located in the middle of a geological dome in the Tieling-Jingyu-Fushun, Northeastern China. Outcrops in this district are represented by metamorphic rocks of Archaean age. The lithology of upper Archaean outcrops is characterized by acid volcanic rocks and mafic volcanic- sedimentary rocks containing with magnetite-quartzite. The magnetite-quartzite forms the iron deposit – V-5 – APPENDIX V INDEPENDENT TECHNICAL REPORT known as Anshan-type banded iron formation (‘‘BIF’’) deposits. Aoniu, Jingjia, Maogong, Xingzhou and Mengjia Mines are all of this-type iron deposits. The magmatic rock is mainly gneissic granite with wide distribution in this area. Aoniu Mine: There are three mining blocks in the mine area namely Aoniu, Lishu and Yaobao mining blocks. For the Aoniu mining block, there are five separate mining zones. A total of 59 iron ore (mineralised) bodies are defined in the mining license area, of which there are five larger ore bodies defined in Aoniu mining block, i.e. ore bodies of Fe1, Fe2, Fe13, Fe14 and Fe15. There are two ore bodies delineated in each block of Lishu and Yaobao blocks. Generally the mineralized bodies appear layered and/or lenticular-like at various size scales. Geometrical characters of the main ore bodies at Aoniu mine are shown as in the table below: Length Thickness Down-depth TFe Mining Block Orebody (m) (m) (m) (%) Aoniu Fe1 1,020 12.0 117 33.35 Fe2 1,320 15.9 150 35.95 F13 220 13.0 100 35.83 Fe14 430 17.0 100 34.06 Fe15 350 16.6 220 33.61 Lishu Fe3 148 3.5 30 26.45 Fe4 127 5.0 30 34.55 Yaobao Fe1 280 2.3 20 31.88 Fe2 220 4.0 15 29.86 Jingjia Mine: Three ore bodies of Fe1, Fe 2 and Fe3 are defined at the Jingjia deposit; they also show as layered or lenticular shapes. The characters of these ore bodies are described in the following: Orebody Fe1 is located between the exploration lines 5# and 7# in the north part of the mine area, with dipping to W or NW angles of 49° to 56°.